BEFORE THE IOWA CIVIL RIGHTS COMMISSION
VINCENT LEWIS, Complainant, and IOWA CIVIL RIGHTS COMMISSION,
vs.
HURL KNIGHT, Respondent.
Findings of Fact Continued
F. Respondent's Balloon Payment Reason Has Not Been Shown to Be a Pretext for Discrimination:
Balloon Payment Offer Chronology:
34. The balloon payment provision that was offered the Knights came about through their negotiations with two women, Ms. Richards and Ms. Barton. Barton and Richards had originally made a written offer dated March 7, 1990, whereby they would have rented the house until September 1, 1990. On that date, an option would go into effect, for which they would have paid $500.00, whereby they would assume the Watsons' contract with the Knights under the same terms as the Watsons. (R. EX. A; C; Tr. at 112-13, 114-15). This original offer of Barton and Richards had no balloon payment provision. (R. EX. A; Tr. at 167). This was the offer to which the Lewis offer was accepted as a back-up offer by the Watsons. (Tr. at 115).
35. Respondent Knight did not recall whether he saw the initial written offer submitted by Barton and Richards, but he had been informed of its contents by Marlys Watson, Barton's and Richards's broker. (Tr. at 141-42). He ultimately refused to give his approval to this initial offer of Barton and Richards because he and his wife thought they could get a better offer from them. (Tr. at 143).
36. The Knights continued to negotiate with the real estate agents of the Watsons and Barton and Richards. Through these negotiations, they came up with an amendment to Barton's and Richards's original offer which would include a five year balloon payment. (R. EX. B; Tr. at 143). The final offer of Barton and Richards provided for a period of rental until July 1, 1990 followed by an option for a new contract between the Knights and Barton and Richards with the five year balloon payment provision requiring the payment of all of the remaining principal on August 1, 1995. (R. EX. B).
37. While the negotiations were going on with Barton and Richards, the Knights were also dealing with Complainant Lewis. Respondent Hurl Knight showed the house to Lewis on the 27th because there was always the possibility that the Barton and Richards deal might not go through. This activity also seemed to be a reasonable way to help the Watsons sell the house. (Tr. at 145-46).
38. Although these negotiations were continuous, the final offer of Barton and Richards was not reduced to writing and submitted to the Watsons until March 28th, and not signed until the 29th, after Complainant Lewis was informed by Respondent Knight of the rejection. (R. EX. B; Tr. at 17, 81-82, 143, 150). But, Knight was aware of the substance of the offer before it had been reduced to writing. (Tr. at 143).
39. In September of 1990, Barton and Richards, after an extension of the rental period by the Watsons, choose not to exercise the option and paid $500.00 to the Watsons in order to be released from the contract. (Tr. at 121-22).
Significance of the Balloon Payment Provision for the Knights:
40. The greater weight of the evidence shows that the balloon payment offer was of significance to the Knights. When the Knights entered into their original contract with the Watsons, they were not satisfied because it was a 30 year contract. (Tr. at 137). At the time they entered into the contract, the Knights were approximately 64 years old. They would have preferred a "cash deal" or shorter term contract if they could get it. (Tr. at 137-38). This concern remained at the time of Complainant Lewis's interest in the property. (Tr. at 157). Therefore, they felt the balloon payment offer was superior to the offer of Complainant Lewis as they would have a chance of recovering their money in five years, as opposed to the 15 years offered through Lewis's amended offer. (Tr. at 147, 161-62).
41. Real estate broker Ed Harris acknowledged that a five year balloon payment provision could be important to the Knights. He acknowledged that the five year balloon provision in Barton and Richards final offer was superior to any offer made by Lewis. (Tr. at 99-100).
Respondent Knight Give His Approval to the Barton and Richards Balloon Payment Offer:
42. Sometime after his rejection of Complainant Lewis's offer, Respondent Knight gave his approval to the second Barton and Richards' offer in the sense of verbally telling Watson that offer was "the one that I wanted to go along with." (Tr. at 146-47). See Finding of Fact No. 20. Certainly, Phylip Watson understood this to be an acceptance or approval of Barton and Richards' offer. (Tr. at 120). Barton and Richards were permitted to rent the property based on this understanding. (Tr. at 112). Based on his expectation that Barton and Richards would exercise their option and purchase the property, Knight clearly believed that Barton and Richards had the power to exercise the option, that the option was valid, and that it would have been effective if exercised. (Tr. at 160). Respondent Knight stood ready to enter into a written contract for sale to Barton and Richards in the event they exercised their option to buy and came up with the down payment. (Tr. at 147-48). Respondent Knight understood that he "took the best deal, as far as I was concerned, for my interest." (Tr. at 151).
43. There is some testimony by Respondent Knight, and a position set forth in Knight's brief, to the effect that Knight actually accepted no offer. Both the testimony and the brief position seem to be based on the fact that the Knights had not yet entered into a signed written contract with Barton and Richards. (Respondent's Brief at 8, 11, 12; Tr. at 146-7). (Tr. at 146-147). But, under the terms of Barton and Richards offer to the Watsons, this event would not happen until Barton and Richards exercised their option to buy. (R. EX. B). Thus, the question of whether the Knights gave their approval to the transaction between the Watsons and Barton and Richards, as required by the contract between the Knights and the Watsons, should not be confused with the question of whether the Knights had entered into a written contract with Barton and Richards. For reasons set forth in Finding of Fact number 42, it is clear that Respondent Hurl Knight did give his approval to the transaction between the Watsons and Barton and Richards.
Commission's Position on Pretext is Not Supported by the Evidence:
44. On brief, the Commission identifies several propositions which it believes demonstrate that the balloon payment reason is a pretext for discrimination. Commission's Brief at 11-12. These propositions may be summarized as follows:
a. Because Watson normally saw written offers before Respondent Knight, and did not see the written balloon payment offer until after Complainant Lewis was rejected, Knight could not have known about any balloon payment offer at the time of Lewis's rejection.
b. The second argument is based on the premise that the Knights would not have engaged in negotiations with Lewis if they were engaged in serious negotiations with Barton and Richards with respect to a balloon payment offer. Since the facts indicate that, prior to meeting Complainant Lewis, Respondent Knight was seriously negotiating with Lewis, "the balloon payment offer could not have been important to Mr. Knight."
c. Because Knight told Watson he was going to choose Lewis's offer over an offer of Barton and Richards, Knight's ultimate selection of Barton's and Richards's balloon payment offer must have been due to Knight's becoming aware of Lewis's race.
d. If Respondent Knight had been negotiating a balloon payment, he would have mentioned it to the Watsons and Complainant Lewis. Since Barton and Richards were having problems coming up with their initial down payment, it is doubtful that they could come up with over $20,000 five years later. A balloon payment offer from Lewis, however, would have had substance. The failure to mention a balloon payment alternative to Complainant Lewis indicates he was not given the chance to make such an offer due to his race.
45. The first proposition is not valid because although the preponderance of the evidence shows that initial written offers were first given to Watson and then to Respondent Knight, it does not follow that the Watsons were necessarily informed of further offers or amended offers, either written or unwritten, resulting from negotiation with the Knights before the Knights were so informed. (Tr. at 119-20, 153- 54). The record in this case demonstrates that there were two amended offers which resulted from direct negotiations between potential buyers and the Knights. One such offer, which had not been reduced to writing at the time Knight was first informed of it, was the five year balloon payment offer of Barton and Richards. (R. EX. B; Tr. at 143-45). The other such offer was the written amended offer made by Complainant Lewis after his real estate broker, Ed Harris, had negotiated directly with Respondent Knight. (CP. EX. # 2; Tr. at 12, 14, 71-73, 75-76, 99, 148).
46. The second proposition is not valid because it rests on the premise that serious negotiations concerning the sale of the house could not simultaneously take place between the Knights and two or more potential buyers. There is no evidence in the record indicating why the Knights could not seriously negotiate simultaneously with more than one party. The Complainant's real estate broker, Ed Harris, acknowledged that it is a frequent occurrence in the real estate business for deals, which were thought to be final, to fall through because a better offer comes in from another party with whom the seller is negotiating. (Tr. at 94-95). Also, the evidence demonstrates that the point where serious continuing consideration was being given to Lewis's offer was prior to the time that Knight became aware that Lewis would be renting out the house and that neither Lewis nor a close relative would be occupying the house. Once the Knights became aware of this on March 27th, they lost interest in the Lewis offer and ultimately chose to reject it. (CP. EX. # 5; Tr. at 18, 37, 82-83, 104, 160-61).
47. The third proposition is also not valid. It is true that, with respect to the first offer of Barton and Richards, which had no balloon payment provision, Respondent Knight did indicate to Phylip Watson that Complainant Lewis's offer was preferable. (Tr. at 116-17, 123-24, 165-67). This does not mean that Complainant Lewis's offer was better than Barton's and Richards's second offer with the balloon payment provision. (Tr. at 166-67).
48. The fourth proposition is not valid for several reasons. There is no evidence which directly shows why Respondent Knight did not mention the balloon payment offer to the Watsons or Lewis or give Lewis a chance to make such an offer. However, the previously discussed evidence shows that, once Respondent Knight was aware that neither Complainant Lewis nor a close relative would be occupying the property, Knight saw no reason for further negotiations because he preferred to sell to an owner-occupant. See Findings of Fact Nos. 25-33.
49. It is true that Barton and Richards were having difficulty making the down payment. The reason they requested an initial rental period was so they could use their income tax refunds to make the down payment. (Tr. at 115, 147). To conclude that this shows Barton and Richards would not have been able to make the balloon payment in 1995 relies on the assumption that Barton and Richards would be making that payment out of their own pockets without obtaining new financing.
50. Balloon payment financing is not unusual for home buyers who, like Barton and Richards, may have difficulty making a down payment or in obtaining conventional financing. Official notice is taken of the following facts based on the Commission's specialized expertise with respect to housing. Fairness to the parties does not require that they be given the opportunity to contest these facts:
a. A "balloon payment" usually refers to the final payment of principal under a financing instrument, whereby the final payment is much larger than the preceding periodic payments and usually consists of all the remaining principal. See Conclusion of Law No. 24.
b. Such "balloon payments" are usually incorporated in mortgages in times of high interest rates as a device to permit potential buyers, who are not able to obtain conventional financing, to buy a home. The underlying assumption, which applies equally well to land contracts, is that, there will be a change in circumstances, such as a decline in interest rates, before the time the balloon payment is due. Because of this change, the buyers will be able to obtain a conventional mortgage or other financing to enable them to make the final payment. Of course, the risk to the buyer is that he or she may not be able to obtain such financing and lose the home due to inability to make the balloon payment. See Conclusion of Law No. 25.
51. The potential advantages to the vendors, the Knights, in the second Barton and Richards offer were great. First, if Barton and Richards exercised their option, the Knights would have the assurance, during the five years of the contract preceding the balloon payment, that the building was being occupied by the owners and not by tenants. See Findings of Fact Nos. 33, 36.
52. Second, in the event Barton and Richards were able to obtain conventional financing, such as a mortgage, to pay off the balloon payment, which would constitute all the remaining principal, the Knights would receive the full purchase price in exchange for giving up legal title to the property. The contract would be completed. The Knights would have their money and would be free of any future concerns with respect to the property. See Finding of Fact No. 36. See Conclusion of Law No. 24-25.
53. Third, in the event Barton and Richards were not able to pay off the balloon payment, and a forfeiture clause were included in the installment contract, the Knights would be able to work a forfeiture which would restore their rights to the property while allowing them to keep the payments that had been made. See Conclusion of Law No. 8.
54. There is no offer which would be absolutely risk free to the Knights except, perhaps, a cash payment for the property. The Knights were free to weigh the potential risks and benefits of the Barton and Richards offer and the Complainant Lewis offer. While there was a potential risk that Barton and Richards would not take the option or, if taken, would not obtain financing to make the balloon payment, there were also the potential benefits of owner occupancy and completion of payments within five years. It was not racially discriminatory for Respondent Knight to select this package of potential risks and benefits over the potential risks and benefits inherent in selling the property to an owner, Complainant Lewis, who would be renting it out and whose payments would take fifteen years to complete.
Misunderstandings Reflected by the Complaint:
55. There are two misunderstandings reflected in the complaint with respect to Barton and Richards second offer which may have played a role in leading Complainant Lewis to believe that his race was a factor in his rejection. The misunderstandings are that the down payment offered by Barton and Richards was less than that offered by Complainant Lewis and that the Barton and Richards second offer was "less than my offer." (Notice of Hearing-Complaint; Tr. at 36).
56. Neither of these is true. The down payment offered in the second offer by Barton and Richards was $3300.00. (R. EX. B). The down payment offered by Complainant Lewis was $2900.00. (CP. EX. # 1). This was not changed by the Complainant's amended offer. (CP. EX. # 2). The price offered by Barton and Richards was $26500.00. (R. EX. B; Tr. at 49). The price initially offered by Lewis was $26311.00. (CP. EX. # 1; Tr. at 47). The new contract price was left blank on Complainant Lewis amended offer because he wanted to buy out the Watson's interest and he did not know the exact balance. (CP. EX. # 2; Tr. at 73). The Barton and Richards offer had 15 year amortization with a five year balloon payment while Lewis had a 15 year amortization with no balloon payment. (R. EX. B; CP. EX. # 2).
57. The Commission and Complainant Lewis have not established by a preponderance of the evidence that the legitimate, non-discriminatory reasons given by Respondent Knight for failing to give his prior approval of the proposed sale to Lewis are pretexts for discrimination.
G. Credibility Findings:
58. All the witnesses, including Complainant Vincent Lewis, Respondent Hurl Knight, Edward Harris, and Phylip Watson told the truth as they understood it at this hearing. None of the witnesses gave willfully false testimony. As previously discussed, there were some honest misunderstandings by both Complainant Lewis and Respondent Knight with respect to various points in their negotiations on sale of the property. See Findings of Fact Nos. 29, 30, 55-56. The conclusion reached by the Complainant and Ed Harris, to the effect that Complainant Lewis was denied housing due to racial discrimination, is rejected due to lack of supporting evidence, either direct or circumstantial. Their belief that Complainant Lewis was denied housing due to his race is no doubt sincere, and understandable in light of the still widespread existence of racial discrimination in our society, but must be rejected as this belief is not supported by the greater weight of the evidence.