Recent HUD Memo RE: Landlord’s Use of Criminal Records Under The Fair Housing Act

Breaking NewsOn April 4, 2016, the U.S Department of Housing and Urban Development (“HUD”) issued its “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” (hereinafter, the “Memo”). The full text of the 10-page Memo can be found here. Not surprisingly, it follows the June 25, 2015 ruling by the U. S. Supreme Court, in the Texas Dept. of Housing vs. Inclusive Communities case, which upheld the much-debated concept of “disparate impact” under the Fair Housing Act, as amended (the Act”).

Disparate impact holds that certain practices in employment, housing, etc., may be considered discriminatory under the Act, if they have a disproportionately “adverse impact” on certain members of a protected class, i.e. those falling into the following groups: Race, color, religion, sex, disability, familial status or national origin.[1]  The simplest explanation of how disparate impact works is by the following example:

A landlord may be found to have discriminated against a prospective tenant, not because of an intentional discriminatory act, such as rejecting him or her based upon race or religion, but unintentionally, because the landlord relied upon a perfectly legal basis, except that it had a disproportionately adverse impact on members of a protected class.  Proof of the “disproportional impact” is usually based upon some statistical correlation showing that a certain class of protected persons are impacted more than others. In other words, unintentional discrimination can be found to be a violation of the Act.

According to the Memo (footnotes omitted):

 Across the United States, African Americans and Hispanics are arrested, convicted and incarcerated at rates disproportionate to their share of the general population. Consequently, criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers. While having a criminal record is not a protected characteristic under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters or other housing market participants of one race or national origin over another (i.e., discriminatory effects liability). Additionally, intentional discrimination in violation of the Act occurs if a housing provider treats individuals with comparable criminal history differently because of their race, national origin or other protected characteristic (i.e., disparate treatment liability).

The purpose of the Memo is to issue guidance, mostly by way of examples and prior case law, in how the use of criminal history during the tenant-screening process, may, and may not, trigger a disparate impact result.

This post is preliminary only, and not intended as “legal advice”. Readers should consult their own legal counsel for advice relating to their particular situation.

Here is a quick summary of my thoughts:

  1. Beware of testers, calling over the phone and asking if you will rent to persons with a criminal background. Decline to answer these blind calls with a “yes” or “no”. Tell callers that no rental decisions are made in advance of reviewing all relevant background information, including a criminal background report. Invite the prospective applicant to come in and pick up the necessary paperwork.
  2.  Ultimately, landlords should plan on making adjustments in their rules and application process.
  3. Landlords should not have a rule or policy that treats arrests, with no conviction, the same as a conviction. If you currently have such a rule, you should check with your own legal counsel to determine if it should be enforced today, in light of the Memo.
  4.  Landlords should avoid having a blanket guideline providing, for example, that conviction for any crime is an automatic denial.
  5. Be sure that all rules or policies concerning criminal records are uniformly enforced – no exceptions. However, note No. 7 below. Landlords should avoid a policy saying that all persons with a felony are automatically disqualified. There is a world of difference between an ex-felon who served time for embezzlement ten years ago and has been a contributing member of society ever since vs. an ex-felon who served time for aggravated battery, and has been in and out of jail for similar violence over the past five years.
  6. If possible, evaluate all other rental history, such as prior tenancies, employment, credit, income and affordability, before even going to the results of a criminal background check. If the prospective tenant does not pass one or more of these criteria, then the rejection can be based on that failure, thus avoiding the use of criminal background reports and disparate impact issues entirely.
  7. In evaluating an applicant’s criminal history, avoid a “one size fits all” approach. There are several gradations of severity. Additional issues need to be addressed before making a decision to reject a prospective tenant based upon criminal history. For example:
  • How long ago was the conviction? (Convictions over 6-7 years old, with no further convictions, in most cases should probably not be used as the basis for a denial (excluding registered sex offenders, or those convicted for violent crimes).
  • What has the person been doing since release?
  • Has the person been convicted once, or on multiple occasions?
  • What was the nature and severity of the crime?

Note that according to the Memo, a refusal to rent to an applicant who has a conviction for one or more drug crimes involving the manufacture or distribution (not mere possession) of a federally defined controlled substance will not result a disparate impact claim for that fact alone. In other words, a landlord or manager may legally base the refusal to rent to a prospective tenant based upon his or her conviction for manufacture or distribution will not result in a violation of the Act, based upon disparate impact.[2]

Be sure to review Oregon law, ORS 90.303 (Evaluation of Applicant). It provides:

(1) When evaluating an applicant, a landlord may not consider an action to recover possession pursuant to ORS 105.105 to 105.168 (Oregon’s eviction statutes – PCQ) if the action:

(a) Was dismissed or resulted in a general judgment for the applicant before the applicant submits the application. This paragraph does not apply if the action has not resulted in a dismissal or general judgment at the time the applicant submits the application.

(b) Resulted in a general judgment against the applicant that was entered five or more years before the applicant submits the application.

(2) When evaluating the applicant, a landlord may not consider a previous arrest of the applicant if the arrest did not result in a conviction. This subsection does not apply if the arrest has resulted in charges for criminal behavior as described in subsection (3) of this section that have not been dismissed at the time the applicant submits the application.

(3) When evaluating the applicant, the landlord may consider criminal conviction and charging history if the conviction or pending charge is for conduct that is:

(a) A drug-related crime;

(b) A person crime;

(c) A sex offense;

(d) A crime involving financial fraud, including identity theft and forgery; or

(e) Any other crime if the conduct for which the applicant was convicted or charged is of a nature that would adversely affect:

(A) Property of the landlord or a tenant; or

(B) The health, safety or right to peaceful enjoyment of the premises of residents, the landlord or the landlord’s agent.

Note: Do not assume that compliance with ORS 90.303 alone means that a denial of tenancy will not result in a disparate impact claim. ~PCQ

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[1] Note, many local jurisdictions have additional class, including sexual orientation.

[2] Per the Memo: “Section 807(b)(4) of the Fair Housing Act provides that the Act does not prohibit ‘conduct against a person because such person has been convicted … of the illegal manufacture or distribution of a controlled substance as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802).’”