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PostPosted: Wed Jan 14, 2009 9:07 am    Post subject: Leasing Prohibition Challenged as Racially Discriminatory... Reply with quote

Leasing Prohibition Challenged as Racially Discriminatory Under Federal Fair Housing Act


Courtlan L. Cooper
Michael C. Kim & Associates
19 South LaSalle Street, Suite 303

On May 15, 2008, the Indiana Supreme Court issued its opinion in the case of Villas West II of Willowridge Homeowners Association, Inc. v. Edna McGlothin. The case involved a unit owner's challenge to a leasing prohibition contained in the declaration of an Indiana homeowners association.

Villas West II is a 149-lot development in Kokomo, Indiana, a town approximately sixty (60) miles north of Indianapolis. The Villas West II declaration contained the following leasing prohibition:

"Lease of Dwelling by Owner. For purposes of maintaining the congenial and residential character of Villas West II and for the protection of the Owners with regard to financially responsible residents, lease of a Dwelling by an Owner, shall not be allowed. Each Dwelling shall be occupied by an Owner and their immediate family."

Edna McGlothin ("McGlothin"), the owner of a home in Villas West II, leased her home in violation of the referenced leasing prohibition. The Villas West II Homeowners Association (the "Association") filed suit to enforce the leasing prohibition. McGlothin filed a counter-claim against the Association alleging that the leasing prohibition was racially discriminatory and violated the federal Fair Housing Act.

After a bench trial, the trial court concluded that the leasing prohibition did violate the Fair Housing Act because it had a disproportionate adverse impact on African American and racial minorities and found no legitimate non-discriminatory reason for the prohibition. Under this approach, there is no need to prove intentional discrimination.

The Association appealed, and the Indiana Court of Appeals sided with the trial court.

The Association then appealed to the Indiana Supreme Court, which reversed the trial court ruling and remanded the case for future proceedings by the trial court.

The Indiana Supreme Court analyzed McGlothin's Fair Housing Act claim under a disparate impact theory using a burden-shifting analysis. First, the Supreme Court found that McGlothin had established a prima facie case of discrimination because the evidence at trial showed that regardless of income and age, African Americans rent their homes in greater proportion than do whites. By restricting the available pool of rental housing, the leasing prohibition had a disparate impact on African Americans. The burden then shifted to the Association to show a legitimate, non-discriminatory reason for the leasing prohibition. The Association was able to meet this burden by arguing that the leasing prohibition helps maintain property values because owners maintain their homes better than renters. The burden then returned to McGlothin to show an equally effective, less discriminatory alternative to the leasing prohibition. At that point, McGlothin pointed to maintenance covenants in the Association's declaration requiring homeowners to, among other things, maintain windows, door hardware, patios and appliances; water lawns and shrubs; keep the exterior free of trash, certain signs, certain communication devices, and certain vehicles; and "promptly perform all maintenance and repair…which, if neglected, might adversely affect any other Dwelling, Common Area or the value of the Property."

The Indiana Supreme Court, however, rejected McGlothin's argument and found that the trial court record did not support McGlothin's disparate impact claim. The Supreme Court found that although the property maintenance covenants cited by McGlothin are a less discriminatory alternative to promote property maintenance, the covenants are not an equally effective means of maintaining property values because "[m]aintaining property values involves not merely maintaining property but also improving and updating it." Owners, the Court noted, have an interest in improving and updating property that renters do not because owners may reap the financial benefit of the improvements when they sell by receiving a higher selling price. However, the Indiana Supreme Court remanded the case back to the trial court to determine if there was evidence of intentional discrimination.

In conclusion, although this case arises in a sister state, the decision addresses one possible challenge to leasing restrictions/prohibitions based on unintentional racial discrimination (that is, due to disparate impact) under the Fair Housing Act.

© Copyright 2008. Michael C. Kim & Associates. All rights reserved.

This article is being provided for general information purposes and does not constitute legal advice. For a specific problem, you should consult an attorney.
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