HUD Guidance on Criminal Records Requires Attention

Published by Mark Shelburne on Thursday, July 7, 2016
Journal thumb July 2016

The Department of Housing and Urban Development’s (HUD) Office of General Counsel (OGC) issued guidance April 4 on the use of criminal records. The guidance applies to all housing providers (not just those participating in a government program) when making any adverse decision based on criminal history. Screening out potential tenants is the most common instance, but other activities (e.g., evictions) are also covered.

Background

The guidance was not a formal rule or regulation, but a memorandum. As such, there was no period of notice and comment. However, because HUD is the federal agency charged with enforcing fair housing, its official statements have essentially the same effect as a rule or regulation. One reason for not following a more formal approval process is the memo contains what the OGC considers to be currently applicable federal law. Despite taking this position, the memo also indirectly recognizes that much of its contents are contrary to the practices of some housing providers.

Indeed, many rental housing owners and managers were surprised by the OGC’s statements. Any concerns about how to operate properties should be addressed with counsel immediately. This article is to help explain what will be important legal advice and is not a substitute for reading the guidance itself.

Overview

Broadly speaking, there are two ways to violate fair housing:

  • intentionally discriminating against, or
  • using a practice with a disparate impact on individuals or families based on their being in a protected class.

The protected classes are race/ethnicity, color, religion, sex, disability/handicap, familial status and national origin.

The difference between the two kinds of violations is the existence of, or ability to prove, intent. The memo provides examples of intentional discrimination, such as denying or accepting applicants with different races but similar criminal histories. Although intentional discrimination happens far too often, the memo primarily focuses on the more legally complex matter of disparate impact. The reason for the complexity is the potential for violating federal law despite not having any wrongful intent. In order to protect providers and still carry out fair housing objectives, HUD has established a nuanced, fact-based, three-step process to determine liability.

Burden Shifting

Journal July 2016 - Criminal History infographic

In February 2013, HUD issued a rule, “Implementation of the Fair Housing Act’s Discriminatory Effects Standard” (24 C.F.R. pt. 100). The crux is a three-step, burden-shifting process. Two-and-a-half years later in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. (TDHCA and ICP, respectively), the U.S. Supreme Court held that disparate impact liability is part of fair housing and also effectively affirmed HUD’s rule.

The OGC memo is organized around the rule’s three steps.

1. Prima Facie Case
Normally the process of determining liability under HUD’s rule begins with proving a policy or practice actually or predictably results in a disparate impact on a group because of their protected class status. Doing so is called making the prima facie case. The Supreme Court added that challenges must be supported by more than statistical disparities–claimants must prove a “causal connection” between evidence and the practice in question.

However, in the case of using criminal history, the OGC says this burden already has been met: “Nationally, racial and ethnic minorities face disproportionately high rates of arrest and incarceration.” In other words, the differences between races and ethnicities are so great as to inherently, automatically meet the standard of proof. Therefore, following the memo’s interpretation, adverse housing decisions based on criminal history move directly to the next step.

2. Legitimate Interest
Under the HUD rule, if a claim establishes an actual or predicable result, the provider must show the “challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests” which are not “hypothetical or speculative.” The memo adds that the policy must actually achieve those interests.

The OGC specifically states two kinds of blanket screening criteria do not satisfy this burden:

  • “excluding individuals because of one or more prior arrests (without any conviction)” and
  • “a blanket prohibition on any person with any conviction record–no matter when the conviction occurred, what the underlying conduct entailed, or what the convicted person has done since.”

Thus, under the memo’s application of the HUD rule, using policies fitting either of these descriptions violates fair housing.

A housing provider with a “more tailored” approach still must prove it accurately distinguishes between those who do and don’t pose a risk. The memo describes two types of policies which are “unlikely” to meet this burden:

  • “fails to take into account the nature and severity of an individual’s conviction” or
  • “does not consider the amount of time that has passed since the criminal conduct occurred.”

One common motivation for considering criminal history is protecting other residents or the owner’s property. The memo anticipates this interest and says a policy must be based on “reliable evidence” that it actually results in protection. “Bald assertions based on generalizations or stereotypes that any individual with an arrest or conviction record poses a greater risk ... are not sufficient to satisfy this burden.”

The TDHCA v. ICP decision contains a lengthy discussion of how the legitimate needs of government agencies limit liability under disparate impact. Although such analysis is important, the factual context is very different. Policies for allocating subsidy resources are not the same as apartment owners’ screening practices.

3. Practice with a Less Discriminatory Effect

Finally, even if a provider meets all the expectations above, the HUD rule gives challengers an opportunity to prove the interest “could be served by another practice that has a less discriminatory effect.”

Drug Convictions

The Fair Housing Act allows an adverse decision against someone, “because such person has been convicted … of the illegal manufacture or distribution of a controlled substance.” While acknowledging this fact, the memo also notes several limitations:

  • other drug-related activities (e.g., possession) are not covered;
  • a history of arrests is not relevant, only convictions, and
  • the provision does not provide a defense to a claim of intentional discrimination.

The memo does not discuss any other exceptions, such as for sex offenders.

Conclusion

Owners of rental housing should consult with counsel and take a close look at their policies. Some many need to be more careful when evaluating criminal history. As noted above, HUD’s guidance is not a technically a rule or regulation, but at a minimum will be given substantial deference by anyone responsible for considering a compliant.

Novogradac & Company will hold a webinar on this topic July 28. Go to www.novoco.com to register.