Property Tax Post: Miami Takes Two Steps Forward and a Big Step Back in Suit to Recover Property Tax Revenue Under Fair Housing Act


FHA

The Fair Housing Act is a federal law[1] protecting people from “discrimination when they are renting, buying or securing financing for any housing.” At first glance, one would think the Fair Housing Act has nothing to do with state and local property tax, but cities now have the green light to pursue banks for lost property tax revenue attributable to discriminatory lending practices.

On May 1, the U.S. Supreme Court ruled that Miami could sue Wells Fargo & Co. and Bank of America Corp. to recover property tax revenue it claims to have lost due to Fair Housing Act violations. Specifically, the city alleged that the banks deliberately gave minority customers “riskier mortgages on less favorable terms” than non-minority customers. These discriminatory actions led to “foreclosures and vacancies” which harmed the city because of the resulting drop in both surrounding houses’ property value and property tax revenue. This forced the city increase spending on “‘municipal services … to remedy blight and unsafe conditions which exist at properties that were foreclosed.’”

The banks’ efforts to have the case dismissed were successful in the U.S. District Court for the Southern District of Miami on grounds that Miami could not prove it was an “aggrieved person” and that the harm alleged was not within the statute’s “zone of interest,” but these arguments fell short in the Eleventh Circuit and the Supreme Court. Both the Court of Appeals and Supreme Court agreed that the city qualified as an “aggrieved person” and that its alleged injuries are among the harms that the Act sought to protect against.

Nevertheless, the case was remanded because, unlike the Eleventh Circuit, the Supreme Court was not convinced that the city met all the requirements for a successful Fair Housing Act complaint. In order to win under the Act, Miami must demonstrate that (1) it is an aggrieved person (2) that it has standing to pursue a claim under the Act and that the law is actually intended to protect Miami’s claimed interests and (3) that the banks’ tortious conduct was the proximate cause of its injuries.

According to the Supreme Court, the proximate cause requirement may be satisfied only with proof of a “direct relationship” between the banks’ discriminatory actions and the loss of property tax revenue. It is this point, specifically, where Supreme Court seemingly disagrees with the Eleventh Circuit. In fact, the court expressed skepticism over whether Miami could prove this direct relationship between the tax revenue loss and the discriminatory activities, noting that “[t]he housing market is interconnected with economic and social life,” and “[a] violation of the FHA may … ‘cause ripples of harm to flow’ far beyond the defendant’s misconduct.”

Although the Supreme Court cast doubt on whether lost property tax revenue would be viewed as anything more than a ripple flowing beyond the banks’ misconduct, one might not blame Miami for at least trying to recover some of its lost property tax revenue. Florida’s property taxes are levied by local governments who, in turn, use the revenues to provide residents with essential services, including policing, fire protection, ambulance services and other public services.

The ability to generate the revenue to provide such services does have limitations, however, because the state’s constitution imposes a maximum property tax limit. This is especially problematic in instances where state and federal funding to localities has already been earmarked for specific uses, leaving local governments scrambling to come up with necessary funds for operations. Such fiscal concerns may incentivize pursuit of more claims under the Fair Housing Act similar to those brought by Miami.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How do you think the Eleventh Circuit will rule in this case? Do you think Miami’s lost property revenue is a “ripple” beyond the banks’ control or an injury directly caused by alleged discriminatory practices? What other avenues are open to increase revenues for localities similarly restricted by tax caps and funding earmarks?

Get a free trial to Premier State Tax Library, a comprehensive research service that delivers deep, unique analysis and time-saving practice tools to help practitioners make well-informed decisions.


[1] 42 U. S. C. § 3601