Eight Black homeowners in New York City sued Emigrant Mortgage Company and its affiliates, alleging that the lender violated federal, state, and city antidiscrimination laws. The plaintiffs were targeted by the lender's STAR NINA loan program, which offered refinancing loans to borrowers with high home equity but no income or asset verification. These loans carried exorbitant 18% default interest rates and were designed to fail, leading to foreclosures that stripped homeowners of their equity. The plaintiffs alleged that Emigrant systematically targeted Black and Latino borrowers in poor neighborhoods with these predatory terms. After a jury found in favor of the homeowners and awarded damages, Emigrant appealed, arguing the claims were time-barred, the jury instructions were erroneous, and a release provision signed by two plaintiffs should bar their claims.
The Second Circuit addressed three primary issues. First, regarding timeliness, the court held that the relevant injury was the systemic discrimination, not the individual loan closing. Because the plaintiffs could not reasonably have known they were victims of a discriminatory pattern until they encountered other victims or learned of the lender's targeting strategies, the doctrine of equitable tolling applied. The court found that Emigrant's sophisticated and self-concealing practices prevented plaintiffs from discovering their claims within the statutory period. Second, the court reviewed the jury instructions on disparate impact and disparate treatment. It found no reversible error, clarifying that plaintiffs do not need to prove racial animus or hatred to establish intentional discrimination, only that race was a motivating factor. The instructions on disparate impact were deemed sufficient to require a showing of a substantial adverse impact on a protected class. Third, the court addressed the enforceability of a release provision signed by two plaintiffs during a loan modification. The court ruled the release unenforceable as a matter of law, citing the Truth in Lending Act and New York public policy which prohibit broad waivers of claims in residential mortgage transactions, particularly when such waivers would undermine the federal policy against housing discrimination.
The decision reinforces the viability of reverse redlining claims by extending the statute of limitations through equitable tolling when defendants engage in self-concealing discriminatory schemes. It clarifies that plaintiffs need not prove racial animus to win disparate treatment cases and establishes that broad waivers of discrimination claims in loan modification agreements are void as against public policy. The case is remanded to enforce the jury's damage award, ensuring that lenders cannot use loan modifications to shield themselves from liability for prior discriminatory lending practices.