Thursday, June 14, 2007
C.A.: Woman Denied Home Loan Due to Occupation May Sue Lender
By TINA BAY, Staff Writer
A woman denied a home loan because she intended to use the subject property to operate a family day care business may sue the lender for discrimination, the Sixth District Court of Appeal has ruled.
In a unanimous decision Tuesday, the justices reinstated a lawsuit by Kim Sisemore, a San Jose-based licensed family day care home operator, against mortgage lender Master Financial, Inc.
Sisemore’s action had been dismissed by Santa Clara Superior Court Judge Neal A. Cabrinha, who sustained without leave to amend the defendant’s demurrer to her second amended complaint.
Among other things, the complaint alleged Master Financial discriminated against Sisemore on the basis of her income source and occupational status.
The plaintiff first contacted Master Financial through a loan processor in June 2003. At the time, she was renting the home out of which she operated her day care business for 14 or fewer children, and sought to purchase a home where she intended to reside with her young daughter as well as run her day care operation.
The day care home was her principal source of income.
The loan processor assisting Sisemore contacted a Master Financial representative about her client obtaining a home loan. After being told about Sisemore’s financial circumstances and occupation, the representative replied that she qualified for one of the company’s products.
At that point, the representative did not disclose that a term of the loan would prohibit Sisemore from using her prospective property as a family day care home.
In August 2003, the plaintiff located a home in San Jose that she desired to purchase, and submitted an offer on the property based on her understanding of the Master Financial loan terms.
During the escrow process, however, the defendant sent Sisemore a letter denying her loan application on the ground that it “does not lend on day care homes.” She thus had to obtain an alternative home loan, which provided less attractive rates and terms than what she expected to receive from Master Financial.
Sisemore filed suit in August 2004 alleging the lender engaged in intentional discrimination in violation of the Fair Employment and Housing Act Sec. 12955(e), which bars mortgage companies from discriminating against persons because of their “source of income” in setting loan terms or conditions. She also claimed under FEHA that the defendant’s practice of not lending to family day care home operators, while arguably facially neutral, had a disparate impact on the protected classes of women and families with children. Licensed day care home operators in Santa Clara County, she explained, are comprised of higher percentages of women and families with children than the percentages of those groups as reflected in the county’s general population.
Unruh Act Claim
In a separate cause of action, Sisemore asserted the defendant violated the Unruh Act by denying her loan application simply on the basis of her occupation as a family day care home operator. The act explicitly prohibits businesses from discriminating against individuals on the basis of “sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation.”
In sustaining the demurrer to Sisemore’s FEHA claims, Cabrinha found that the “source of income” category of discrimination applied only to the assessment of one’s eligibility for rental housing.
“It does not prohibit discrimination on the basis of a person’s source of income in assessing his or her eligibility for a mortgage loan,” he concluded, citing legislative history.
With regard to the disparate impact claim, Cabrinha ruled FEHA does not protect the category of “licensed home day care providers.”
The judge further held that Sisemore had no viable Unruh Act claim because she alleged discrimination on the basis of a personal characteristic.
The Court of Appeal disagreed with Cabrinha’s interpretation of FEHA, saying its legislative history contained no indication that the source-of-income discrimination protection was limited to landlord-tenant circumstances.
Writing for the panel, Justice Wendy Clark Duffy noted that such an interpretation would promote an “absurd” result.
“[I]t is difficult to imagine that subdivision (e) would have any real-world application if its source-of-income discrimination prohibition to loans made to assist in ‘the purchase, organization, or construction of any housing accommodation’ applied only to tenants,” she wrote.
Duffy went on to say that although licensed home day care providers are not a protected class under FEHA, Sisemore adequately alleged a disparate impact housing discrimination claim under the act.
“[T]he essence of a disparate impact claim is that a challenged policy, while facially neutral (i.e., not evidencing intentional discrimination against a protected class), in practice and effect is discriminatory toward a particular protected class,” the justice explained. “Thus, the fact that Master Financial’s policies, on their face, impacted an unprotected class (i.e., family day care home operators) does not preclude a disparate impact claim.”
Concerning Sisemore’s Unruh Act claim, Duffy said Master Financial’s refusal to provide a mortgage loan to the plaintiff because of her occupation was “arbitrary” discrimination contrary to the act’s policy.
She rejected the defendant’s argument that its denial of loans on family day care homes was simply a business decision.
“Regardless of the label used to describe Master Financial’s alleged conduct, it can fairly be considered as a refusal to deal with Sisemore solely on the basis of her occupation,” she said.
Duffy noted that Sisemore’s occupational status was not a purely economic characteristic, but a personal one within the scope of the Unruh Act:
“Here, Sisemore contends that she was discriminated against because of her choice of occupations, not that she was denied a mortgage loan because that choice resulted in her earning insufficient income to meet the lender’s underwriting criteria. Moreover, an individual’s choice of an occupation-while it may, of course, be motivated at least in part by economic considerations-is often a very personal one.”
Justices Patricia Bamattre-Manoukian and Richard J. McAdams concurred in the opinion.
The case is Sisemore v. Master Financial, Inc.
Copyright 2007, Metropolitan News Company