Automatically Eliminating Criminal Records? Not so fast, says HUD

[Mindy Jensen]

Criminal record? For years, landlords have been able to automatically disqualify any tenant with a criminal record - as they were not a protected class under Fair Housing Laws. 

Recent recommendations from HUD are calling this practice discrimination.

Automatically disqualifying them based on their criminal record - which could be decades old, may not ever have resulted in a conviction or jail time, and gives no consideration to their behavior since the arrest - can be a form of discrimination.

The reasoning behind this recommendation is that nearly 1/3 of Americans have a criminal record, and a disproportionate amount of those with a record are minorities. To discriminate solely based on having a criminal record "... results in a disparate impact on a group of persons because of their race or national origin."

People with criminal records are still not a protected class - and in some cases, turning them down based solely on their conviction is justifiable. Think recent felony convictions for murder, rape, theft or drug manufacture or distribution.

But blanket statements regarding arrest records might get you into hot water.

HUD is recommending that you examine each tenant on a case by case basis.

We've been having a lively in-house discussion here at BiggerPockets, and @Brandon Turner said "HUD wants us to look at each case specifically and decide if it was ‘bad enough?" That is just asking for a lawsuit. Making tenant screening subjective is a terrible idea."

Here's the link to the entire paper. 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

Do you discriminate against criminal records? Do you look on a case by case basis or blanket discriminate? 

[Joe Splitrock]

Originally posted by @Rob Krach:

@Mindy Jensen great article, I am curious is there a law or a requirement of landlords that they have to provide a reason, can't they just treat it the same way a lot of companies treat job applicants and state: "we have elected to go with a candidate who better meets our qualifications" and leave it at that?

I agree tenants should be reviewed on a per applicant basis but taking my analogy further what is the difference between a landlord saying no and a potential employer saying no because of a criminal record? If they change the law for one, wouldn't the other have to follow or am I completely off here?

Cheers,

Rob

I agree with your logic that landlords and employers should be held to the same standard, but this is an area where Fair Housing is not equal. For example, emotional support animals. Employers are not required to let you take your dog to work. Insurance companies are not required to insure your property for a dangerous breed dog, but as a landlord you are supposed to accept them as emotional support animals. Maybe the answer is as you suggest, just let the applicant know a different applicant was selected.

[Amy A.]

My criminal background screening policies are not just to protect me and my bottom line.  They are to protect the other tenants in the building.  I take my responsibility to them seriously.  I wouldn't want my children to share a wall with somebody who uses drugs, so I don't expect them to either.  Nobody seems to care about the property rights of landlords.  However, if tenants organize to fight this, politicians will listen.

[Ayodeji Kuponiyi]

@Mindy Jensen thanks for sharing this. 

[Alexander Felice]

People change. Additionally, I've broken more laws than most of my tenants so it's hard for me to discriminate against a criminal record when I could just as easily have one myself.

That said, this exact type of thinking opens us up for lawsuits: example:

 Arrested for possession of weed 5 years ago? no problem, when you want to move in?

 Arrested for distribution of heroin 1 year ago, not a chance buddy.

Subjective reasoning means everyone can decide which infractions they will let pass and how much value those transactions have. The only way to correct this is to set standards....which is going to create a strain when your state tells you that you HAVE to rent to the guy with a conviction you might not like.

[Thomas S.]

Landlords need to set standards they can live with, determine how much risk you are willing to place on their investment, and other tenants in and stick to it. 

If I am forced to break the law or discriminate against a protected class I am more than willing to do that but I know from experience that I do not have to rent to anyone I do not wish to rent to simply by selecting only those applicants I determine to be the most qualified. It is your fault if you get a bad tenant and therefor your responsibility to insure you do not. Landlords may be forced at times to live with a short vacancy to protect their long term investment.

[Jeff B.]

Originally posted by :

Are we going to have to stop advertising that a background check will be performed? Can we ask about felony convictions?

 Consider how we each evaluate a Credit Report; some set a magic FICO score, some might look at collection & judgments, while I evaluate (non-discriminatory term) first the 30,60,90 day lates and then how far back to a collection.

Now apply that inconsistency to a Background Check and you can easily see that good reasoning can be used to justify the rationale.

IMO, a documented process applied consistently is the landlord's best defense in all discrimination issues.

HINT;  Write up your screening process immediately, and create a screening checklist which you apply to every application.  Keep the checklist with the application for at lease 12-18 months.

[Bill Gulley]

Brandon, that might work when you sandbag applications, you're to work them first come first serve, when you get an acceptable applicant it's leased. There is always a better applicant out there and in the mean time you've denied housing to a qualified person, that's not a good thing.

To CYA, start putting the date and time on applications as received, you're keeping all of them for a year (or should be, might check legal requirements) and if anyone harps about discrimination you have your file to show the judge. First come, first serve. :)

[Thomas S.]

Our business does not operate on first come first served bases. We are not McDonalds serving burgers. I am certain McDonalds does not hire that way. No applicant is qualified until a landlords deems them to be worthy of screening.

From all applications received the landlord then decides which are qualified and then chooses the most qualified. There are no special privileges accorded those first in line.

When a landlord receives 5 applications and none are "good enough",even if they do meet minimum requirements, a landlord has the right to continue receiving applications. No applicant has a right to rent from a landlord that privilege is given at the landlords discretion.

Applicants are not people they are a collection of facts and figures.

[David Chwaszczewski]

@Thomas S. The only way you can pick a qualified applicant you want is to disqualify the ones who submitted an application before them.  You have to process the applications in order you receive them.  That is the way it is.  Also you need to contact all applicants that didn't qualify and let them know why they didn't.  Your best defense against this is to have a good application that can help you disqualify tenants if they are not going to meet your standards.  All applicants must be processed the same way.

[Thomas S.]

Not sure what your state regulations are in regards to how landlords are required to screen, if there are any, but we do not have regulations determining procedure as to how we screen. I am the only one to determine the way it is, there are no rules.  

I go through each one, regardless of the order and first throw away all applications that are not fully completed. for example no SI #, no,employer etc, and those that have info that clearly are in conflict with my screening standards.  From there I consider the best applicant based on the information included in their application, employer, length of employment, income, and many other personal pieces of information I have learned makes for a good tenant. I select the most likely best candidate and arrange to meet with them after doing personal background screening. If they pass the personal interview I do a credit check. If they pass the credit check I then make a final determination as to whether I will select them or move on to another applicant.

Sometimes minor things like personality or a credit check showing too much credit used will get them rejected. I have keen skills in picking the best from the bunch and could care less what order I received their application. My responsibility is to choose the best , with the lowest level of perceived risk.

Landlords do inform applicants when they are not accepted however unless mandated by your landlord tenant regulations you never tell any applicant why they were rejected.

[Matthew Olszak]

@Thomas S. - I was about to write that what you are saying is a horrible process. But then I saw you are in Canada. Of which I have no idea as to their laws, so maybe you are good.

However - anyone reading his posts who are in the US -  don't do this. First come, first serve, run against your written qualifications. Once one passes, they get the unit. Otherwise, even if you are legally correct based on YOUR or YOUR ATTORNEY'S interpretation of the law, fair housing will acid rain down on you. And then its up to you to either settle ($$$) or fight ($$$$). Better off to avoid the situation entirely without any dollar signs. Something I heard last week when I was waiting on a building code violations FOIA comes to mind: "Do you really want to fight city hall, or do you want to come into compliance?". Even if you disagree, its almost always cheaper to just comply with what our 'friendly' gov't wants. 

Spend your money on lobbying our politicians for better laws then paying attorneys.

[James DeRoest]

Wouldnt dream of doing it your way Greg. As the poster above says, take each application in order, and the first who qualifies gets the property. That way you won't run into any bias issues. Screening a bunch of tenants and choosing the best application is just asking for trouble.

[Steve Babiak]

Originally posted by @Jeff B.:

Originally posted by :

Are we going to have to stop advertising that a background check will be performed? Can we ask about felony convictions?

 Consider how we each evaluate a Credit Report; some set a magic FICO score, some might look at collection & judgments, while I evaluate (non-discriminatory term) first the 30,60,90 day lates and then how far back to a collection.

Now apply that inconsistency to a Background Check and you can easily see that good reasoning can be used to justify the rationale.

IMO, a documented process applied consistently is the landlord's best defense in all discrimination issues.

HINT;  Write up your screening process immediately, and create a screening checklist which you apply to every application.  Keep the checklist with the application for at lease 12-18 months.

With the FCRA statute of limitations being two years minimum (up to five years), 12-18 months is not enough; 60 months seems like the "safe" number:

http://apps.americanbar.org/buslaw/committees/CL98...

[David Moore]

@Nathan Gesner

I disagree with your assertion that people are blowing this out of proportion. I've read the act, and the accusation itself is not where the lethality is in this. It is step #3 which is the 3rd rail...really stupid idea by HUD. Step #2 and #3 really put the landlord in a bind. How many landlords have cash flow to afford an attorney to fight the HUD behemoth? A casual response to this could land you in the cross hairs of 'fair' housing advocates, and suck the life out of your business. This ruling will favor large companies who have legal teams who can stand up to HUD. It will unfairly put average investors in legal cross hairs.

If HUD or any of their subordinate authorities, come to you and have anything on you, even if the complaint is frivolous, you will have to show your practices are non-discriminatory, due to disparate impact, something you have zero control over. This is why we have elected representatives, who are supposed to make law, and not a monarch.

Most likely, this ruling will be challenged in courts by one of large hedge funds or large real estate management companies, who have deeper pockets than us.  But what it will do in the three year interim is hurt tenants and distort the market.  Because a sure fire way  to counter the added cost of compliance is to raise your rent.  So it hurts the people it intends to help.  Typical government policy.

[Nathan Gesner]

I definitely agree it is government meddling. In my experience, the majority can police themselves without Big Brother holding our hands.

I read the statement and it doesn't change anything I'm already doing as a property manager. I'm sitting in a NARPM conference with 600 other owners of management companies around the country, many if them with decades of experience a d thousands of rentals. There are some unanswered questions and we will have to review our policies and procedures, but nobody is sweating bullets.

A HUD representative flew in from DC and he said there is nothing new. Everything published in this statement is backed by decades of case law within the states. This is just the Fed clarifying existing rules. The only thing I disagree with is that the typical PM or Landlord is ill-suited for investigating and determining the risk of someone with a criminal record.

[Rick S.]

Here is another article I found on the policy with more information about an arrest vs. a conviction:

http://rentalhousingjournal.com/articles/2016/04/13/hud-seeks-end-discrimination-against-tenants-criminal-records