Cook County Record

Tuesday, December 10, 2019

IL Supreme Court: Lawyers can be sued for 'reverse redlining,' but A/G overstretched discrimination case

By Jonathan Bilyk | Sep 22, 2017

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Professionals, including lawyers, who don’t make home loans could yet be eligible under the law to get nailed with state legal actions alleging housing discrimination, the Illinois Supreme Court said.

But Illinois’ Attorney General may have stretched the law a bit too far in attempting to bring such discrimination charges against a pair accused of preying on vulnerable racial minority homeowners, who were seeking loan modifications to escape their underwater home loans, the high court said.

On Sept. 21, the Illinois state Supreme Court unanimously found a state appeals court and, before them, a Cook County judge, had erred in allowing the office of Illinois Attorney General Lisa Madigan to continue with a lawsuit accusing Chicago lawyer Matthew Wildermuth and real estate broker George Kleanthis of engaging in an illegal practice known as “reverse redlining.”

In court documents, Madigan’s office said Wildermuth and Kleanthis, in the wake of the real estate crash in 2007, had used radio commercials to tout their ability to help clients, who were in trouble with their mortgages, save their homes by modifying their mortgages and reducing their monthly payments.

The pair charged upfront nonrefundable fees of $3,000-$5,000.

However, the attorney general said the pair not only did little to nothing to actually help their clients, and actually targeted their services to minority borrowers who they knew would not qualify for such loan modifications, which amounted to reverse redlining. Under that practice, lenders connect minority borrowers with loans, but at terms more onerous than typically extended to white borrowers with similar financial standing.

The attorney general asserted in a 2011 filing that Wildermuth and Kleanthis had violated the Illinois Human Rights Act.

Wildermuth and Kleanthis, in response, argued that law shouldn’t apply to them because they did not actually make any loans or assist in any real estate deals.

Cook County Judge Diane Larsen conceded they were not lenders, but said she still believed the law applied to the defendants because they functioned similarly to mortgage brokers.

However, she agreed to allow the defendants to appeal a legal question arising from the case, namely, “whether the state may claim a violation under the (Act) pursuant to a reverse redlining theory where it did not allege that the defendant acted as a mortgage lender.”

On appeal, a three-justice panel of the Illinois First District Appellate Court answered the question in the affirmative, and further said they agreed with Larsen’s interpretation of the law as it concerned Wildermuth and Kleanthis.

“The Attorney General’s allegations concerning defendants’ residential loan modification services are neither too far removed from transactions in the residential real estate market nor lacking any connection to the financing of residential real estate,” First District Appellate Justice Bertina Lampkin wrote in the appellate decision.

The defendants then took the question to the Supreme Court, which agreed to hear the case.

And, on ultimate appeal, the high court said the lower courts had interpreted the law correctly, but had misapplied it in this case.

Justice Robert Thomas authored the Supreme Court opinion, with the backing of all of the court’s other justices.

In the court’s opinion, the case hinged upon the application of a phrase in the law, under which the state must prove someone accused of reverse redlining or other housing discrimination was actually engaged in “brokering or appraising of residential real property and the making or purchasing of loans or providing other financial assistance:  for purchasing, constructing, improving, repairing or maintaining a dwelling…”

In this case, the justices said, the attorney general and the judges who sided with her had been correct in asserting the state had the power to bring reverse redlining discrimination charges against non-mortgage lenders. But, the justices said, in this particular case, the state fell short in its attempted application, asserting Wildermuth and Kleanthis, in offering loan modification promises, provided “other financial assistance … for maintaining a dwelling.”

“We agree with the appellate court that, under the Act, it is not necessary to allege that one is a mortgage lender to sustain a claim for a violation of the statute,” Thomas wrote. “We find, however, that the grounds relied upon here with respect to the ‘other financial assistance’ language were lacking.”

Thomas said the attorney general had stretched the definition of the phrase “maintaining a dwelling” beyond what the law actually means.

 “In our view, the most plausible definition of ‘maintaining’ conveys the sense of keeping property in a state of repair, not simply preventing it from being foreclosed upon, as the Attorney General suggests,” Thomas wrote.

And the justices said they disagreed with the lower court judges who had used case law to essentially accuse the defendants of using their positions to block needed financial assistance from reaching the financially troubled homeowners.

“It is hard to fathom how ‘interfering’ with someone’s ability to obtain financial assistance is the same thing as ‘providing’ financial assistance,” Thomas wrote. “Defendants were no more a necessary channel through which funds flow … than a druggist is a channel through which drugs flow (i.e., medical assistance), and therefore accepting the appellate court’s interpretation would be … to ‘strain the language [of the statute] past the breaking point.’”

The justices also rejected the alternative assertion the defendants had operated as “real estate brokers” in offering their services.

“Here, there is no allegation in the complaint that defendants actually brokered any short sales,” the justices wrote. “The complaint merely alleges that defendants ‘recommended’ or ‘suggested’ short sales and claimed to be able to negotiate them. Nor is there any allegation in the complaint that defendant altered any terms or services in connection with a short sale because of unlawful discrimination.”

Wildermuth has been licensed to practice law in Illinois since 1989. There is disciplinary action pending against him, according to the Illinois Attorney Registration and Disciplinary Commission. Kleanthis is licensed in Illinois as a real estate managing broker.

Wildermuth and Kleanthis are defended by the firm of Troutman Sanders, which is headquartered in Atlanta, Ga., with offices in Asia and North America, including Chicago.



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Organizations in this Story

Illinois Supreme CourtIllinois First District Appellate CourtTroutman SandersIllinois Attorney General