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New HUD Guidance on Use of Criminal Background Checks

white-collar-crime-twoOn April 4, 2016, HUD’s General Counsel released guidance for all housing providers (not just those who are HUD subsidized) regarding how the use of criminal background checks could potentially violate fair housing laws. If you are a Landlord and run criminal background checks as part of your screening process, it is important for you to become familiar with the guidance. Although this is HUD guidance, rather than law, it clearly outlines how HUD would analyze a fair housing complaint based on the use of criminal background checks to deny housing.

The guidance focuses on “disparate impact” (discriminatory effect) discrimination. Disparate impact occurs when a landlord has a policy or practice that is neutral (i.e., non-discriminatory) on its face and applies equally to all applicants and/or residents, but its application has a discriminatory effect on one or more of the protected classes. In order to successfully defend a claim of discrimination, the landlord must be able to show that this policy or practice is necessary in order to achieve a non-discriminatory business objective, and that there is no less discriminatory alternative that would achieve that business objective.

The HUD guidance states that due to the higher than average incarceration rates among certain races (Hispanics and African Americans) in the United States relative to their percentage of the total population and when compared against the incarceration rates of non-Hispanic Caucasians, the use of criminal history to deny housing can cause a disparate impact on these particular races. Therefore, if Landlords want to use criminal background checks as part of their rental criteria, they have the burden to show: (1) it is necessary to use criminal background checks in order to achieve a non-discriminatory business objective and; (2) there is no less discriminatory alternative. (The “business objective” would presumably be the protection of resident safety and/or property. However, the guidance states that the business objective cannot be prospective in nature. The landlord must prove that the use of the criminal background checks actually accomplishes the business objective.)

The HUD memo goes on to state that in order to meet this burden when a Landlord’s policy has a disparate impact, Landlords must consider the following:

  • Arrest Records: HUD states that landlords should not use arrest records as a basis for excluding applicants. According to HUD’s General Counsel, an arrest which does not lead to a subsequent conviction does not prove that an individual engaged in illegal activity. Therefore, the use of arrest records would not provide information regarding whether the applicant who was arrested would be a threat to the safety of other residents or their property.
  • Prior Convictions: Although prior convictions are sufficient evidence to prove that an individual engaged in criminal conduct, HUD’s General Counsel states: “A housing provider that imposes 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 then- will be unable to meet this burden.”

In other words, according to HUD’s General Counsel, if a landlord is going to use criminal records as part of the screening criteria, the policy must be narrowly tailored. The guidance goes on to state that even then a landlord would still need to prove that this “tailored” policy is necessary to serve a “substantial, legitimate, nondiscriminatory interest.” In order to do this, a landlord must be able to show that its “tailored” use of criminal background checks “accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property and criminal conduct that does not.”

So what does this all mean? Can Landlords take into account the criminal background of applicants as part of their screening criteria without violating fair housing laws? This latest HUD guidance does confirm that there is one “safe harbor” available to landlords: If a landlord uses criminal background checks and only excludes applicants who have been convicted of the illegal manufacture or distribution of a controlled substance, a landlord will not run afoul of fair housing laws. This is because the Fair Housing Act specifically states that landlords do not have to make housing available to persons with such a conviction. The guidance warns, however, that the exclusion is only for manufacture or distribution (making or selling) controlled substances and does not extend to other drug-related crimes such as use or possession.

What if a landlord wants to exclude applicants who have been convicted of other crimes? Will it be considered a fair housing violation? Other than the safe harbor addressed above, the HUD memo does not specify what types of criminal convictions would warrant a denial to rent. However, the HUD guidance does provide some general guidelines which landlords must consider if they choose to go beyond denial of applicants convicted of illegal manufacture or distribution of controlled substances:

  • Nature of the Conviction: The guidance states that a landlord who wants to use criminal background checks must take into account the “nature and severity” of an individual’s conviction. For example, the landlord should consider the exact crime and how severe it was. Moreover, the landlord should consider whether the fact that the applicant engaged in this particular type of criminal activity means this applicant will be a greater risk to resident safety and/or property. This closer scrutiny that HUD is requiring means that landlords should avoid blanket restrictions such as a policy that excludes all applicants who have any felony conviction.
  • When the Criminal Activity Occurred: The guidance also states that a landlord who screens for criminal history must take into account how long ago the criminal activity occurred. According to HUD’s general counsel, there is “criminological research” which shows that over time, “the likelihood that a person with a prior criminal record will engage in additional criminal conduct decreases until it approximates the likelihood that a person with no criminal history will commit an offense.” In other words, crimes that occurred a long time ago should be considered less relevant as compared to more recent crimes (and possibly not considered at all). So how far back should a landlord look? Could a landlord safely consider a crime that took place 5 years ago? 10 years ago? Unfortunately HUD offers no guidance on this question. It is left up to the landlord to be able to defend whatever policy they choose to implement.
  • Individualized Assessment: The HUD memo goes on to state that not only do Landlords need to narrowly tailor their use of an applicant’s criminal history, but they must also show that this narrowly tailored policy has the least possible discriminatory affect. In order to accomplish this goal, HUD recommends that Landlords conduct an “individualized assessment” of each applicant, considering “relevant mitigating information” such as; (1) the facts or circumstances surrounding the criminal conduct; (2) the age of the individual at the time the conduct occurred; (3) evidence that the individual has maintained a good tenant history before and after the conviction or conduct; (4) and evidence of rehabilitation efforts.

Finally, the guidance states even if a Landlord’s use of criminal background checks is narrowly tailored by taking into consideration the nature and severity of the crime, the length of time since conviction occurred, and where individualized assessments are carried out, a Landlord “will still bear the burden of proving that any discriminatory effect caused by such policy or practice [involving the use of criminal background checks] is justified.

Based on this guidance from HUD, the only sure way a Landlord can avoid fair housing liability if he/she wants to consider an applicant’s criminal history is to limit the policy to exclude only applicants with prior convictions for illegal manufacture or distribution of controlled substances.[1] If a landlord wants to deny an applicant for any other convictions, the landlord must be able to prove that the particular policy is necessary in order to achieve a substantial, legitimate, non-discriminatory interest, and that there is no less discriminatory way to achieve this interest.

Our Fair Housing Practice Group has a detailed opinion letter on criminal background checks. Please contact us today at (800) 338-6039 for more information or to purchase this opinion letter.

[1] Note that project-based HUD subsidized properties must also prohibit admission to sex offenders subject to a lifetime registration requirement under state government’s sex offender registration program or to individuals found to have manufactured or produced methamphetamine on the premises of federally assisted housing.

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Kimball, Tirey and St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This alert is for general information purposes only. Laws may have changed since this article was published. Before acting, be sure to receive legal advice from our office. If you have questions, please contact your local KTS office. For contact information, please visit our website: www.kts-law.com. For past Legal Alerts, Questions & Answers and Legal Articles, please consult the resource library section of our website.
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