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Supreme Court Increases Potential For Fair Housing Liability
The Rental Market For Apartments Projected To Continue Growing

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Volume 16 • Issue 7 July 2015 Landlord News 3600 South Yosemite Street Suite 828, Denver, Colorado 80237 thsnews@thslawfirm.com www.thslawfirm.com Denver Phone 303.766.8004 FAX Completed Eviction Forms To: 303.766.1181 or 303.766.1819 Colorado Springs Phone 719.550.8004 FAX Completed Eviction Forms To: 719.227.1181 SUPREME COURT INCREASES POTENTIAL FOR FAIR HOUSING LIABILITY The Supreme Court of the United States (SCOTUS) just decided several potential societal altering cases. With the high court issuing rulings on gay marriage and Obamacare, the Supreme Court’s decision in Texas Department of Housing v. Inclusive Communities Project, Inc. (“Texas Department of Housing”) did not garner significant national media attention. However, because SCOTUS, by a 5-4 decision, sanctioned fair housing disparate impact claims, the Texas Department of Housing case will have tremendous and unpredictable impact on the rental industry for years to come. The question presented in Texas Department of Housing was whether a disparate impact claim can be brought under the Federal Fair Housing Act (FHA). The FHA clearly bars intentional discrimination based on protected class status, i.e. policies or practices that discriminate against tenants because of race, creed, color, national origin, sex, familial status, or disability. Courts classify intentional discrimination as disparate treatment. In a disparate treatment case, a tenant must establish that the landlord had a discriminatory intent or motive. In a disparate impact case, the tenant does not need to prove a discriminatory intent, but rather only prove that the challenged housing practice or policy disproportionately adversely affects tenants that are members of a protected class, and that such practices or policies are not otherwise justified by a legitimate rationale. In Texas Department of Housing, the plaintiffs continued on page 2 THE RENTAL MARKET FOR APARTMENTS PROJECTED TO CONTINUE GROWING The Urban Institute projects by 2030 a majority of the estimated 22 million new U.S. households will be renters not buyers and the rate of homeownership will be as low as 61.3 %. While the future may be somewhat dim for homeownership, the opportunities and the possibilities for growth in the apartment community industry are exceptionally bright and positive. Economists agree, although homeownership has been declining since the housing bust and renters have increased, that even as the economy picks back up this trend will continue for a number of reasons. Demographics are a major contributor to the growth of renters versus owners. The age of marriage and childbearing in the U.S. has been rising, that means related life milestones like forming a household and buying a home are happening later in life too. This means that people who do buy homes will spend less of their lives as homeowners. Another factor pointed out by the Urban Institute is that stagnating incomes as well as rising student debt drags down the ability of many Millennials to buy a home as they age into that stage of life where they historically might have been expecting to buy a home. While Millennials account for a large part of the increase in rental households between now and 2030 it is not the whole picture. During this same period, over the next fifteen years, many baby boomers will be aging out of homeownership and moving into retirement communities or rentals. Even though in 2030 there will still be a majority of homeowners (60% plus) as opposed to renters, the gap between owner and renter has been closing over the past fifteen years and is expected to continue to follow this trend in the next 15 years. As homeownership continues to keep falling and apartment living, with ever expanding amenities, locations and conveniences attract more and more renters there is speculation that how we think about homeownership as being the norm in the U.S. may be permanently changing. ;;;;;;;;; SUPREME COURT INCREASES POTENTIAL FOR FAIR HOUSING LIABILITYcontinued from page 1 alleged that the Texas Department of Housing (Department) caused continued segregated housing patterns by its disproportionate allocation of tax credits. Specifically, the Department granted too many credits for housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods. The plaintiffs wanted the Department to modify its policies to encourage the construction of low-income housing in suburban communities. In finding for the plaintiffs, the District Court relied on statistical evidence. Fair housing disparate impact cases are always proved through the use of statistical evidence because it doesn’t matter what your intentions are, only the results of your policies. Specifically, the Department approved tax credits 49.7% of the time in low Caucasian areas, but only 37.4% of the time did the Department approve proposed units in high Caucasian areas. The Court also found that “92.29% of low housing income tax credit units in the city of Dallas were located in census tracts with less than 50% Caucasian residents.” Based on the Supreme Court’s ruling and previously adopted HUD regulations, promulgated during the Obama administration, a landlord can be found liable for the results of practices and policies absent any discriminatory intent. Under the law, the tenant would first have the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect. Again, this is done through statistical evidence. Supposedly, if a statistical discrepancy is caused by factors other than the landlord’s policy, a tenant doesn’t have a case and there would be no fair housing liability. If a court found that a tenant has shown, through statistical evidence, that your policy disparately impacted minorities (protected class members), you would have an opportunity to demonstrate that the challenged policy was necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. However, even if you proved you had a legitimate non-discriminatory business reason for the policy, you would still be found liable if the tenant proved that you could achieve the same goal or policy through less discriminatory means. continued on page 3 SITUATION SOLUTIONS As the intro to a well-known popular old TV show used to say “there are over a million stories in the naked city and this is just one of them”. Well at THS, there are over two-thousand five hundred situations that we handle every month for our clients and this is just some of them. Our Situation Desk deals with many recurring situations as well as the unusual and, at times, the very unusual. Here are some of the current “situations” that our legal team has recently handled. GETTING IN THE SWIM WHILE STAYING OUT OF HOT WATER Since it is summer and everyone is headed to the pool it is not uncommon to have questions relating to swimming pools and rules. The question of whether a community can establish a special time for Adult Swim Only comes up every year. And the answer is still definitely NO. Federal case law expressly says that you may not ban individuals under 18 from using the pool during an adult-only-swim time. Adult-only use restrictions are deemed to be discriminatory under fair housing case law because they treat families with children les favorably than households composed of adults only. Under the Federal Fair Housing Amendments Act of 1988 Familial Status is a protected class. Also, in order to avoid fair housing complaints, communities should probably avoid setting aside specific times designated as “family swim” or “lap swimming only” as these designations could similarly be viewed as discriminatory and challenged. SHE SAID!—HE SAID! AND WHO IS TELLING THE TRUTH Landlord News July 2015 Page 2 The question of what to do when one resident has a protection/restraining order against another resident frequently comes into the Situation Manager. In this particular situation a girlfriend and her boyfriend are living together and both of them are on the lease. The girlfriend says she has a Protective Order but will not provide proof to the manager. The boyfriend tells the manager that the Protective Order was “dismissed” and shows proof of his statement to the manager. Our attorney handling the situation advised the landlord to ask the female resident for proof. Lacking continued on page 4 SUPREME COURT INCREASES POTENTIAL FOR FAIR HOUSING LIABILITYcontinued from page 2 As pointed out, the outcome in Texas Department of Housing was close, with five justices voting to recognize disparate impact claims, and four justices voting to not recognize disparate impact fair housing liability. The Supreme Court Justices who voted against disparate impact illustrated the problems that the multifamily industry will face as a result of this decision. Disparate impact liability can and will lead to absurd results. As Justice Scalia pointed out in the dissenting opinion, “nobody wants to live in a rat’s nest”. But this was the exact result (unsanitary housing) because of a disparate impact case. Specifically, in the Magner case, the city of St. Paul, Minnesota adopted an aggressive code enforcement policy to crack down on slumlords that weren’t properly attending to their rentals. Everyone agreed that the City of St. Paul could not possibly have a discriminatory intent in aggressively enforcing the building codes to make landlords repair and eradicate pests, including rats. Despite this, based on disparate impact fair housing liability theory, a court was able to conclude that St. Paul’s aggressive enforcement of the Housing Code was actionable because making landlords respond to “rodent infestation, missing dead-bolt locks, inadequate sanitation facilities, inadequate heat, inoperable smoke detectors, broken or missing doors,” and the like increased the price of rent. Since minorities were statistically more likely to fall into “the bottom bracket for household adjusted median family income,” they were disproportionately affected (disparately impacted) by the rent increases. In short, St. Paul’s good-faith attempt to ensure minimally acceptable housing for its poorest residents could not ward off a disparate impact lawsuit. The dissenting minority in Texas Department of Housing went on to state that the Court’s embracing of the same theories that led to the absurd result in Magner is a serious mistake. “The Fair Housing Act does not create disparate-impact liability, nor do this Court’s precedents. And today’s decision will have unfortunate consequences for local government, private enterprise, and those living in poverty. Something has gone badly awry when a city can’t even make slumlords kill rats without fear of a lawsuit.” “It follows that the FHA does not authorize disparate-impact suits. Under a statute like the FHA that prohibits actions taken “because of ” protected characteristics, intent makes all the difference. Disparate impact, however, does not turn on “‘subjective intent.’” The very case before the court (Texas Department of Housing) further illustrates the point that disparate impact liability may attach regardless of what you do. “The Texas Department of Housing and Community Affairs (the Department) has only so many tax credits to distribute. If it gives credits for housing in lower income areas, many families—including many minority families— will obtain better housing. That is a good thing. But if the Department gives credits for housing in higher income areas, some of those families will be able to afford to move into more desirable neighborhoods. That is also a good thing. Either path, however, might trigger a disparateimpact suit. This is not mere speculation.” The justice went on to argue that based on disparate impact theory, the Texas Department of Housing could have been sued for disparately impacting minorities regardless of what it did. According to HUD, you don’t need to fear disparate impact liability if you can demonstrate that your policies or practices serve substantial, legitimate, nondiscriminatory interests, and that those interests cannot be served by another policy that would impact protected class members less. Thus, HUD argued that even if your policy disparately impacts minorities, you’re not liable if you have legitimate non-discriminatory business reasons for the policy, and there is not another means to achieve your objectives without impacting minorities. However, as the dissenting minority points out, what are “substantial interests”, “legitimate interests”, and “non-discriminatory interests”? Are you liable if your policy serves a substantial interest, but the court finds that it is not a legitimate interest? The bottom line is that these terms will mean what HUD and courts say they mean. Unfortunately, we will only know how HUD and the courts will define these terms after owners and managers get sued, and have to spend tens of thousands, if not hundreds of thousands of dollars, defending themselves. Any good attorney will tell you that the outcome of most lawsuits cannot be continued on page 4 Landlord News July 2015 Page 3 SITUATION SOLUTIONS continued from page 2 proof the landlord does not have to take her word for it. There are 3 types of Protection Orders: temporary, permanent and mandatory. The first two are civil and the 3rd is only if someone’s been charged with certain crimes. From the information that was provided, it sounds like there was a temporary PO in this instance that was subsequently dismissed. Landlords need to know that they have no duty to enforce PO’s. It is not their responsibility. Even if there were an active PO in this case, technically as a leaseholder, the landlord would have to give him a key if he had been locked out. However, in this type of situation, we advise that the courts would rather have a landlord wrongfully not allow access than to have someone seriously hurt. If it is clearly proved that there is an active PO in this case, we advise that it is in the best interest for the boyfriend to not be on the property and to send a third party to get whatever he really needs from the apartment. HELP! I AM BEING POISONED BY MY AIR CONDITIONING UNIT A resident complained that there was a serious gas leak in her apartment. Management responded immediately and had it thoroughly checked out and they could not find any leak or problems with gas in her apartment. That, however, did not resolve issues with this resident. She immediately notified management that it was her air conditioning unit that was poisoning her and it needed to stop. The management had the air conditioning unit for her apartment dismantled, checked, cleaned and reinstalled. The resident continues to insist that she is being poisoned and continually calls her father who, in turn, keeps calling the manager and demanding something be done. Management has, to no avail, explained in detail to both the resident and her father what has been done and that nothing more can be done. Resident was asked if she would like to get out of her lease but refused to respond. We advised the management to draft a letter detailing everything that was done to address her concerns, advising her that there is nothing further that can be done, and reminding her that they want to know if she wants out of her lease. ;;;;;;;;; SUPREME COURT INCREASES POTENTIAL FOR FAIR HOUSING LIABILITY continued from page 3 precisely predicted. However, the law should promote substantially likely outcomes based on a set of facts. When HUD and the courts are free to determine that any policy disparately impacts protected class members based on whether, in their opinion, the policy serves a “substantial interest” or “non-discriminatory interest”, there is no substantial certainty or predictability that any given policy will be immune from a disparate impact legal challenge. Finally, the worst effect of this disparate impact ruling by the Supreme Court is that it will inevitably increase the cost of doing rental business. Everyone that has been in the multifamily industry for any length of time knows that, unfortunately, paying to settle nonmeritorious claims by tenants is a cost of doing business. It makes sense to settle a claim for $500, and avoid paying $4,000 in attorneys’ fees that you will never recover. However, the costs of litigating a disparate impact claim are on an entirely different level. Without even considering substantial costs for expert witnesses and depositions, attorneys’ fees alone, in a disparate impact case, could easily run into tens of thousands of dollars, and even into six figures. In addition, if you lose, you have to pay the tenant’s attorneys’ fees as well. Fair housing attorneys use this as leverage to extract settlements that have no bearing on actual damages. “If you don’t settle, and even if we win only $20,000, you’re going to have to pay our attorneys’ fees which will be over $200,000”. Thus, disparate impact liability is likely to create no-win scenarios for the multifamily industry. Spending significant money defending, or paying inflated settlements. ;;;;;;;;; Landlord News July 2015 Page 4 IMPORTANT THS JULY DATES July 1st DOUGLAS COUNTY COURTS CLOSED July 3rd ALL COURTS CLOSED INDEPENDENCE DAY HOLIDAY THS CLOSED INDEPENDENCE DAY HOLIDAY July 8th DOUGLAS COUNTY COURTS CLOSED July 9th Basic Fair Housing Workshop THS Lower Conference Center 3600 S. Yosemite Street Denver., CO 8:30 a.m. – Noon Landlord News July 2015 Page 5 The Five W’s Of Life Who you are is what makes you special. Do not change for anyone. What lies ahead will always be a mystery. Do not be afraid to explore. When life pushes you over, you push back harder. Where there are choices to make, make the one you won’t regret. Why things happen will never be certain. Take it in stride and move forward.