The United States of America, plaintiff herein, respectfully moves this Court, pursuant to Rule 41(a) (2), Federal Rules of Civil Procedure. for an order dismissing the Society of Real Estate Appraisers ("SREA") as a defendant in this action, under the terms of the Stipulation Between the Plaintiff and the Defendant Society of Real Estate Appraisers entered on July 21, 1978 and the proposed Order of Dismissal filed

herewith.

The grounds for this motion are more fully set out in the attached memorandum in support, which is incorporated herein.

Memorandum In Support Of Motion Of The
United States For Voluntary Dismissal Of
Defendant Society Of Real Estate Appraisers

The United States brought this action on April 16, 1976 alleging that the defendant associations were violating Title VII of the Civil Rights Act of 1968, 42 U.S.C. 43601, et seq., by requiring or encouraging their members to engage in certain conduct described in the Complaint. The defendants denied the substantive allegations of the Complaint and raised a number of affirmative defenses, including the defense that their actions were protected by the First Amendment. The United States, plaintiff herein, and the Society of Real Estate Appraisers ("SREA"), one of the parties defendant herein, have entered into a stipulation which they believe makes it unnecessary for the Court to resolve any factual or 1 legal issues as between them. Accordingly, plaintiff has filed a motion for voluntary dismiss, with prejudice, of SREA as a party defendant in this case, subject to good faith execution of the terms and conditions of the stipulation by SREA. This Memorandum is submitted in support of

Under Rule 41(a) (2), Federal Rules of Civil Procedure, a court may dismiss an action “at the plaintiff's instance... upon such terms and conditions as the court deems proper." Here, the parties affected by this motion have agreed to a Stipulation Between the Plaintiff and the Defendant Society of Real Estate Appraisers (hereinafter Stipulation), filed herewith, which specifies certain actions to be undertaken by each of them. Counsel for the United States has seen the policy statement that will be issued pursuant to paragraph 2 of the Stipulation. While the government neither endorses the policy statement nor represents it as a proper or definitive legal interpretation of Title VIII, the plaintiff is satisfied that, given good faith application, the policies described in the statement make it clear that SREA does not require or encourage its members to engage in the conduct alleged in the Complaint.

Consequently, plaintiff believes that the purposes of Title VIII will be promoted by the orderly termination of this case as to SREA under the terms of the Stipulation without the need of protracted litigation. No party to the case will be prejudiced by the requested dismissal. Since the dismissal is with prejudice, SREA can be assured of a final end to this litigation so long as there is good faith execution of the terms of dismissal. As noted above, plaintiff is satisfied that good faith execution, consistent with the policy statement and the Equal Opportunity Resolution of SREA, will assist in accomplishing the goals of fair housing and equal opportunity within the appraisal field." No other party defendant to this action will be prejudiced in any way by the dismissal.

Dismissal pursuant to Rule 41(a) (2), FRCP, under the circumstances in this case, "must be determined through the exercise of the court's discretion." Fair v. Trans World Airlines, 22 F.R.D. 60, 63 (E.D. Ill., 1957). Where, as here, the parties directly affected by the dismissal have agreed that they will not be prejudiced by the terms of dismissal and where, as here, no other party will be prejudiced, the Court should grant the motion. Ibid at 63-64.

CONCLUSION

For the foregoing reasons, plaintiff prays that the Court grant its motion for voluntary dismissal of SREA as a party defendant. A proposed Order of Dismissal, approved by counsel for SREA and counsel for plaintiff, has been filed with this memorandum and we respectfully request that the Court effectuate any dismissal by entry of that order.

THOMAS P. SULLIVAN

United States Attorney

J. DANIEL STEWART

Assistant United States Attorney

Respectfully submitted,

DREW S. DAYS III

Assistant Attorney General

THOMAS M. KEELING

SANDRA LYNN BEBER

NANCY K. RHODEN

Department of Justice

Policy Statement: SREA Educational And Professional Concepts Relating
To Neighborhood Analysis And The Formation Of An Opinion Of Value
Of Properties Located In Residential Settings

SREA teaches that an appraisal is an objective, dispassionate report of market facts. The appraiser's personal biases or prejudices should never appear. Conclusions should be based on professional judgment only. An appraiser, in forming an opinion of market value in a neighborhood, must consider a melding of multiple factors and forces which may affect cost, sales price, rents, and ultimately, value. These factors and forces include, but are not limited to, a combination of economic, social, political and physical forces which interrelate and are in a constant state of change. The appraisal process is dynamic, never static because the environment within which appraisals are developed is itself not static.

An appraiser must not focus upon any single factor or force to the exclusion of others. Neither can the appraiser overlook any single factor that observation demonstrates can and does affect value. An appraiser must consider a range of interrelated and constantly changing factors and forces. The use of “stereotypes" or preconceived biased concepts of value is anathema to the appraisal process.

SREA teaches, and has always taught, that it is improper for an appraiser to base an opinion of value upon biased concepts or upon unsupported preconceived notions or presumptions of value. Such opinions, in and of themselves, represent irresponsible appraisal practice. Particularly in light of the dynamic of neighborhood change and the appraiser's responsibility to carefully and conscientiously evaluate all factors and forces affecting that dynamic, an appraiser must never allow emotion or advocacy to enter into or affect the presentation and analysis of demonstrable facts. An appraiser must consider all observable factors and forces impinging upon market value within a neighborhood.

SREA does not teach that the achievement of maximum value within a neighborhood is somehow dependent upon the homogeneity of racial, religious or ethnic factors.

SREA does not teach that the lack of homogeneity of racial, religious or ethnic factors must result in a diminution of value-within a neighborhood.

Further, SREA does not teach that racial, religious or ethnic homogeneity is required for social compatability or neighborhood stability to exist. An appraiser should, therefore, carefully avoid any conclusory references to any factors in the neighborhood dynamic which are premised upon stereotyped, biased or prejudiced conclusions of market value.

SREA does not teach that neighborhood stability or value are necessarily affected, positively or negatively, by the movement into or out of a neighborhood of a different racial, religious, or ethnic group. The weight, if any, given neighborhood stability depends upon its market significance and the appraiser's ability to properly and responsibly evaluate that market significance. Automatic downgrading or upgrading of value in a changing neighborhood because of the influx of any non-homogeneous group within a homogeneous neighborhood setting is contrary to sound, rational judgment. Moreover, it contravenes a basic tenet of SREA's professional directives to its members, namely, that an appraiser must avoid biased conclusions or other non-objective approaches to articulating an opinion of market value.

SREA teaches that an appraiser must observe and be cognizant of a range of factors and forces operating within a neighborhood setting and that any change in that setting must be recorded and evaluated. However, any stereotyped conclusions of positive or negative value changes relating to changing neighborhood patterns are contrary to responsible appraisal practice. Further, SREA teaches that an appraiser has an obligation to investigate and consider any factor or force which might signal a changing pattern of rents and/or sales prices within a neighborhood setting.

SREA does not teach that the use of the word "homogeneous” in describing a neighborhood or that the phrase "inharmonious groups" are intended to be used or should be used as code phrases to connote or denote racial, religious or ethnic characteristics. SREA teaches that "harmonious" groups within a neighborhood are groups that are socially and economically compatible.

SREA does not teach that the simple observation that a neighborhood is undergoing racial, ethnic or religious integration or change must be used as a negative factor in forming an opinion of value. Such a simplistic conclusion would be non-objective and probably inaccurate; it would also be totally contrary to the basic SREA teaching concept that the appraisal process requires the orderly observation, acquisition and analysis of all relevant factors and forces which may affect value. To focus upon any one factor, whatever that factor might be, to the exclusion of other factors or forces within a complex neighborhood dynamic, is and has always been irresponsible appraisal practice.

SREA teaches that neighborhood factors and forces, being in a constant state of change, must be observed, recorded and analyzed with the recognition that some of those factors and forces are not readily susceptible to quantitative analysis. Extreme care must be taken in articulating and considering any factor or force which is not easily measured.

The responsible appraiser must recognize that the dynamic interplay of neighborhood forces and factors directly affects the opinions and hence the behavior of buyers and sellers of property within a neighborhood setting. These opinions, like the neighborhood dynamic, are constantly changing.

SREA does teach that an appraiser must be cognizant of building and occupancy regulations and/or of code compliance requirements within a particular jurisdiction. However, such requirements cannot be used as a basis for avoiding the effects of federal and state fair housing laws which prohibit discrimination on the basis of racial, ethnic and religious factors in the sale, rental and financing of housing.

This statement of policy relating to certain aspects of neighborhood analysis and the formation of an opinion of value of properties located in residential settings is and should be considered an integral part of sound appraisal practice and as such is and should be followed by members of SREA.

SEP 6 2 23 PH '78

EQUAL

WASHING
OPPORTUNY
FAIR HOUSH
ASSISTANT SEL RETAR

the

I recently approved the convening of a HUD Task Force direction of the Assistant Secretary for Fair Housing and Equal Opportunity to examine our appraisal and mortgage loan underwriting practices. Members of the task force have already identified some specific activities we can undertake to eliminate unfair lending and appraisal practices. I want to inform all HUD staff of the policy changes the task force will implement.

The responsibilities of this Department in the development of able urban neighborhoods are manifold, and principal among them is the responsibility delegated by Congress through Title VIII of the 1968 Civil Rights Act, the Federal Fair Housing Law, to administer all of our programs and activities relating to Housing a. d Urban Development in a manner which affirmatively furthers the goal of fair housing.

Title VIII states that "It is the policy of the United States to provide within constitutional limitations for fair housing throughout the United States." Title VIII provides that it is unlawful to discriminate against any person "in the fixing of the amount, interest rate, duration, or other terms or conditions" of a loan or in the setting of "terms, conditions or privileges" of the sale or rental of a dwelling or to "otherwise make unavailable or deny" a dwelling because of race, color, religion, sex or national origin. The Supreme Court, citing the remarks of Vice President Mondale, when he was one of the Senate's principal proponents of the Fair Housing Act, has observed that the reach of the law was to "replace the ghettos by truly integrated and balanced living patterns."

Many stable and improving neighborhoods are comprised of home owners and tenants of diverse racial, ethnic and religious background's, living in pleasant and desirable enviroments. Racial, ethnic and religious factors are unreliable predictors of value trends and mortgage risk, and the use of such factors in appraisal and underwriting determinations is unlawful under the Federal Fair Housing Law.

2

As a part of President Carter's Urban and Regional Policy Group, HD co-chaired a task force which was responsible for identifying and .examining issues which affect the availability of mortgage credit iz urban areas of this country. Among its findings, that task force noted that appraisal and mortgage loan underwriting practices have a major impact on the availability of credit.

A constant supply of capital for the purchase and rehabilitation of homes in our older, urban neighborhoods is one critical factor in determining whether those neighborhoods will deteriorate. The practice of discriminating against certain neighborhoods and homes in the provision of mortgages and rehabilitation loans simply because they are old, without regard to the creditworthiness of the borrower or the structural condition of the property, leads to the decline of otherwise sound neighborhoods and particularly affects racial and ethaic minorities who are often a substantial component of these neighborhoods.

Renewed interest in inner-city living and the stable character of many older neighborhoods have shown that old notions about neighborhood life cycles and the inevitability of decline in mature neighborhoods are no longer pertinent. The efforts of local community organizations and governments at all levels can preserve neighborhoods and even reverse downward trends.

We here at HUD must assure that Departmental appraisal and underwriting standards and practices used in mortgage insurance and secondary market transactions are nondiscriminatory not only in purpose but in effect. I have directed all offices within the Department with responsibility for overseeing or implementing loans, loan insurance, appraising activity and policy documents on neighborhoods to review and revise as necessary their standards and practices, and their handbooks, forms and other issuances, to assure compliance with the Federal Fair Housing Law and HUD policy. These revisions must reflect the following major policies:

1.

2.

Factors relating to race, color, religion, sex or national origin, or to racial, religious and ethnic identification of neighborhoods are not relevant to the estimation of value and should not be considered in connection with appraisals of residential real property.

Factors relating to race, color, religion, sex or national origin, or to racial, religious, or ethnic identification of neighborhoods are not relevant to the assessment or measurement of risk and should not be considered in the underwriting of residential loans or the underwriting of mortgage insurance.