Government to Landlords: Rent to Criminals


(Originally published in April 12, 2016- still relevant today as it applies to tenant screening processes followed by WILMOTH Group) read the headline correctly!  Really understanding the headline is more difficult.
In a federal statement, HUD issued a memorandum last week that is literally shaking the entire residential investment community to its core.  On the surface, the instructions are shocking.  Rental screening procedures that use criminal records are the target.  In the HUD guidance, Secretary  Julián Castro confirmed that HUD will consider any owner of residential property, who does not lease to an applicant with a criminal record, to be in violation of Fair Housing laws.  Let’s try to dissect this memo and the ensuing legal recommendations in order to handle the idea that all landlords must now rent to criminals.

Federal Fair Housing Act

To understand the basis of this memo one must know the federal Fair Housing Act.  To summarize, the Act prohibits discrimination in housing (sales, rentals, and financing) on the basis of race, color, religion, sex, disability, familial status or national origin.  The Act has become one of the most instructed rules that all real estate licensees and lenders must understand and follow.  The penalties for violating the Act are strict and costly.  The Act also applies to private owners.
The HUD guidance is directly tied to the Fair Housing Act, not by a criminal record being a protected class, but due to the race protections.   According to the memorandum, nearly one-third of the United States population has a criminal record.  Since 2004, an annual average of 650,000 individuals are released from U.S. prisons.  Unfortunately, African-Americans and Hispanics are convicted at rates disproportionate to their share of the population.  The concept of the discriminatory effects and disparate impact when a housing provider justifies an adverse housing action such as a rental application declination based on an individual’s criminal history, falls more often on renters of one race or national origin.  Therefore, the Fair Housing Act may now be violated by such policies.
HUD Secretary Castro issued the following statement:

“Right now, many housing providers use the fact of a conviction, any conviction, regardless of what it was for or how long ago it happened, to indefinitely bar folks from housing opportunities.   Many people who are coming back to neighborhoods are only looking for a fair chance to be productive members, but blanket policies like this unfairly deny them that chance.

According to the New York Times:

“Federal housing officials said the guidance was meant to emphasize to landlords that blanket bans are illegal, as well as to inform housing applicants of their rights. Housing officials said they can investigate violations and bring discrimination charges against landlords that could result in civil penalties for them, and damages for a person denied housing.”

Legal Guidance

Our attorney Heist, Weisse, & Wolk, P.A. provided the following guidance (with the caveat that the following is not legal advice} to their clients:

Based upon the General Counsel Guidance published by HUD on April 4, 2016 and the recent Supreme Court holding regarding “Disparate Impact” we are recommending to all our clients that they review their “Resident Selection Criteria”, application process, policy and procedures immediately and implement NEW standards for rejection or approval of an applicant. This applies to ALL properties whether HUD or government subsidized, Tax Credit or conventional. There may be other rules for government-funded or regulated properties which you must follow that may conflict with our recommendations.

This is a general opinion of our firm and does not constitute any specific legal advice for any specific situation. As things are clarified, we will know more.

A SAFE HARBOR approach now would be to ignore the following:

  • Misdemeanors of any kind
  • Adjudication withheld, Dismissals, Pre -Trial Diversions,  Nolle Prosse, Acquittal, etc. on any offenses
  • Arrests on any offenses
  • Illegal Drug or Controlled Substance or paraphernalia possession or use convictions

Examples of situations where you are “probably” safe for which to deny an applicant:

  • Felonies of illegal manufacture or distribution of a controlled substance within the last 7 years,
  • Felonies resulting in bodily harm or intentional damage or destruction of property, for example, “arson”, within the last 7 Years
  • Sexual related offenses for any time period

In summary,  any and all landlords must give serious consideration to their tenant selection policies.  Blanket exclusions of any kind must be avoided.  HUD has been known to hire “shoppers” who will explicitly ask questions that if answered incorrectly will start the process of investigating for illegal practices.  In this case, a caller who states they have a previous felony who asks whether it would prohibit them from being allowed to rent a property, must be handled very delicately.  No blanket polices means these applicants most likely must be considered on all of the merits of their application and the felony be not considered (except very cautiously in the three exceptions mentioned above).  Also, continuing or extending leases must not include a denial based on suspected or known criminal issues.   An owner, landlord, or property manager must be more analytical and precise in determining what in someone’s criminal background is reasonable to deny their application or continuing occupancy.  Preferably, avoid the criminal issue when denying any applicant and focus on issues that will not be considered discriminatory.

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