FHCCI, Rainbow Realty reach $750K settlement in rent-to-own housing lawsuit

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A Rainbow Realty sign advertises a rent-to-buy property in Indianapolis. (IL file photo)

The Fair Housing Center of Central Indiana and Rainbow Realty Group Inc. have announced a $750,000 settlement in a dispute over an allegedly predatory rent-to-own program.

The settlement was announced March 22. It has been preliminarily approved by Judge Jane Magnus-Stinson of the Indiana Southern District Court, with a final approval hearing set for May 11.

The agreement stems from FHCCI’s lawsuit, filed on behalf of clients in 2017, that alleged Rainbow Realty ran a discriminatory rent-to-own program. As part of the settlement, Rainbow Realty admits to no harm or wrongdoing.

Amy Nelson, FHCCI’s executive director, told Indiana Lawyer in an email Wednesday she could not make any additional comments on the settlement.

Rainbow Realty founder James Hotka could not be reached for comment. An employee at the Rainbow Realty office sad Hotka was out of the office but would respond at his earliest convenience.

The settlement provides compensation for Rainbow rent-to-buy customers and the FHCCI, according to a news release. Court documents define the class of plaintiffs as “all persons who entered into an RTB (rent-to-buy) Agreement at any time during the Class Period and have not paid off their RTB Agreement.” The class period includes all time between Jan. 1, 2009, and Sept. 30, 2019.

According to court documents, $575,000 will be placed in a settlement fund while the remaining $175,000 will be paid to the Relman Colfax PLLC’s IOLTA account. Relman Colfax and Riley Cate LLC represented the FHCCI and the class in the lawsuit.

Of that $175,000, FHCCI will receive $50,000 while $125,000 is designated for the payment of claims filed by five individuals. The agreement also provides instructions for the distribution of the settlement fund to the class representatives.

Additionally, the settlement calls for the implementation of several fair housing-related policies. That includes, among other things, Rainbow Realty agreeing to ensure that “all officers, directors, management-level employees, and employees who interact with customers receive comprehensive training about the fair housing laws, lending discrimination, and predatory lending by a trainer and with a length and agenda approved by the Director of the State of Indiana HUD (Housing and Urban Development) Field Office.”

According to Relman Colfax’s website, the plaintiffs in the case included more than 3,000 current and former Rainbow customers who entered into rent-to-own contracts since 2009, five individual named plaintiffs and FHCCI.

The lawsuit alleged Rainbow used the promise of homeownership to lure people into toxic “rent-to-own” contracts for rundown houses, reviving predatory land contract practices that denied fair homeownership opportunities to residents of minority neighborhoods during much of the 20th century.

The case was certified as a class-action lawsuit to determine whether defendants violated the Fair Housing Act, the Equal Credit Opportunity Act and the Truth-in-Lending Act, and to address damages for alleged Truth-in-Lending Act violations.

The class was certified in March 2020, and then in March 2021 and August 2022, the court issued summary judgment orders that limited the plaintiffs’ claims.

In October of 2022, the parties agreed to resolve the matter.

The case is Fair Housing Center of Central Indiana, Inc., et al. v. Rainbow Realty Group, Inc., et al., 1:17-cv-01782.

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