Property Management Q & A - Autumn 2016

by Chris Benis

Question:

I recently attended a conference for property managers and one of my colleagues mentioned that they had received a letter from the Attorney General’s office asserting that it was not prohibited to deny applicants based on criminal history. I didn’t want to press my friend too much as to what this was all about, but I thought I would ask you what was going on and if this sounded correct.

Answer:

I have heard similar stories from a number of brokers in the past several months. Apparently, the Attorney General’s office (“AG”) is following up on guidance issued by the Department of Housing and Urban Development (“HUD”) on April 4, 2016 which restricts (but doesn’t necessarily prohibit) the use of criminal backgrounds in reviewing applications for tenancy.

The basic idea behind this relates to the concept of disparate impact. Back in 2014, HUD adopted a guidance memorandum stating that there is a three-step burden-shifting standard for analyzing claims that criminal history violates the Fair Housing Act because it results in a discriminatory effect.

This guidance held:

  1. That a court should analyze whether a criminal history policy results in a disparate impact on a group of persons because of their inclusion in a protected class (i.e., on the basis of race, color, religion, sex, handicap, familial status, national origin). If a plaintiff or HUD can show a disparate impact, it should be considered to have satisfied its initial burden, and the burden would then shift to the housing provider to defend its policies.
  2. If a plaintiff or HUD meets its initial burden showing that a policy has a disparate impact, under HUD’s framework, “the burden shifts to the housing provider to prove that the challenged policy is justified—that is, that it is necessary to achieve a substantial, legitimate, nondiscriminatory interest of the housing provider.” This means that the housing provider would need to prove that 1) it has a substantial, legitimate, nondiscriminatory interest and 2) the challenged policy actually achieves that interest.
  3. Once a housing provider demonstrates that a challenged policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest, the burden would then shift back to the plaintiff or HUD to demonstrate that interest could be served by another practice that has a less discriminatory effect.
    Stated more simply, the burden is on a housing provider to prove that the use of criminal background in making housing decisions is legitimate. In doing so, HUD elaborates by stating:
    • Arrests (as opposed to criminal convictions) cannot be used by a housing provider to satisfy its burden of showing that the policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest.
    • When using criminal convictions in making housing decisions, the burden is on the housing provider to prove that the specific policy adopted is necessary to serve that substantial, legitimate, nondiscriminatory interest.
    • Blanket prohibitions based on criminal history, without considering how long ago the incident occurred, the underlying conduct, and the individuals history since the conviction don’t meet the requisite burden.
    • Whatever policy a housing provider adopts must distinguish between criminal conduct that has a demonstrable risk to resident safety and conduct which does not.
    • Lastly, an individualized assessment of relevant mitigating information is more useful than categorical exclusions. In other words, you need to look beyond the mere existence of a conviction and instead study the specific circumstances proven to have occurred.

It is important to note that the HUD guidance has not yet been tested in Court—it is only HUD’s statement interpreting the law. While Courts do give deference to agency interpretations, they are not bound by those interpretations. Still, the reality is that most management companies and property owners are modifying their rental criteria in light of the new HUD guidance.

Christopher T. Benis is an attorney with Harrison-Benis, LLP with offices in Seattle. The information contained herein is not legal advice. You are encouraged to consult with your attorney before relying on anything contained herein.

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