Property and Ownership Laws Study Guide for the Real Estate License Exam

Fair Housing Law

In this section, we’ll discuss the various aspects of fair housing laws including the original Fair Housing Act, the different aspects of the laws created by the Act, and how the Act prohibits discrimination in the real estate business.

Fair Housing Act

Also known as Title VIII of the Civil Rights Act of 1968, the purpose of the Fair Housing Act is to prohibit discrimination from any party in the buying, selling, renting, or financing of housing. There are currently seven protected classes under the Fair Housing Act: race, color, religion, sex, handicap, family status, and national origin.

Sales and Rentals

If a person is a member of a protected class, it is a violation of the Fair Housing Act to refuse to sell or rent to them, limit the conditions or privileges of the property, use discriminatory advertising, or threaten a person for exercising their housing rights.

1988 Amendments

The Fair Housing Act was amended in 1988 to add two protected classes: families with children and people with disabilities, bringing the total number of protected classes to seven. In addition to adding two classes, the penalties for violating the Act were also increased.

Financing

The Fair Housing Act also requires fair lending. Lenders are not allowed to consider an applicant’s color, race, national origin, religion, sex, family status, or any disabilities when applying for a residential mortgage loan.

Brokerage Services

One of the purposes of the Fair Housing Act is to ensure an equal housing opportunity for all people. Real estate brokers who discriminate against a protected class, or provide substandard service because a client is part of a protected class, are guilty of discrimination and violating the Act.

Blockbusting

Blockbusting occurs when a real estate agent uses fear as a tool to get owners to sell. For example, if an agent tries to break up a neighborhood by telling an owner that those people are moving in next door and that the owner should move somewhere else, the agent is committing the illegal act of blockbusting.

Steering

Steering occurs when a real estate agent guides buyers to or away from a certain neighborhood based on the race of the buyer. For example, if an agent tells buyers that they would be happier in a neighborhood because more of their kind live there, the agent would be guilty of the illegal act of steering. Steering also can occur when an agent chooses not to show a buyer certain neighborhoods based on the race of the buyer.

Exemptions

Three groups exempt from Fair Housing are: single family homes rented or sold without a real estate agent, owner-occupied homes with four or less units for rent, and members-only private clubs. Discriminatory advertising is not allowed even for parties exempt from Fair Housing Law, and discrimination based on race as described in the 1866 Civil Rights Act is not permitted.

Enforcement

The Department of Housing and Urban Development (HUD) is responsible for enforcing the Fair Housing Act through the Office of Fair Housing and Equal Opportunity (FHEO). Enforcement can be proactive, where HUD looks for Fair Housing violations, or reactive where private persons can report discriminatory practices to HUD.

By the Federal Government

HUD uses fair housing testers to see if homeowners and real estate agents are using discriminatory practices either accidentally or on purpose. Testers will pose as renters or buyers in person, and make phone calls from real estate magazine ads and listings on the Internet.

By Private Persons

Private persons who are members of one of the seven protected classes and feel they have been discriminated against can file a claim with HUD. HUD will then investigate further to determine if the claim has merit, and if so what legal action to take and what penalties to assess.

Penalties

In 2016, the civil penalties for violating the Fair Housing Act were increased due to inflation. The maximum penalty for the first violation is $19,787. A second violation within a 5-year period is a fine of up to $49,467, and the maximum fine for three or more violations within a 7-year period is $98,935.

Injury— Under the Fair Housing Act, people can sue if they have been injured by an alleged violation of the Act, or if they believe they will be injured by a discriminatory practice that is about to occur. Injury can be actual or threatened as a result of the accused’s alleged discriminatory conduct.

Intimidation— Threatening, intimidating, or interfering with a person’s enjoyment of his or her dwelling—or that person’s guests or associates—because of their race, color, sex, handicap, familial status, or national origin are violations of the Fair Housing Act.

Discouragement— Discouragement as a form of discrimination is often found in advertising and lending practices. For example, an advertisement for housing that features only one race or gender can discourage other potential buyers or renters. In another situation, it could be a lender who prefers not to lend to unmarried women with children, but is required to by law, discouraging women from applying for mortgage loans with that bank.

Additional Fair Housing Laws

In addition to the Federal Fair Housing Act—which is Title VIII of the Civil Rights Act of 1968 and the Amendment in 1988—other fair housing-related laws include the Civil Rights Acts of 1866 and 1871, Title VI of the Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, Section 109 of Title 1 of the Housing and Community Development Act of 1974, and Titles II and III of the Americans with Disabilities Act of 1990.

The Americans with Disabilities Act

Also known as the ADA, the Americans with Disabilities Act became law in 1990. It is a civil rights law that protects individuals with disabilities against discrimination in all areas of public life, including jobs, transportation, and housing. Titles II and III of the ADA address public accommodations, residential and commercial real estate

Truth in Lending

TILA—or the Truth in Lending Act—is a federal law enacted in 1968 to protect consumers when dealing with lenders and creditors. The Act promotes the informed use of consumer credit and standardized disclosures about the terms and costs of credit, and how they are calculated.

The Act: Regulation Z

Regulation Z is part of the Truth in Lending Act of 1968. The Regulation requires lenders to provide a written disclosure of important credit terms including interest and finance charges and fees, the APR or annual percentage rate of interest, and outlines time periods for notices of changes.

When Does It Apply?

Regulation Z only applies to consumer-purpose credit or loans used for personal, family, or household purposes. A loan or credit is covered by Regulation Z if:

It is primarily for personal, family, or household use.
It is extended to a person (vs. a business) and is payable to an institution.
It has a finance charge or is payable under a written agreement in more than four installments.
It is secured by real property, the loan is for $54,600 or less if not secured by real property, or the loan is for private education.

Who Must Comply?

Regulation Z applies to the actual extender of credit—also known as the creditor—if the loan or credit has a finance charge or is payable in more than four installments, and the creditor is in the business of making loans or extending credit. A real estate agent who helps arrange creative financing, such as a land contract, does not need to comply with Regulation Z because the agent is not in the extender of the credit or loan.

What Transactions Are Exempt?

Regulation Z does not apply to transactions with no finance charge, those that have four or fewer installment payments, transactions made to businesses, for commercial purposes, and to corporations, governments, or SEC-registered brokers for securities trading. Reg Z applies to consumer real estate transactions such as buying a house, but not for commercial transactions.

APR

APR stands for annual percentage rate. Nominal APR is the simple interest rate for the year, while effective APR includes fees plus the compound interest rate. The effective APR will be higher than the nominal APR if items such as origination fees and up-front fees are added to the loan amount, since more compounded interest will be accrued over the life of the loan.

Finance Charge

Finance charges are fees that represent the cost of credit or the cost of borrowing. Some common finance charges in real estate include the total amount of interest, points, loan fees, and origination fees.

Rescission

Rescission is when a contract is canceled and both parties return to their original position before the contract. Rescission can be mutual or by decree. A real estate contract can sometimes be rescinded even if the buyer has taken possession of the seller’s property.

Different Applications for Real Estate

There are items known as triggering terms in real estate that can require additional disclosures under Regulation Z, as follows:

Down payment amount is described as a percentage, such as 10% down or 90% financing available.
Monthly payment is expressed as a dollar amount, such as $150 per month or monthly payments less than $100.
Number of payments is stated, such as make 24 payments and you’re paid in full.
Repayment time is specified, such as 36 monthly payments or 60 payments and you’re paid in full.
Finance charge is described, such as $100 monthly interest or less than $99 per month in finance charges.

Disclosures

Real estate disclosures are provided by the seller. They let the buyer learn as much about the property as possible based on the seller’s experience—both good, bad, and simply unknown. Disclosures can also help protect the seller from unexpected legal issues arising from a dissatisfied buyer after the sale has closed.