Lesson. Creditors cannot discriminate against an applicant for a credit transaction based on race, but a plaintiff applicant needs to put forth evidence of discrimination in order to survive a creditor’s motion for summary judgment.
Legal issue. Whether there was sufficient evidence of racial discrimination to avoid the entry of summary judgment against the Plaintiffs.
Vital facts. Plaintiffs, an African-American couple, bought a house that was subject to a mortgage that secured a loan to the seller. The loan later went into default. Upon learning of the mortgage and the default, the Plaintiffs tried to assume the loan in order to avoid a foreclosure sale. This went on for years. The mortgage contained language that purchasers of the mortgaged property could assume the loan if the loan servicer (a) received information to evaluate the purchasers “as if a new loan were being made” and (b) determined that the assumption “would not impair its security.”
At one point in time, the defendant loan servicer advised the Plaintiffs of what was needed in order to apply for a loan assumption, and the servicer postponed a foreclosure sale to give the Plaintiffs an opportunity to submit the required paperwork. The servicer contended that the Plaintiffs did not submit a proper application. In addition, the servicer required that the loan be made current before an assumption could occur but refused to disclose information about the status of the loan without the seller/mortgagor’s written consent, which evidently never occurred. In the end, the servicer did not approve a loan assumption.
The Plaintiffs alleged that the loan servicer denied the loan assumption based upon race. They alleged that they were treated rudely. The Plaintiffs also claimed that an African-American employee of the servicer told them over the phone: “[t]hese people, you know how they treat us.”
Procedural history. The Plaintiffs sued the loan servicer in federal court and alleged race discrimination under the Equal Credit Opportunity Act, 15 USC 1691-1691f (ECOA). The United States District Court for the Northern District of Indiana entered summary judgment for the defendant loan servicer, and the Plaintiffs appealed to the Seventh Circuit.
Key rules. The ECOA makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race….” Section 1691(a)(1).
Holding. The Seventh Circuit affirmed the district court’s ruling.
Policy/rationale. The Plaintiffs argued that the defendant loan servicer discriminated against them when the servicer prohibited the Plaintiffs from assuming the loan. Specifically, the Plaintiffs claimed that the servicer delayed the application process and required them to first make all of the seller/mortgagor’s overdue payments as a condition of assumption, which condition was not required by the mortgage.
The Court concluded that the Plaintiffs’ “evidence of racial discrimination [was] too speculative to establish a dispute of material fact.” For the Plaintiffs to survive summary judgment, they needed to put forth more evidence than the employee’s alleged statement, which the Court found to be “vague and require[d] too much speculation to conclude that their race motivated [the servicer] to require them to satisfy [the seller’s] outstanding loan payments.” Further, the Plaintiffs did not tender any proof to dispute the servicer’s evidence that the Plaintiffs never produced a complete application.
As an aside, there was a question as to whether the ECOA applied in the first place because the Plaintiffs were trying to assume credit rather than “extend, renew or continue” credit.
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I sometimes represent mortgage loan servicers in foreclosure-related litigation. My firm also has employment lawyers who defend race discrimination cases. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.