Seattle Journal for Social Justice Volume 12|Issue 1 Article 2 2013 Real Estate Agents as Agents of Social Change: Redlining, Reverse Redlining, and Greenlining Mary Szto Hamline Law School Follow this and additional works at:http://digitalcommons.law.seattleu.edu/sjsj Recommended Citation Szto, Mary (2013) "Real Estate Agents as Agents of Social Change: Redlining, Reverse Redlining, and Greenlining,"Seattle Journal for Social Justice: Vol. 12: Iss. 1, Article 2. Available at:http://digitalcommons.law.seattleu.edu/sjsj/vol12/iss1/2 This Article is brought to you for free and open access by the Student Publications and Programs at Seattle University School of Law Digital Commons. It has been accepted for inclusion in Seattle Journal for Social Justice by an authorized administrator of Seattle University School of Law Digital Commons. 1 Real Estate Agents as Agents of Social Change: Redlining, Reverse Redlining, and Greenlining Mary Szto* ABSTRACT This article examines the role of US real estate agents in redlining, reverse redlining, and greenlining practices. Redlining was the practice of the Federal government, private banks, and other institutions to deny credit to neighborhoods based on race. Reverse redlining is marketing inferior credit and other products to those same neighborhoods. Greenlining is incenting investment in previously redlined neighborhoods. This article argues that although many real estate agents used practices that unjustly excluded access to neighborhoods, all can be faithful agents of inclusion to global, flourishing communities. That is, while real estate agents took leading roles in redlining and reverse redlining in the past, they can now lead in greenlining efforts. Moreover, those who want to effect greater access to global flourishing communities should consider becoming real estate agents. *Associate Professor, Hamline Law School. BA, Wellesley College. MAR, Westminster Theological Seminary. JD, Columbia Law School. Thank you to my research assistant Kristie Lutz, the editors of the Seattle Journal for Social Justice, the Hamline University Hedgeman Center for Student Diversity Initiatives and Programs, and Jamie Lee. This article is for my Race and Law Seminar students. 2 SEATTLE JOURNAL FOR SOCIAL JUSTICE I. INTRODUCTION 3  II. REAL ESTATE AGENTS AS FIDUCIARIES 4  III. REDLINING 9  A. THE ROLE OF REAL ESTATE AGENTS IN REDLINING 16  1. Blockbusting and Contract Selling 21  IV. REVERSE REDLINING 28  A. THE ROLE OF REAL ESTATE AGENTS IN REVERSE REDLINING 36  1. Steering 37  2. Promotion During Housing Bubble and Bust 42  V. GREENLINING AND OTHER SOLUTIONS 43  A. FLOURISHING COMMUNITIES 46  1. The Role of Real Estate Agents in Greenlining and Promoting Global Flourishing Communities 52  VI. CONCLUSION 56  APPENDIX 1 59  LETTER OF HEALING AND HOPE 59  SEATTLE JOURNAL FOR SOCIAL JUSTICE Real Estate Agents as Agents of Social Change 3 I. INTRODUCTION This article examines the role of real estate agents in the US in redlining, reverse redlining, and greenlining. Redlining was the practice of the Federal government, private banks, and other institutions to deny credit to neighborhoods based on race. Reverse redlining is marketing inferior credit and other products to those same neighborhoods. Greenlining is incenting investment in previously redlined neighborhoods. For most Americans, homeownership is the chief means of accumulating wealth.1 A home not only provides physical shelter, but also provides access to neighborhood resources such as sustenance, schools, transportation, jobs, and faith communities. Home equity also funds higher education, entrepreneurship, and other avenues of financial mobility. Real estate brokers and agents are often gatekeepers of neighborhoods with higher property values. While historically many agents unjustly barred access to such neighborhoods, they may now be agents of inclusion to flourishing communities. Flourishing communities offer more to residents than higher property values. They draw from the strength of nature and multiple cultures, and are fountains of healthful and sustainable access to creative work and other cultural activity. They are places for vibrant artistic expression and incubators for lively, locally-owned businesses. First, I will discuss the beginning of the real estate profession in the US and the choice to make realtors fiduciaries — both paralleled industrialization and the rise of professionalism. Second, I will discuss the role of real estate agents in redlining practices. Redlining began in the 1930s but its origin lies deeper in the aftermath of slavery and racial hierarchy theories that peaked in popularity at that time. Mandated by discriminatory real estate board codes of ethics and federal lending and 1 MELVIN L. OLIVER & THOMAS M. SHAPIRO, BLACK WEALTH/WHITE WEALTH: A NEW PERSPECTIVE ON RACIAL INEQUALITY 8 (1995). VOLUME 12 • ISSUE 1 • 2013 4 SEATTLE JOURNAL FOR SOCIAL JUSTICE appraisal standards, real estate agents prevented buyers from entering certain neighborhoods or, through blockbusting practices, persuaded sellers to move based on racial lines. Some were contract sellers who offered onerous terms to minority buyers. Third, I will discuss reverse redlining, which came to the forefront around the 2000s and contributed to the housing market collapse and global credit crisis of the early twenty-first century. Many real estate agents encouraged borrowers to apply for subprime loans, which led to increased defaults and foreclosures. Often, targeted borrowers were from communities that previously had been redlined. Finally, I will examine greenlining practices, which promote investment in previously redlined neighborhoods and can promote global flourishing communities. I conclude that although in the past many real estate agents were agents of unnecessary exclusion by taking active roles in redlining and reverse redlining, and almost no role in greenlining, all real estate agents can become agents of flourishing inclusion. They can–and should—take the lead in greenlining. This would be consonant with their original calling of being faithful professionals and thriving entrepreneurs. Also, individuals who want to effect social change should consider becoming real estate agents. II. REAL ESTATE AGENTS AS FIDUCIARIES Full time real estate brokers appeared in the US in the 1800’s.2 Their appearance paralleled the industrialization and urbanization of the US. As the US moved from an agricultural-based economy to an industrialized one, real estate agents began to broker sales of land, rentals, and development of 2 JEFFREY HORNSTEIN, A NATION OF REALTORS: A CULTURAL HISTORY OF THE TWENTIETH-CENTURY MIDDLE CLASS 14 (2010). SEATTLE JOURNAL FOR SOCIAL JUSTICE Real Estate Agents as Agents of Social Change 5 property. Some soon developed a reputation for being unscrupulous and were called “curbstoners.”3 To combat unsavory practices, in 1847, the first real estate board was established in New York.4 However, the board was unable to stave off the housing bust of the late 1800s. Following the bust, the National Association of Real Estate Associations was formed in 1908,5 later becoming the National Association of Real Estate Boards (NAREB).6 In 1913, NAREB adopted a Code of Ethics based on the Golden Rule.7 The term “Realtor” was approved in 1916 to identify men who were members of boards that belonged to NAREB.8 Boards in the fast growing cities of both the Midwest and West drove the impetus for professionalism.9 As much as possible, realtors wanted to be associated with “the established professions of law, medicine, and, less frequently, the ministry and engineering.”10 The boards sought to protect 3 Id. at 14. 4 ROSE HELPER, RACIAL POLICIES AND PRACTICES OF REAL ESTATE BROKERS 173, 220 (1969). 5 Id. at 221. 6 The National Association of Real Estate Boards (NAREB) should not be confused with the National Association of Real Estate Brokers (also called NAREB), which was formed in 1947 for black brokers. About NAREB, available at http://nareb.com/about- nareb/ (last visited Feb. 22, 2014). The National Association of Real Estate Boards later became the National Association of Realtors (NAR). NAR’s Mission, Vision, and History, available at http://www.realtor.org/about-nar/mission-vision-and-history (last visited Feb. 22, 2014) [hereinafter NAR’s Mission]. 7 NAR’s Mission, supra note 6; Frederik Heller, The Code Hits 100, REALTOR MAG. (Nov. 2012), http://realtormag.realtor.org/law-and-ethics/ethics/article/2012/11/code-hits- 100; See also HORNSTEIN, supra note 2, at 58. 8 HELPER, supra note 4, at 221. The term “realtor” was coined by broker Charles N. Chadbourn in Minneapolis in 1911. HORNSTEIN, supra note 2, at 76. In 1917, it appeared in Webster’s Dictionary. Id. at 75-76. It became a registered trademark in 1950. DAVID BARRY, NINE PILLARS OF THE CITADEL: A REPORT SUBMITTED TO THE FEDERAL TRADE COMMISSION/U.S. DEPARTMENT OF JUSTICE WORKSHOP ON COMPETITION POLICY AND REAL ESTATE INDUSTRY, 43 (Nov. 2005), available at http://www.justice.gov/atr/public/workshops/rewcom/213351.pdf. 9 HORNSTEIN, supra note 2, at 1. 10 Id. at 48. VOLUME 12 • ISSUE 1 • 2013 6 SEATTLE JOURNAL FOR SOCIAL JUSTICE “civic virtue,” 11 “intelligently create great cities,” and “bring homeownership to every American.”12 Real estate brokerage was a calling, requiring “risk taking, tact, and vision…’building cities’ and helping families to acquire homes of their own, the foundation of civilization.”13 Boards standardized practices, including lease forms, eviction procedures,14 commissions, and the collection and organization of data.15 The national organization, based in Chicago, promulgated model licensing and zoning laws, which were often adopted verbatim.16 Boards also promoted city planning and sought to “stabilize values.”17 They established multiple listing services (MLS) and ways to share commissions.18 However, access to the MLS was restricted to members.19 Early on, NAREB decided that brokers would be agents instead of independent contractors.20 They also instituted the “exclusive agency” agreement with owners; these were agreements for 60 to 90 days.21 Any broker who found a buyer had to share his commission with the listing broker.22 Agents are fiduciaries.23 By adopting the fiduciary model, NAREB promoted their members’ professionalism. A fiduciary is a selfless actor.24 11 Id. at 19. 12 Id. at 35. 13 Id. at 51. 14 Id. at 21. 15 Id. at 15. 16 Id. 17 Id. 18 Id. at 16. 19 Id. at 17. 20 Thomas J. Miceli et.al., Restructuring Agency Relationships in the Real Estate Brokerage Industry: An Economic Analysis, 20 J. REAL ESTATE RESEARCH. 31, 34 (2000). 21 HORNSTEIN, supra note 2, at 17. 22 Id. 23 RESTATEMENT (SECOND) OF AGENCY § 1(1) (1958); RESTATEMENT (THIRD) OF AGENCY §1.01 (2006). 24 RESTATEMENT (THIRD) OF AGENCY §8.01 CMT. B (2006). SEATTLE JOURNAL FOR SOCIAL JUSTICE Real Estate Agents as Agents of Social Change 7 The fiduciary sets aside his or her personal interests to serve the principal. Fiduciary duties originated in the common law, and ultimately from the courts of equity, canon, and Roman law.25 These duties are usually divided into two main categories: duties of care and duties of loyalty.26 Duties of care include diligence.27 Duties of loyalty include not making a profit at the expense of the principal and conveying all relevant information to the principal.28 The breach of fiduciary duties is a tort, and, if breached, agents must forfeit all profits and commissions.29 A real estate broker runs a business, which is licensed by the state. State licensing began around 1916.30 Brokerages hire agents, who also must pass licensing requirements.31 For many decades, real estate brokers and agents were mainly white men. However, this began to change during World War II when, in 1947, the National Association of Real Estate Brokers was formed for blacks who were excluded from the National Association of Real Estate Boards (NAREB).32 In 1972, NAREB changed its name to the National Association of Realtors (NAR).33 Since the 1970s, the NAR has been the largest trade 25 See Mary Szto, Limited Liability Company Morality: Fiduciary Duties in Historical Context, 23 QUINNIPIAC L. REV. 61, 86–98 (2004) for the historical origins of agency. 26 See generally, RESTATEMENT (SECOND) OF AGENCY §376-396 (1958); RESTATEMENT (THIRD) OF AGENCY § 8.01-8.12 (2006). 27 RESTATEMENT (THIRD) OF AGENCY § 8.08 (2006). 28 RESTATEMENT (SECOND) OF AGENCY § 381 (1958); RESTATEMENT (THIRD) OF AGENCY § 8.11 (2006). 29 Robert Hayes, The Practice of Dual Agency in California: Civil Code Sections 2373- 2382, 21 U.S.F.L. REV. 81, 82 (1986); WILLIAM A. GREGORY, THE LAW OF AGENCY AND PARTNERSHIP § 71 (3d. 2001). 30 HELPER, supra note 4, at 221. 31 See generally, Barlow Burke, Law of Real Estate Brokers §12.01-12.04 (2007). 32 State of Housing In Black America, NAT’L ASS’N OF REAL ESTATE BROKERS, http://www.narebshiba.com/page_id=2 (last visited Jan. 16, 2013). 33 NAR’s Mission, supra note 6. VOLUME 12 • ISSUE 1 • 2013 8 SEATTLE JOURNAL FOR SOCIAL JUSTICE association in the US.34 The National Association of Hispanic Real Estate Professionals was founded in 1999.35 And, in 2003, the Asian Real Estate Association was founded.36 The National Association of Real Estate Brokers is now known as NAREB; this should hopefully not be confused with the former National Association of Real Estate Boards, which is now the NAR.37 Today, almost two-thirds of agents are white women.38 The average agent today is female, 57-years-old, married, and has some college education.39 While 72 percent of the US population is white,40 87 percent of agents are white.41 While 13 percent of US citizens are African-American,42 only four percent of agents are African-American;43 16 percent of Americans are Hispanic or Latino,44 while only 5 percent of agents are;45 5 percent of Americans are Asian,46 while 4 percent of agents are Asian.47 34 Id. 35 Hispanics and Homeownership, NAT’L ASS’N OF HISPANIC REAL ESTATE PROFESSIONALS, ,http://nahrep.org/facts-and-figures (last visited Jan. 16, 2013). 36 About AREAA, ASIAN REAL ESTATE ASS’N OF AM., http://areaa.org/about.php?PHPSESSID=9285dcefac415bd4e315e5d22df003a1 (last visited Jan. 16, 2013). 37 In this article, unless otherwise noted, NAREB will refer to the older organization that was originally formed in 1908. 38 NAT’L ASS’N OF REALTORS, MEMBER PROFILE 2010, 65–73 (2010) [hereinafter NAR 2010] available at http://www.realtor.org. 39 NATIONAL ASSOCIATION OF REALTORS, MEMBER PROFILE 2013, 7 (2013), available at www.realtor.org/sites/.../2013-member-profile-highlights-2013-05.pdf . 40 Press Release, U.S. Census Bureau, 2010 Census Shows America’s Diversity, (Mar. 24, 2011), available at http://www.census.gov/newsroom/releases/archives/2010_census/ cb11-cn125.html. 41 NAR 2010, supra note 38, at 73. 42 U.S. Census Bureau, supra note 40. 43 NAR 2010, supra note 38, at 73. 44 U.S. Census Bureau, supra note 40. 45 NAR 2010, supra note 38, at 73. 46 U.S. Census Bureau, supra note 40. 47 NAR 2010, supra note 38, at 73. SEATTLE JOURNAL FOR SOCIAL JUSTICE Real Estate Agents as Agents of Social Change 9 Today, the NAR has over 1.2 million members.48 Although most real estate brokers and agents do not belong to NAR, the organization’s policies dominate the industry. Throughout its history, NAREB/NAR has promoted single-family home ownership as consonant with the American dream and in line with a better citizenry.49 This dovetailed with federal housing policies. The development of the realty industry thus contributed to the discourse of the middle class, which came into being with industrialization.50 NAREB/NAR promoted its role as fiduciaries of the American public.51 III. REDLINING Redlining is “[a] pattern of discrimination in which financial institutions refuse to make mortgage loans, regardless of the credit record of the applicant, on properties in specified areas because of alleged deteriorating conditions.”52 Official redlining practices began in the 1930’s during the Great Depression. A housing bubble and bust preceded the Great Depression.53 Before mortgage lending became affordable, only wealthy families could buy homes. Banks would require 50-60 percent for a down payment and 48 Mission, Vision, and History, NAT’L ASS’N OF REALTORS, http://www.realtor.org/about-nar/mission-vision-and-history (last visited Dec. 10, 2012). 49 HELPER, supra note 4, at 195. 50 HORNSTEIN, supra note 2, at 1–11. 51 Id. at 63. 52 BLACK’S LAW DICTIONARY 1279 (6th ed. 1990). 53 Evan Soltas, Housing Was at the Root of the Great Depression, Too, BLOOMBERG NEWS, Sept. 25, 2012, http://www.bloomberg.com/news/2012-09-25/housing-was-at-the- root-of-the-great-depression-too.html; Charles L. Nier, III, Perpetuation of Segregation: Toward a New Historical and Legal Interpretation of Redlining Under the Fair Housing Act, 32 J. MARSHALL L. REV. 617, 619-20 (1999) [hereinafter Nier, III]. “During the five year span from 1928 to 1933, residential property construction decreased by 95%, while home repair expenditures dropped 90%. By 1933 half of all the nation’s residential mortgages were technically in default, with foreclosures reaching the rate of over 1000 per day.” Id. VOLUME 12 • ISSUE 1 • 2013