Can Clearly Unenforceable Deed Restrictions Create Potential Liability for your Association?

Earlier this year, Channel 7 WXYZ did an exposé on a Bloomfield Township homeowners association called Wing Lake Farms, which had a 1948 deed restriction that states:

Second: That no lot, or any part thereof, shall be sold, conveyed, rented, leased or loaned by either party hereto to any person not of the pure, unmixed, white, Caucasian Gentile Race, nor shall any person not of the pure, unmixed white, Caucasian Gentile Race be permitted to occupy or use any lot or buildings erected thereon, except that an owner or tenant of the premises may employ servants thereon who are not of the pure, unmixed white, Caucasian Gentile Race.

Such deed restrictions are clearly unenforceable as a racial discrimination and have no place in today’s society. However, some associations have failed to update their deed restrictions to remove such language. This article explores the practical and potential legal consequences of not removing such clearly unenforceable deed restrictions.

History

In 1948, the United States Supreme Court in Shelley v. Kraemer, 334 U.S. 1 (1948) declared that racially restrictive deed restrictions violated the Fourteenth Amendment and would not be enforced by the courts. However, it remained legal for property owners and realtors to discriminate on the basis of race privately. It took a full twenty years after the Supreme Court’s decision in Shelley v. Kraemer for Congress to pass Title VIII of the Civil Rights Act of 1968, popularly known as the Fair Housing Act, a mere four days after the assassination of Martin Luther King, Jr. Since 1968, the Fair Housing Act has prohibited discrimination concerning the sale, rental and financing of dwellings and other housing-related transactions based on four protective classes: race, color, religion and national origin.

Practical and Legal Consequences of Keeping Unenforceable Deed Restrictions

While it is illegal to discriminate on the basis of race when buying or selling real property neither case law nor Congress specifically forced individuals or organizations to remove racial restrictions from property deeds. Thus, someone may say “If these racial restrictions are unenforceable as a matter of law, why do I need to remove them?” There are both practical and legal reasons to remove such obviously unenforceable deed restrictions.

On a practical level, associations with such deed restrictions may appear discriminatory, racist, non-inclusive and outdated even if the association has no such intent. Simply, there may be a stigma associated with associations that maintain such outdated language. As indicated in the Channel 7 news story above, Wing Lake Farms still has deed restrictions in 2016 from over sixty-five years ago.  For some context, by the 1940s, “more than 80% of property in Detroit outside of the inner city (bounded by Grand Boulevard) fell under the scope of racial restrictions.”  Sugrue, Thomas, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit. Princeton University Press 2005.  Thus, there are many practical reasons to remove such provisions, including but not limited to, appearing progressive and avoiding negative news coverage.

In addition to practical considerations, there may be real life legal ramifications for not removing such obviously unenforceable deed restrictions. In North Carolina NAACP, et al. v. Myers Park Homeowners Association, a panel in South Carolina found that an association’s deed restrictions were discriminatory and the association faced legal action because of outdated restrictions. Myers Park restricted sales to only “people of the Caucasian race” and the association posted the deed restrictions on its website with the statement, “The Myers Park Homeowners Association is dedicated to seeing that the deed restrictions are observed and enforced. The Association has a substantial legal fund and will, for example, provide financial backing for strategic lawsuits filed to enforce those restrictions….” Given that some prospective purchasers may have been discouraged from looking for a home in Myers Park, the panel found that the association engaged in discriminatory practices because it “published a statement or advertisement in connection with a prospective real estate transaction which indicated an intent to make a limitation, preference or discrimination based upon race.” Thus, not only are there practical reasons to remove such obviously unenforceable deed restrictions, but there are potential legal ramifications for not removing such provisions.

What to Do About Racial Restrictions

As an initial matter, the board of directors for associations with these types of deed restrictions should adopt a resolution, which states that racial restrictions are not enforceable and will not be upheld by the association. In addition, the association may include a disclaimer on their website or with their publications indicating that such racial restrictions will not be enforced. These initial actions by an association are a good first step to demonstrate that the association has no intention of trying to enforce clearly unenforceable deed restrictions until the deed restrictions can be amended to remove such language.

As a secondary matter, the association should remove such deed restrictions altogether. Amending deed restrictions takes three things: 1) a willingness on the part of members to amend very old documents, 2) time and 3) an attorney competent in amending deed restrictions. Given the recent 2015 changes to the Michigan Nonprofit Corporation Act, MCL 450.2101, et. seq. it is a good time to update outdated deed restrictions not only to remove discriminatory language, but also to obtain the benefits of recent changes in the law.

Joe Wloszek is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, large contractual disputes, and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. He can be reached at (734) 261-2400 or jwloszek@cmda-law.com.