HUD issues fair housing “guidance” on landlord use of criminal background checks

stupidNot good news for Chicago landlords

April is fair housing month and to celebrate, the Office of the General Counsel of HUD has released “Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions“.  This little ditty is a wonderful little gift to landlords throughout Chicagoland!  If you think that the application of fair housing to landlord screening procedures was hard before, just wait until you get a load of this one.  Unfortunately, folks, it’s the law (or at least, it’s HUD’s position on how the law will be enforced) and you need only head over to their website to see gleeful press releases related to big dollar settlements with landlords for fair housing violations to see the logical result of noncompliance.  This law applies to private landlords as well as public housing entities.  This one is going to get a bit long, so buckle up.

The Issue: the use of criminal background checks and how they can violate fair housing laws

The concern at issue is the use of criminal background checks in tenant screening and possible discrimination under fair housing laws by way of disparate impact.  To refresh, the Fair Housing Act prohibits discrimination in real estate transactions based on race, color, religion, sex, disability, familial status or national origin (landlords who read this blog will know that Illinois, Cook County, and Chicago law expand on those categories of protected classes).  This memo is “guidance concerning how the Fair Housing Act applies to the use of a prospective tenant’s criminal history in making rental decisions.

Disparate impact

HUD points out that “A housing provider violates the Fair Housing Act when the [landlord’s] policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate.”  HUD goes on to add that a policy that looks “neutral” on its face but has a discriminatory “effect” violates the act unless there is a legally sufficient justification for the policy.  That means that when a landlord’s practice of denying applicants on the basis of criminal history impacts a particular protected class more than the general population, that practice is illegal under fair housing law unless (1) there is a “substantial, legitimate nondiscriminatory interest” and (2) there is not some other way to get the same result without the discriminatory effect.  So, when we talk about disparate impact, we are not talking about treating people of a protected class differently (that’s known as disparate treatment and it is clearly illegal), we are talking about treating people the same but with a result that affects a protected class.

Three part test

HUD determines liability for disparate effect under a “three-step burden-shifting standard requiring a fact-specific analysis”.  Uh oh.  If I am a landlord, I’m seeing some major red flag words: burden-shifting and fact-specific analysis.  So, the burden will fall upon the landlord and the landlord cannot expect to find a safe, “one size fits all” solution but needs instead to look at each and every situation individually on a case by case basis.  Remember, we are talking about unintentional discrimination here!

So, in step one, HUD or a tenant must prove that the landlord’s criminal history policy or procedure has a discriminatory effect.  HUD hints that a plaintiff would satisfy this burden with evidence proving that the practice actually (based on actual evidence) or predictably (huh? based on speculation? it seems so) results in a disparate impact (which HUD says can be proven with evidence that the policy creates, increases, reinforces or perpetuates segregated housing patterns).  HUD says that while statistical evidence about local housing is preferred, a plaintiff can use national statistics as well.  So, here we have a dichotomy.  We are supposed to look at this on a case-by-case basis – that is, dig down to the individual situation on the ground, but if the local evidence (ie. the individual situation) doesn’t support a disparate impact, heck, maybe national evidence does.  This game is feeling rigged against the landlord!  HUD basically comes out and says that national housing statistics prove that non-whites are “substantially more likely than whites to have a conviction”.  HUD gives a nod to landlords and concedes that a landlord might be able to present local evidence to refute the disparate impact, but my read of this is “hey landlords, you have some explaining to do if you try this”.

Step two is to evaluate whether the policy is necessary to achieve a “substantial, legitimate, nondiscriminatory interest”.  That’s a mouth-full of lawyer wiggle-words!  Here is where “the burden shifts to the housing provider (ie. landlord)” to prove that the policy (which has now been determined to have a discriminatory effect) is justified.  For this step, HUD is quick to point out that the interest may “not be hypothetical or speculative”.  Wait, remember in step one where a tenant could posit that there is either an actual or predictable disparate impact?  Landlords don’t get the same leeway.  HUD concedes that most landlords will assert that they are trying to protect other residents in their building.  And, why wouldn’t they???  Good landlords usually don’t have an interest in subjecting their good tenants to criminal elements!  HUD agrees that this is one of the “fundamental responsibilities” of a housing provider (so HUD, with one hand says “rent to criminals” and with the other hand says “keep your tenants safe”.)  HUD warns that a landlord must be able to prove with “reliable evidence” that its policy actually protects residents.  Unfortunately, most landlord’s are not sociologists and don’t have infinite resources to do a study on this issue.

As part of the step two analysis, HUD addresses policies based on prior arrests and says that landlords who deny applicants “because of one or more prior arrests (without any conviction) cannot satisfy [the] burden of showing that such policy or practice is necessary”.  HUD says that no landlord who denies housing based on prior arrests without convictions can justify their policy.  Innocent until proven guilty.  There are lots of drug dealers who get arrested and the charge doesn’t “stick”.  HUD says landlords can’t reject an applicant with a drug arrest that did not result in a conviction.  Here’s another disturbing thought.  What if an applicant was just recently arrested for some violent crime but the trial is ongoing and the applicant hasn’t been convicted yet?  The landlord better hope that the applicant has a crappy credit score because HUD seems to be saying that Landlords need to rent to people who have been arrested but have not been convicted.

Surely, if a tenant has a prior conviction, a landlord can deny them, right?  HUD acknowledges that a criminal conviction “will serve as sufficient evidence to prove that an individual engaged in criminal conduct” BUT HUD says landlords still need to PROVE that their policy achieves a substantial, legitimate, nondiscriminatory interest.  HUD warns that a blanket restriction on convictions that does not take into account how long ago the conviction occurred, what the criminal activity was, or “what the person has done since then” will be unable to meet the burden.  So, if our murderer is convicted of murder in 2000 but has been a good guy since then, I guess that conviction is just chalked up as a mulligan?  HUD gives one back here and hints that a policy needs to be “more tailored” to exclude only certain types of convictions but still says that the housing provider must still PROVE that the policy is necessary to serve a substantial, legitimate, nondiscriminatory interest.  Hopefully HUD believes landlords have an interest in keeping violent criminals away from their law abiding, peaceful tenants.  HUD finishes by saying that a policy based on criminal convictions “must be made on a case-by-case basis”.  I thought HUD wanted us to make blanket rules and then apply them evenly?  Apparently, in this context, they do not.

On to part three. HUD says the third step is only applicable if a landlord “successfully proves that its criminal history… is necessary to achieve its substantial, legitimate, nondiscriminatory interest”.  I read this as being more like: “in the unlikely event that the landlord survives step two, we will look at step three!”  At this point, a complaining plaintiff or HUD gets the opportunity to prove that the landlord’s practice “could be served by another practice that has a less discriminatory effect”.  So, yes, Mr. Landlord, you had no evil intent and yes, Mr. Landlord, your policy is serving a valid purpose, but… there’s a better, albeit probably totally speculative, way to do it, so you still lose! haha! (haha added for emphasis).  HUD says that the less discriminatory alternative will “depend on the particulars of the criminal history policy and individual assessment of mitigating information beyond that contained in the criminal record” and that “relevant individualized evidence might be factors like the age of the individual at the time they committed their crime, evidence of good behavior since that time, evidence of being a good tenant BEFORE and AFTER the crime, and evidence of rehabilitation efforts.  What?  A tenant can say “I was always a good tenant until I molested that little boy and since then, I’ve been going to bad-guys anonymous. Please rent to me.” HUD tells landlords that maybe they have to do so.  How in the heck is a landlord going to be able to do this?  Hire a private investigator?  Investigate the criminal court file?  Interview the victims?  Have the tenant move in on a trial basis?  Follow them around for a few weeks?  Talk to the tenant’s mom?  Wow.  This is some ridiculous stuff and I suspect HUD knows this (they are smart people) and they just want to make this process so difficult and cumbersome to traverse that landlords will just ignore criminal background entirely.

One safe harbor

Landlords love safe harbors.  I love safe harbors.  HUD gives us one.  HUD has been pretty consistent in being against illegal drug use (for reference, take a look at their own policies that allow HUD to give tenants using medical marijuana the boot in those states where medical cannabis is legal).  So, HUD specifically says that “A housing provider will not be liable under the [Fair Housing] Act for excluding individuals  because they have been convicted of one or more of the specified drug crimes, regardless of any discriminatory effect that may result from such a policy.  HUD cautions that this applies only to convictions, not arrests and only for manufacturing or distribution convictions.  It does not apply to convictions for possession.  Dope fiends can breathe a sigh of relief!

Intentional Discrimination

HUD finishes up by reminding landlords that uneven application of a policy is illegal.  A landlord cannot deny a non-white tenant with a criminal record but allow a white tenant with a criminal record.  Duh.  We already knew that.  They also point out that even if a landlord denies a tenant based on the tenant’s past criminal record, maybe the tenant can prove that the denial was a mere pretext to keep the tenant out based on being in some protected class.  Ugh?

The worst part

And, my landlord friends, it gets worse.  Many municipalities throughout the state (Palatine, Mt. Prospect,  Schaumburg, Niles, Carpentersville, the list goes on and on) and that State of Illinois itself (see 735 ILCS 5/9-120) have crime prevention laws, crime-free leasing laws, or nuisance property statutes that, in many instances, make landlords responsible to provide crime free housing.  Take a look at this November, 2015 story from ABC news where the Chief of Police of Evanston, Illinois said the town is beginning to use its nuisance premises ordinance because “We can’t be the police for landlords who make bad arrangements”.  So, the government in Evanston wants to stop landlords from leasing to criminals and they’re going to go after landlords who have crime in their buildings and AT THE SAME EXACT TIME, the federal government, through HUD, is telling landlords they need to rent to criminals.  This policy is an insult to people in protected classes who are truly discriminated against.  One of the smartest and one of my favorite landlords’ rights advocates, Verella Osborne of Legal Document Management, Inc., indicated to me that “Illinois landlords would be caught in a terrible vise, with both state and municipal laws holding the landlord liable for criminal activity in their buildings and federal law requiring landlords to rent to criminals……absolutely ridiculous.”  I could not have said it better.

The aftermath

Hmmmm.  Please don’t take my distaste for this guidance as a disavowal of fair housing rules.  Those laws, especially the federal ones, were borne out of a real need.  However, the guidance HUD has provided here is just outrageous.  Felons are not a protected class and they should not be.  What should landlords do now?  The National Apartment Association has some suggestions but they urge landlords to consult with their attorneys.  I suggest the same.  Landlords now need to be VERY careful in determining what they want to do about criminal background checks.  This is brand new stuff, folks and it is not going to be easy to implement.  I’ll even add that this is just one more massive regulation that suggests that part-time landlords and landlords who are not serious about their rental business should get out of the game (ie. sell that condo you’ve been renting since the real estate crash).  The landlords who are serious or full-time need to take a considered and thoughtful look at their policies and procedures to make sure they do not run afoul of the fair housing laws.  Happy fair housing month.

About Richard Magnone

Co-founding member of Reda | Ciprian | Magnone, LLC, attorney at law and Illinois licensed lawyer since 1996.
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