It's reasonable to feel slighted when a co-op board rejects your application -- there's no clearer way of saying that, for some reason, you're just not good enough. But only if that reason is discriminatory do you have grounds for a lawsuit.
Unfortunately for prospective buyers, discrimination can be tricky to prove. Co-op boards in New York City and many other places aren't required to provide candidates with reasons for rejection, and in the eyes of the law, they're allowed to use "business judgment" when making their decisions [source: Kaye]. Specifically, the law states the following: "The board's actions must be (i) in furtherance of the purpose of the co-op; (ii) within the scope of its authority; and (iii) in good faith" [source: Frost]. What this means is that something as simple as the shade of lipstick you wear to the interview can provide a legal reason for rejection.
However, once in court, co-op boards are required to furnish these reasons for rejection in order to prove that they're not discriminatory. In fact, one of the major deterrents to lawsuits related to co-op rejections is the potential embarrassment of entering into public record the subjective reasons why an applicant was rejected. Who wants to pay hefty legal fees to be publicly admonished for their shade of lipstick?
That said, housing discrimination occurs, and applicants do sue and win. Specifically, decisions may not be based on race, color, creed, age, national origin, citizenship status, gender, sexual orientation, disability, marital and family status, lawful source of income and occupation [source: Taylor]. And some of these are tricky -- turning down an applicant just because they have kids is a no-no.
Most cases that are brought to court and won are based on rejection before the interview stage. Without introducing the subjectivity born of an interview (oh, that darn lipstick!), it's easier to prove that a board may be consistently rejecting financially qualified buyers with the last names Katz or Hernandez.
Also, note that co-op boards aren't the only link in the real estate chain governed by antidiscrimination laws. Brokers who steer potential buyers to neighborhoods and buildings that they deem "more appropriate" for their race, profession or family status are acting illegally.
Next, we'll look at some reasons why you might want to sue your co-op board once you're in.