Provider of loan modification services is not engaging in “real estate transactions” under Illinois’ Human Rights Act

The Illinois Supreme Court was asked to answer the certified question whether the State of Illinois may pursue a claim under the Illinois Human Rights Act against providers of loan modification servicers to distressed mortgagors under a reverse redlining theory. The Court held that the services did not fall under the Act because they were not “real estate transactions”.

The state attorney general in People ex rel. Madigan v. Wildermuth, 2017 IL 120763 (2017) filed a multicount complaint against defendants (including one attorney) alleging that the loan modification services they provided distressed mortgagors for a fee was illegal. According to the complaint, the providers engaged in “real estate transactions” as defined by the Human Rights Act when they claimed to negotiate loan modifications and short sales on behalf of their clients and advertising such services primarily to African-American and Latino communities.

Although, the circuit court concluded that providers’ conduct was covered by the Act because they acted as “mortgage brokers” in their activities ,it certified the issue to the appellate court. The appellate court held that “the concept of reverse redlining is not strictly limited to situations involving mortgage lending and [ ] the Act broadly encompasses conduct other than mortgage lending, including the loan modification services that defendant offered.”

In the Supreme Court, the Attorney General argued that defendants were engaged in “real estate transactions” and thus covered by the Act because they provided “other financial assistance” to distressed homeowners for purposes of “maintaining a dwelling”. The Attorney General contended that the phrase “other financial assistance” should be construed liberally to include defendants’ business model of assisting consumers with applying for loan modifications.

The Supreme Court disagreed. The Act does not define the term “other financial assistance,” but read in its context the “other financial assistance” contemplated by the legislature appears to be the providing of funds for making or purchasing a loan for the initial acquisition or construction or the subsequent upkeep, repair, or improvement of the property. There was no allegation in the case that defendants provided any funds to their clients in order to achieve a loan modification. Nor is there any allegation that defendants were affiliated or in the pipeline with any entity that provided funds.

Nor was the purpose of the assistance defendants rendered for “maintaining a dwelling,” as required by the Act. “Maintaining”, read in context, conveys the sense of keeping property in a state of repair, not simply preventing it from being foreclosed upon. The Court noted its holding was consistent with federal case law interpreting the cognate provisions contained in the FHA, which defines “real estate-related transaction” in part as “[t]he making or purchasing of loans or providing other financial assistance *** for *** maintaining a dwelling” and that numerous cases have held that this language is limited in application to circumstances where the defendants had the ability to affect the terms on which credit is extended to the borrower, such as where the defendants were lenders, brokers, or appraisers or affiliates of the lender collecting the loan payments.

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