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Federal Housing Department Issues New Guidance Limiting Use of Criminal Records

On April 4, 2016, the U.S. Department of Housing and Urban Development (“HUD”) Office of General Counsel issued new guidance on the application of the Fair Housing Act to the use of criminal records by landlords, property managers, sellers, lenders, and other providers of housing. This guidance addresses how “discriminatory effects” and “disparate impact” liability apply in Fair Housing cases where a housing provider takes adverse action based on a person’s criminal history.  Such practices are commonplace in the rental industry, and this new guidance should cause housing providers to reevaluate their policies to ensure compliance with HUD’s guidance and interpretation of the Fair Housing Act.

In general, the Fair Housing Act prohibits discrimination on the basis of race, color, religion, sex, disability, familial status or national origin, regarding the sale, rental or financing of residential property and related activities. Although criminal status is not a protected characteristic under the Fair Housing Act, criminal record restrictions on housing opportunities may violate the Act if the burden of such restrictions falls more often on members of one race or national origin over another – this is known as “discriminatory effects” or “disparate impact” liability – even if the housing provider did not intend to discriminate.  Such claims under the Fair Housing Act were approved by the U.S. Supreme Court last year in Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2523, 192 L. Ed. 2d 514 (2015).

According to the Bureau of Justice Statistics, African Americans and Hispanics are arrested, convicted and incarcerated at rates disproportionate to their share of the general population. Because of this, HUD’s new guidance states that the use of criminal records in housing decisions is likely to have a disproportionate impact on these minorities and thus provides grounds for HUD to investigate complaints challenging such criminal history policies. In response to such an investigation, the burden shifts to the landlord or other housing provider to prove that the specific criminal history policy at issue is necessary to achieve a substantial, legitimate, nondiscriminatory interest.

Many housing providers use criminal background checks in screening and evicting tenants as a means of protecting the safety and property of neighboring residents.  However, HUD’s guidance states that generalizations that an individual with an arrest or conviction record poses a greater risk than an individual without such a record are not sufficient to justify such policies.  The guidance also states that a provider who uses prior arrests as a basis for housing decisions can never satisfy its burden of showing that such practice is justified because arrest records do not constitute proof of past unlawful conduct, and are not a reliable basis upon which to assess the potential risk to neighbors posed by a particular individual.

HUD’s new guidance admits that a record of conviction (as opposed to an arrest) will serve as sufficient evidence to prove that an individual engaged in criminal conduct, but a housing provider that imposes a blanket prohibition on any person with any conviction record will generally be unable to prove that such a policy is justified.  Even a housing policy that excludes individuals with only certain types of convictions must still be proven to serve a “substantial, legitimate, nondiscriminatory interest.”  To do this, a housing provider must show that its policy relies upon only those criminal convictions that create a demonstrable risk the tenant might pose to the safety and security of neighbors.  A policy that 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, is unlikely to satisfy this standard.

Section 807(b)(4) of the Fair Housing 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).”  Because of this, a housing provider may exclude or evict individuals that have been convicted of one or more of the specified drug crimes, regardless of any discriminatory effect that may result from such a policy.  However, this statutory exemption does not provide a defense for a housing provider’s policy that denies housing because of an arrest for such offenses or because of a conviction for mere possession of a controlled substance.

If a housing provider is able to prove that its criminal background policy is justified, the burden shifts to the plaintiff or HUD investigator to prove that the legitimate interest could be accomplished by a different policy that has a less discriminatory effect.  HUD’s guidance states that an individualized assessment of mitigating factors – such as the age of the individual at the time of the crime, evidence that the individual has maintained a good tenant history before or after the conviction, and evidence of rehabilitation efforts – is likely to have a less discriminatory effect than categorical exclusions.  HUD also suggests that by delaying consideration of criminal history until after an individual’s financial and other qualifications are verified, a housing provider may be able to minimize the additional costs that such individualized assessment might add to the screening process.

Based on HUD’s new guidance, it appears that landlords and other housing providers that use criminal records to make adverse housing decisions may risk liability for violation of the Fair Housing Act because of the discriminatory effect of such policies.  Housing providers should review their policies to make sure they are not overly broad or legally unjustified.

For more information, please contact attorney Mike DiRienzo at (812) 423-3183 or mdirienzo@KDDK.com, or contact any member of the KDDK creditors’ rights law or real estate law practice team.

About the Author

Michael DiRienzo

Michael E. DiRienzo, a Partner at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Ind., has nearly 15 years of experience assisting clients in the areas of education law, government, schools and municipal law, environmental law, business law, real estate law, and bankruptcy, collection & creditors’ rights law. Mike helps educational institutions, municipalities and government entities, healthcare institutions, construction companies, and clients in other industries effectively resolve disputes and continue to build their businesses. In addition, Mike uses his litigation experience to give his clients special perspective and advice on legal strategies regarding complex commercial transactions involving acquisitions, distributorships, commercial leases and protection of confidential information.