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HUD issues guidance for renting to people with criminal history.


In 2013, HUD issued a final rule holding housing providers liable for policies that had a disparate impact on members of a protected class. Disparate treatment has been illegal since the passage of the Fair Housing Act (FHA). A disparate impact policy, however, does not have to be explicitly discriminatory to be in violation of the FHA. A policy that would affect any individual equally, but would have a disproportionate effect on a protected class, would be in violation of FHA. For example, having a blanket rule against renting to any convicted felon would not be disparate treatment as it would affect any felons equally regardless of their race. However, it would have a disparate impact on racial minorities who are disproportionately convicted of felonies.

When discussing disparate impact most people think of racial discrimination, but there are 12 federally protected classes: race, color, religion, national origin, age, sex, pregnancy, citizenship, familial status, disability status, veteran status and genetic information. State and local governments often have even more protected classes. For example, Madison, Wisconsin counts ancestry, source of income, arrest record, conviction record, credit history, military discharge status, physical appearance, sexual orientation, gender identity, political beliefs, familial, student and domestic partner status, receipt of rental assistance, Social Security number disclosure and atheists among its protected classes. Further complicating things, the discriminatory effect does not have to be intentional. A property manager could be held liable for discrimination without ever realizing it.

One of the most contentious points in the doctrine is the burden of proof. Deviating from the traditional "innocent until proven guilty" principal, HUD implemented a shifting burden test. First, the person bringing the charges must prove that the policy in question either did, or would, result in a disparate effect on a protected class. If successful, the burden shifts to the defendant to prove his/her own innocence. In order to do so, he/she must prove that the policy is necessary to achieve a substantial, legitimate, nondiscriminatory business practice. If the defendant is able to do so, the fight is not over. The burden shifts once more back to the plaintiff, who must then prove that the nondiscriminatory business practice could have been achieved with a different policy with a less discriminatory effect.


In January of 2015 the disparate impact rule finally had its day in court with the case Texas Department of Housing and Community Affairs v. Inclusive Communities Project. The Inclusive Communities Project claimed the Texas Department of Housing and Community Affairs had discriminated against a racial minority group by issuing more tax credits for building low income housing in the predominantly poorer black neighborhoods than in the more affluent white communities surrounding them. In a 5-4 decision, the court upheld the use of disparate impact as a basis for discrimination under the FHA, stating that the language of the FHA focuses on the results of actions and not on their intent.


On April 4th, 2016 the Department of Housing and Urban Development (HUD) published the "Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions." This new guidance marks a significant change in HUD's expectations for compliance with the Fair Housing Act (FHA).

HUD pivots drastically in the newest guidance from requiring equal treatment for all, to opposing blanket rules when reviewing rental applications. They recommend reviewing each applicant on a case by case basis taking into account the nature of the crime and timeliness of when it was committed. The notion being that when renting your unit located next to a day care, someone convicted of embezzlement 15 years ago should be considered differently than an applicant convicted of sexual assault of a minor a couple months ago.

Having a policy that creates a disparate impact is not inherently a violation of FHA, as long as you can prove there is a substantial, legitimate, nondiscriminatory business interest motivating the policy. Having a more narrowly tailored policy regarding how criminal history will be viewed that is backed up by evidence will help make your decisions more easily defensible. Also, it is important to stick to those policies and treat the comparable criminal history uniformly, regardless of any protected classifications.

HUD has also prohibited the use of arrest records when screening tenants. Terry Clemans, Executive Director of the National Consumer Reporting Association, said of the new guidance; "It's very clear that HUD and the Equal Employment Opportunity Commission (EEOC) are now on the same page. It has taken longer for HUD to get there, but the EEOC has been very clear for about a decade that using arrest records is unacceptable. Some felt arrests accurately document criminal activity, but that is often not the case. This is backed up by the principle of Innocent until proven guilty." This viewed mirrors Supreme Court Justice Clarence Thomas's dissenting opinion in the Texas Department of Housing and Community Affairs v. Inclusive Communities Project case. Thomas suggested that the 5 justices making up the majority opinion incorrectly replied on the EEOC's interpretation of the FHA rather than the language actually in the Act.


We're only halfway through the year and over 19,000 bills have been passed in state legislatures around the country. Compare that to the 150 passed by the U.S. Congress, and the importance of keeping tabs on your statehouse really becomes clear. State Legislatures typically do not have the same resources as the United States Congress, forcing them to rely on their constituents to help them better understand the real world impact of a bill. This provides an opportunity to protect the industry through effective advocacy. Real estate practitioners are experts in real estate management, and can help legislators better understand how policy decisions can impact the industry and the residents/tenants it serves. One of the best ways to start that relationship is by participating in the IREM Day at the Statehouse Program. These state level advocacy events can take many forms and can be effective in getting the industry's message heard. If you or your chapter would like more information, please contact the IREM Governments Affairs Coordinator, Andrew Lomo, at ALOMO@IREM.ORG.
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Title Annotation:SPOTLIGHT: LEGISLATIVE SPOTLIGHT; Department of Housing and Urban Development
Comment:HUD issues guidance for renting to people with criminal history.(SPOTLIGHT: LEGISLATIVE SPOTLIGHT)(Department of Housing and Urban Development)
Author:Lomo, Andrew
Publication:Journal of Property Management
Geographic Code:1USA
Date:Jul 1, 2016
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