Eight Black homeowners (the “borrowers”) obtained “no income, no asset” loans from a bank (the “lender”) beginning in 2004, each loan carrying high default interest rates and was structured around the borrowers’ home equity rather than the borrowers’ repayment capacity. After default and foreclosure proceedings, the borrowers brought “reverse redlining” claims under the Fair Housing Act, the Equal Credit Opportunity Act, and the New York City Human Rights Law, alleging that the lender disproportionately targeted minority communities with a lending program designed to generate profit through targeting borrowers likely to default. Because the loans had been issued between 2004 and 2009, and the suit was not filed until 2011 and 2014, the lender argued that the statutes of limitation barred the claims. The borrowers responded that the limitations periods were tolled under the doctrine of equitable tolling because the borrowers could not reasonably have discovered the alleged discriminatory scheme until learning of similar treatment of other minority borrowers. The district court agreed. The lender further argued that two of the claims were barred as a matter of law by a contractual release-of-claims provision in the modification agreement. A jury initially found the two claims to have been voluntarily waived; however, after the district court ordered a new trial, the jury awarded damages. On appeal, the lender challenged: (1) the district court’s equitable tolling ruling, (2) the jury instructions on disparate impact and intentional discrimination, and (3) the enforceability of a release-of-claims provision contained in a loan modification agreement signed by two borrowers.
In Saint-Jean v. Emigrant Mortg. Co., 129 F.4th 124 (2d Cir. 2025), the Second Circuit affirmed the judgment below, holding that the district court had not abused its discretion. When applying equitable tolling, the circuit court agreed with the district court’s opinion that the relevant injury was the discriminatory targeting practice the lenders engaged in, rather than the unfavorable loan terms, and the borrowers could not reasonably have discovered the alleged systemic discrimination within the statutory period. The court further stated that extenuating circumstances prevented borrowers from being on notice, and even if the claims accrued at closing or at the time of default on the loans, the district court did not abuse its discretion in equitably tolling the statute of limitations until the borrowers knew, or had reason to know, of the lender’s broader discriminatory practices. In reviewing the jury pattern, the court concluded that the instructions on disparate impact and intentional discrimination, read as a whole, adequately conveyed the law. The court further concluded that the language used by the district court did not significantly differ from the language the circuit court uses, which almost exactly matched that in the federal jury pattern. Finally, the court held that the release-of-claims provision in the loan modification agreement was unenforceable because it went against federal and state public policy, which prohibits broad waivers in residential mortgage transactions. The court reasoned that 15 U.S.C. § 1639c(e)(3) clearly expresses the federal public policy against waiving claims of racial discrimination in mortgage agreements, and there was no indication that the current waiver should be an exception to the general rule. Accordingly, the judgment was affirmed.
By Noah Coggan [email protected]
Edited By Jace Brown [email protected]
Edited By Hayden Mariott [email protected]