Published on: February 1, 2021
RESURRECTING DISPARATE IMPACT
One of the defining goals of former President Donald Trump’s administration was to reverse many of his predecessor’s (Barack Obama) policies. In the early days of his new administration, President Joe Biden is returning the favor, erasing dozens (so far) of Trump’s initiatives. Biden’s initial targets have included a HUD rule that made it more difficult to advance claims of housing discrimination under the Fair Housing Act.
The Obama-era’s “disparate impact” standard, policies that had a discriminatory impact could support FHA claims, even if there was not intent to discriminate. The HUD revisions established a five-step process that essentially required plaintiffs to prove discriminatory intent and made it easier for defendants to rebut those claims. A few weeks ago a federal judge temporarily barred HUD from implementing the revised rule. Now President Biden, via an executive order, has directed HUD to review it.
Acting HUD Secretary Matthew Ammon said Biden’s order represents says Biden’s order represents an important step toward “redressing the federal government’s legacy of housing discrimination and securing equal access to housing opportunity for all. Only by recognizing and acknowledging our nation’s history of housing discrimination can we begin to lift the barriers to safe, accessible, and affordable housing,” he added in a press statement. “With this executive order, President Biden is taking meaningful action to advance racial equity in housing and expand opportunity for all.
Ammon is serving in an acting capacity pending Congressional approval of Rep. Marcia Fudge (D-Ohio), as HUD Secretary. If confirmed, Fudge, a long-time advocate for civil rights and fair labor standards, would be the first black woman to head the agency.
The continuing pandemic sent the nation’s economy into reverse last year, but it has done nothing to slow the housing market. Record-low mortgage rates propelled existing home sales to their highest level since 2006, while scant inventories pushed home prices for the year up by 9.5 percent for the year ending in November, the highest annual growth rate since February of 2014. Both performance markers exceeded analysts’ predictions.
The existing home market performed “at [its] highest level since 2006, despite the pandemic,” Lawrence Yun, NAR’s chief economist, said in a press statement. “What’s even better,” he noted, “this momentum is likely to carry into the new year, with more buyers expected to enter the market.”
Those buyers will be competing for a limited supply of listings. The NAR reported that inventories in December were more than 23 percent below the year-ago level, creating a skimpy 1.9 -month’s supply at the current sales pace ─ an all-time low, according to the NAR.
Holding out hope for some measure of relief, single-family construction starts reached an annualized rate of 1.4 million units in December, almost 28 percent above the 2019 pace and the strongest performance in 15 years. Single family permits ended the year more than 20 percent above the year-ago total.
Those year-end statistics represented the “biggest bang since 2006” for home construction, Yun said, possibly indicating an end to what has been a chronic housing shortage. But he also cautioned against a premature conclusion that the housing market’s problems may be ending. “For 13 straight years prior, homebuilders have been underproducing below historic norms,” he noted. “It [is going to require] robust home construction this year and next, at a minimum, to fully supply the market to properly meet the demand.”
CONDO REGS PINCH
New lending rules adopted by Fannie Mae and Freddie Mac may make it more difficult to obtain financing for condominiums located in resort areas. Under the new rules, units in buildings with “resort-like” amenities, in which “a large percentage” of units are rented for short periods, may not qualify for secondary market financing. Fannie’s new rules became effective in December; Freddie Mac’s take effect in February.
Fannie Mae officials emphasize that the agency hasn’t really changed the rules; only clarified the goal of promoting home ownership. They also emphasize that they aren’t targeting units owned by individuals who rent them, but ‘condotel’ type properties, that function more like resorts than residential communities.
“We have specifically told lenders that seeing individual units advertised by their owners on home-sharing platforms does not, by itself, mean the project is a condotel,” a Fannie spokesman told the Wall Street Journal. It is when the entire development “functions more like a vacation rental resort,” he added, that the community may be ineligible for secondary market financing.
“We have specifically told lenders that seeing individual units advertised by their owners on home-sharing platforms does not, by itself, mean the project is a condotel,” a Fannie spokesman said.
That may be the intent, but critics say the effect has been to reduce the number of lenders willing to finance second homes in condominium communities, limiting the availability and increasing the cost of mortgage financing for those units.
“Until there is more clarity from the agencies, all mortgage bankers are shutting off the valve on condo loans right now,” one bank executive told the WSJ.
Critics also complain that the eligibility standards are overly restrictive, not subject to challenge by homeowner associations, and could have the effect of denying funding for many units that are not offered for vacation rental in communities with a large number that are.
Ken Fears, a spokesman for the National Association of Realtors, made that point telling the Journal: “We’re concerned that access to credit could be limited for whole projects or condo buildings, which could affect not just second-home buyers but some primary home-buyers across the country.”
INSURANCE COVERAGE OK IN THE UK
U.S. businesses haven’t had much luck pressing claims that the “business interruption” provisions in their insurance policies cover losses from the pandemic, but companies in the United Kingdom just won a major victory in that battle. Rejecting arguments to the contrary by insurers, the UK Supreme Court ruled that these provisions do cover pandemic claims, if the losses result from the inability to access property resulting from “public authority restrictions” imposed because of a “notifiable disease.”
Britain’s Financial Conduct Authority (FCA), which regulates the insurance industry, filed the suit on behalf of policyholders seeking compensation for losses resulting from a nationwide mandatory lockdown. In the U.S., insurers have cited policy language requiring property damage to defeat most pandemic-related claims.
Richard Leedham, an attorney representing a group of policy holders, said the UK judgment “should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid.” Industry analysts say the decision will affect an estimated 370,000 policyholders, 60 insurance companies and “billions of pounds in claims.”
RISING (DISASTER) TIDE
Disaster costs are rising in tandem with, and as a result of, the risks posed by climate change. A record number of intense storms combined with the largest and most severe wildfires ever experienced in California, caused $9 billion in damage last year, almost double the bill for 2020 and the third highest posted in the past decade.
Named storms accounted for $43 billion in losses (about half the total); un-named “convective” storms (tornadoes, thunderstorms, tornadoes, and hailstorms) added $40 billion, with wildfires responsible for $6 billion, according to a report by Munich Re, a reinsurance company that provides insurance to other insurers.
Climate change is the underlying cause of most of these disasters, and combating it must be a priority, Donald Griffin, a vice president at the American Property Casualty Insurance Association, an industry trade association, told the New York Times. But which represents insurance companies. But coping with its effects, by making buildings sturdier and restricting construction in flood-prone areas, is equally important, he emphasized.
“We can’t, as an industry, continue to just collect more and more money, and rebuild and rebuild and rebuild in the same way,” he told the Times. “We’ve got to place an emphasis on preventing and reducing loss.”
IN CASE YOU MISSED THIS
Citing concerns about a resurgence in COVID-19 cases and indications that the economy is losing ground, the Fed has decided to keep its easy money policies in place for now. “The economy is a long way from our monetary policy and inflation goals, and it’s likely to take some time for substantial further progress to be achieved,” Fed Chairman Jerome Powell said following the January meeting of the Federal Open Market Committee.
Massachusetts Governor Charlie Baker is reviewing legislation that would attack climate change on several fronts. Key provisions would set a 2050 target for reaching a net-zero greenhouse gas limit, increase requirements for purchasing offshore wind energy, and ensure that minorities are included in “green” job development programs.
The Federal Aviation Administration has adopted rules governing fully-automated commercial drone flights, opening the door to widespread commercial use of this technology. “It will still be years before swarms of drones operated by companies such as Amazon and UPS buzz over neighborhoods dropping off packages,” an Insurance Journal article noted. “But the new rules provide an important platform for the industry to move toward those goals.”
President Joe Biden has issued an executive order extending the CDC’s moratorium on evictions and foreclosures until at least March 31. In a related action, the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, has approved the fifth extension of moratoria on single-family foreclosures by the two secondary market giants.
While housing markets continue to sizzle nationwide, commercial real estate markets appear to be weakening, with vacancy rates rising and asking rents declining.
Federal and state fair housing laws limit how much medical information housing providers, including condo boards, can require from residents seeking reasonable accommodations for emotional and physical disabilities. But precisely what questions are allowed is something of a legal gray area. This decision from an Indiana Appeals Court (Furbee v. Wilson) provides reassurance to boards and landlords that are wary of asking many questions, or any at all.
A tenant (Linder) in a no-pet apartment building owned by Furbee Properties, asked for permission to acquire an emotional support animal (a cat). Linder submitted a letter from her therapist stating that Linder had a disability and the cat she requested would alleviate her symptoms. Furbee responded with a request for additional information, including: The nature of the disability, how many sessions the therapist had conducted with her, how long the sessions lasted and whether the therapist had performed a physical examination. Linder didn’t respond to that request and declined to sign a form allowing the landlord to contact her therapist directly.
Furbee took no action on the accommodation request. When Linder acquired a cat, Furbee evicted her. Linder filed a complaint with the Indiana Civil Rights Commission, which filed suit on Linder’s behalf, arguing that the information Furbee demanded was unnecessary and went beyond what the law required .
Siding with Linder, the trial court refused to grant summary judgment to Furbee, who appealed that decision. Furbee argued that the information requested was reasonable and necessary to evaluate the accommodation request. The Appeals Court agreed.
The court based its analysis on the federal Fair Housing Act (FHA), on which the Indiana law was modeled, and on guidance and policy statements the Department of Housing and Urban Development and the Department of Justice have issued under the FHA.
To review an accommodation request, the court noted, federal courts have determined that a housing provider “needs only the information necessary to apprise them of the disability and the desire and possible need for an accommodation.” In most cases, joint guidance from HUD and the DOJ notes “an individual’s medical records or detailed information about the nature of a person’s disability is not necessary for this inquiry.”
But that guidance also points out that when dealing with accommodation requests for emotional disabilities, which are not visible, housing providers may request information about “both the disability and the disability-related need” for the requested accommodation.
An Essential Dialogue
In its analysis, the appeals court also noted that the FHA anticipates that an accommodation request will trigger a dialogue between the housing provider and the resident, in which both parties are expected to operate in good faith. When a decision is delayed or when no decision is rendered, as was the situation in this case, the court noted, courts must determine whether there has been a breakdown in the required give-and-take, and if so, which party is responsible for it.
The information the tenant provided in this case, the court noted, didn’t identify her disability, didn’t specify the limitations it created and didn’t explain how the requested accommodation would help her cope with her disability. Given those unanswered questions, the court said, Furbee “was justified in trying to open a dialogue with the Tenant and in requesting more information from her.”
To support her claim that the information requested was unreasonable, the tenant had cited a 2014 decision by the Eleventh Circuit (Bhogaita v. Altamonte Heights Condominium Association). In that case, a condo owner requesting a dog that exceeded the association’s weight limits had submitted three letters from a psychiatrist, attesting that the psychiatrist was treating the owner for anxiety, that the condition limited the owner’s ability to perform a major life activity (dealing with others) and that the dog alleviated those symptoms.
When Bhogaita refused the association’s request for additional information, the association ordered the dog removed. The federal district court in this case agreed with the trial court that the information Bhogaita had supplied was sufficient and that the request for additional information “exceeded that essential for [the board’s] critical inquiries” into the nature of the disability and the need for the requested accommodation.
But the Indiana Appeals Court found that this case “easily differs” from Furbee, because the information the tenant supplied to Furbee neither identified the disability nor the disability related need for the emotional support animal. “The differences between the cases is critical,” the court said.
While some of the information Furbee requested may have been overbroad, the court agreed,, “the question about tenant’s disability was not. Tenant could have told Landlord her disability and chosen not to answer the other…questions.” By failing to respond at all, the court said, the tenant caused a breakdown in the dialogue the statue requires. Quoting from the HUD guidance, the court noted: “Neither party should be able to cause a breakdown in the process for the purpose of either avoiding or inflicting liability.”
Because the tenant filed to provide essential disability-related information, the court concluded, “the landlord could not meaningfully review the tenant’s [accommodation] request.” Accordingly , the court reversed the trial court decision and ordered the lower court to grant summary judgment in favor of the landlord.
“The price of doing nothing is much higher than the price of doing something and doing something big,” Ms. Yellen said before the briefing. “We need to act now. The benefits of acting now and acting big will far outweigh the costs in the long run.” ─ Treasury Secretary Janet Yellen, arguing for large-scale government assistance to counteract the economic impacts of the pandemic.