RENTAL APPLICATIONS: Can rejecting a tenant based criminal background lead to a HUD complaint?

Reres_Kathleen

Kathleen Reres

If an association has the right to deny rental applications and it does so based on an applicant’s criminal background, the association should review whether its policies, procedures and practices may lead to claims of discrimination. The Fair Housing Act (“FHA”) prohibits discrimination in the rental of dwellings based on race, color, religion, sex, disability, familial status or national origins. Blanket restrictions prohibiting leasing to individuals with criminal convictions are not acceptable.

While “Criminal” may not be a protected class under the FHA, criminal history-based restrictions on housing opportunities may violate the FHA if, without justification, the criminal history exclusion results has a disparate impact on one race or national origin over another. This means your board may run afoul of the FHA, even if it had no intent to discriminate and its policy is facially neutral.  Because protected classes such as racial and ethnic minorities often face disproportionately high rates of arrest and incarceration, a policy which excludes tenants based on their criminal history, may result in denying applications submitted by minorities at a disproportionate rate. If the restrictions have the disproportionate effects on one or more protected classes the association may be accused of intentional discrimination, even though discrimination was not the association’s intent.

To avoid such claims, first, make sure the association has a properly promulgated rental policy. Second, make sure the rental policy is necessary to serve a substantial, legitimate, nondiscriminatory interest. Third, make sure the Association’s interest cannot be served by another policy that has a less discriminatory effect. This means the Association should limit the factors it considers when reviewing applications and be able to justify those factors.

If an owner or proposed tenant files a complaint with the HUD and proves that the association’s rental policy has a discriminatory effect (that is, it results in a disparate impact on a group of persons because of their race or national original), then the burden shifts to the association to prove that the policy is justified because it is necessary to achieve a substantial, legitimate, nondiscriminatory interest. For example, the association may claim that the policy is necessary to protect residents and their property.

Protection of other residents and their property is a legitimate interest, but the association must be able to prove that its policy actually serves this interest. It would be difficult, if not impossible, to prove that residents and their property are protected by excluding an applicant because of one or more arrests, regardless of conviction.  Courts have found that an arrest record has very little probative value in actually showing misconduct.[1] A policy that precludes anyone with a criminal conviction, no matter when the conviction occurred, or what the underlying conduct entailed, would also be difficult, if not impossible to defend. The range of criminal conduct is so broad (and may include things like traffic offenses or possession of certain medications without a prescription) that the association could not in good faith claim that anyone with a criminal conviction poses a threat. Consequently, an association’s rental policy should distinguish between criminal conduct that indicates a demonstrable risk to safety and property and criminal conduct that does not.  The policy should consider both the nature and severity of the conviction and the amount of time that has passed since the criminal conduct occurred.

The policy should also be the most limited policy necessary to serve the Association’s legitimate interest. If your association faces a HUD Complaint and successfully proves that its policy is necessary to achieve a legitimate nondiscriminatory interest, it could still face an adverse judgment if the plaintiff or HUD can prove that the association’s interest would still be served by another practice that has a less discriminatory effect.  The Office of General Counsel for HUD has issued guidance on the use of criminal background checks[2] and suggests that an individualized assessment of mitigating information may have a less discriminatory effect than a categorical exclusion. For example, if the policy excludes applicants with felony robbery convictions, HUD may argue that a less discriminatory policy would call for consideration of mitigating factors like the age of the individual at the time of the criminal conduct, evidence of a good tenant history or evidence of rehabilitation efforts.

However, a policy that leaves room for individual considerations based on mitigating factors may be problematic for a community association in practice. Leaving board members with more discretion to consider rental applications may lead to claims of selective enforcement or intentional discrimination.  A black and white list of factors that will lead to denial of a rental application is easier to defend in the event of a selective enforcement or intentional discrimination claim.   If your association chooses to leave the board discretion to accept or deny an application based on mitigating factors or factors that are not clearly delineated in the Association’s rental policy, it should consider consulting counsel and it should certainly document the objective and neutral reasons for accepting or rejecting applications.

If your association does not have a rental policy that sets forth the grounds upon which a rental application will be accepted or rejected, or if you are unsure whether your association’s policy could be found to violate the FHA, you should consult counsel.

Please contact Kathleen Reres at kreres@slk-law.com or Jonathan J. Ellis at jellis@slk-law.com with any questions.  Shumaker can assist your association if it faces a discrimination claim and we can help you prepare a strong rental policy to reduce the risk of facing a discrimination claim.

 

[1] Schware v. Bd of Bar Examiners, 353 U.S. 232, 241 (1957); United States v. Berry, 553 F. 3d 273, 282 (3d Cir. 2009)

[2] See U.S. Department of Housing and Urban Development, 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. April 4, 2016.