NFHA Files Discrimination Complaint Against Wells Fargo

Shanna Smith

Following an undercover investigation that found “disturbing evidence” of discrimination in the management of real estate owned properties in communities of color by a number of undisclosed banks the National Fair Housing Alliance has filed a federal housing discrimination complaint against Wells Fargo & Co. and Wells Fargo Bank, N.A.

It is only the first in a series of similar complaints NFHA plans to file with the U.S. Department of Housing and Urban Development against some of the country’s top banks with large REO inventories. Another complaint will be filed on Tuesday April 17th.

During a press conference NFHA president and CEO, Shanna L. Smith said the alliance is putting final touches to similar complaints against several other banks, leaving everyone guessing about which banks are in that roster. 

Unless Wells and other banks are willing to come forward and cooperate with HUD to resolve the problem the investigation will culminate in lawsuits in federal and state district courts. 

“We have not talked to Wells Fargo,” Smith said. “We hope Wells will agree to immediately stop these practices.” Any bank concerned about the quality of their REO marketing and maintenance services “ought to call us,” she added. “We’re happy to engage in a non-litigation strategy to address this problem.”

The complaint refers to findings from “The Banks Are Back, Our Neighborhoods Are Not: Discrimination in the Maintenance and Marketing of REO Properties” a NFHA undercover investigation conducted between January and March to inquire how mortgage banks are managing and marketing their REO portfolios. It found widespread discrimination against predominantly African-American and Latino neighborhoods.

Failure or consistent delays of maintenance in REO properties in minority neighborhoods helps perpetuate housing segregation, which is a violation of the Fair Housing Act, 3604-B, as amended in the 1980s, said Peter Romer-Friedman of Cohen Milstein Sellers & Toll PLLC, counsel in the Wells Fargo case.

Wells also violated the act’s 3604-D section that prohibits marketing discrimination, he said. The complaint alleges Wells' discriminatory REO-marketing practices include “different language or terms used,” and consistent failure to post REO-for-sale signs and other signs that convey the right message to potential buyers in predominantly minority neighborhoods.

Wells has refused to publish different types of advertising or provide sales, rental or inspection information about REOs for sale and has “conveyed inaccurate messages” that do not allow buyers of color to know which properties are available of sale or rent, Romer-Friedman Wells said. By failing to inform buyers about these properties Wells violated this provision of the act “in many ways,” that perpetuate housing segregation. 

The Wells Fargo investigation reviewed areas with the largest REO inventory by zip code, than assessed areas with predominantly African-American or Latino residents based on certain established maintenance criteria requirements. “Very severe violations” were found in 8 metro areas.

For example, according to Gail Williams, executive director, Metro Fair Housing Services of Atlanta, a review of Wells Fargo REOs in the Atlanta area showed that overall African-American communities were two times more likely to have trash in their backyards. The investigation revealed that while up to 43% of the REOs located in African-American neighborhoods were surrounded by overgrown shrubs and dead grass, there was no such problem in White neighborhoods.

Smith argues that Wells’ failure to properly market these properties and the reason why the bank is keeping REOs in its books “is not a rational [discrimination] process.” Yet, the consequences of failure to provide basic, routine maintenance practices that are not expensive are real. They include additional losses for investors and cost burdens to the states and municipalities. “There are myriads of costs associated with failure to maintain these REOs. Nobody really profits from the decay,” she said. “It’s a matter of maintenance and marketing costs versus demolition and sales costs.” 

The nationwide investigation looks at differences in REO management trends in mostly African-American, Latino and White neighborhoods "with fairly comparable” homeowner income and home price levels.

It found incidents of REO management discrimination when compared to the maintenance standards applied in predominantly White areas with comparable income and property values. Fair Housing Act violations may include various aspects of property maintenance, appraisal, listing, marketing and sales.

It revealed that REO properties in communities of color were 82% more likely than REO properties in White communities to have broken or boarded windows. Properties in White neighborhoods were 32% more likely to be marketed with the proper signage than African-American neighborhoods and 38% more likely than in Latino neighborhoods.

Findings are based on detailed evaluations of over 1,000 REO properties in and around Atlanta, Baltimore, Dallas, Dayton Ohio, Miami and Fort Lauderdale in Florida, Oakland, Richmond, and Concord in California, Philadelphia, Phoenix and Washington, DC.

Four members, The Miami Valley Fair Housing Center in Dayton, Housing Opportunities Project for Excellence in Miami, Metro Fair Housing Services in Atlanta, and North Texas Fair Housing Center in Dallas, evaluated the maintenance and marketing of REO properties on a 100-point scale. Using criteria such as the presence or lack of broken windows and doors, water damage, mold, overgrown lawns, “for sale” signs, trash on the property the total score took into account 39 different aspects of the maintenance and marketing of each property.  

The goal is to attract the attention of all banks so they take “immediate action to correct the disparate treatment” discovered during this investigation, Smith said, since “the proper maintenance and marketing of REO properties is a key factor” in promoting the sale of homebuyers rather than to investors.