May 2016

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HUD Criminal Screening Guidance–Complicated and Problematic
What Is In a Name? A Lot More Than People Realize

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Volume 16• Issue 5

MAY 2016



3600 South Yosemite Street Suite 828, Denver, Colorado 80237

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


On April 4, 2016, HUD released its tenant criminal background screening guidance (“Guidance”), 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. The Guidance discusses both disparate treatment and disparate impact. Landlords should be concerned about the Guidance’s discussion of disparate impact. HUD’s Guidance follows the promulgation of a disparate impact regulation by HUD 24 CFR 100.500, effective March 18, 2013. See, Landlord News, March 2013 and July 2015.

Landlords will have some difficult decisions regarding criminal background screening (criminal screening) because of the Guidance. Complying with the Guidance, to the extent possible, will likely result in significant costs, increased potential legal liability for intentional discrimination, and is not a guarantee against disparate impact lawsuits or successful defense of such lawsuits.

Landlords can’t understand the Guidance without understanding fair housing disparate impact liability. Nearly all housing discrimination complaints are based on disparate treatment (intentional discrimination). Disparate treatment requires a conscious decision to intentionally treat someone differently because of their protected class status. For example, a landlord commits disparate treatment housing discrimination when the landlord treats a tenant differently because of their race. Disparate impact

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We have written about the importance of filing cases in the correct party name. It seems like a simple concept, file the case in the name of the property, but there is more to it, and not filing in the correct name can carry serious consequences. A simple inadvertent error can lead to a very large expense and loss of time. The best way to illustrate this is a fictional situation inspired by true events. Be advised the names have been altered to protect the innocent.

Let us meet our cast of characters

The Apartment Community is Blackacre Square Apartments. Blackacre Square Apartments is a relatively new community. They have been operating for 2 years.

The Ownership is an entity Ownership, LLC

The Management Company, LLC manages lots of apartments and is commonly referred to as MC on their signs and branding.

The Tenants, Abbey & Ben

Now that the stage is set and the players identified we can share with you the costly convoluted drama of the Owner, the Management Company, the Tenant and “THE NAME”.

The Landlord is listed on the lease in the name of the owner’s entity Ownership, LLC. Ownership, LLC is an entity that is

licensed to do business in Colorado. Blackacre Square Apartments is managed by Management Company, LLC. Management Company, LLC manages lots of apartments and is commonly referred to as MC on their signs and branding. Management Company, LLC merged with Old Management Company, LLC about a year ago. Old Management Company was the original manager of Blackacre Square Apartments. Tenant’s routinely make their checks out to Blackacre Square or Blackacre Square Apartments.

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liability does not require a deliberate intent to discriminate. When it comes to disparate impact housing discrimination, a landlord’s intent is irrelevant. What counts is the effect (impact) of a policy. Thus, even if a landlord has a facially neutral policy (the policy is applied to every tenant equally, consistently, and fairly) such as a landlord’s criminal screening policy, the landlord is potentially liable for disparate impact housing discrimination if the policy disproportionately impacts protected class members. HUD argues in the Guidance that current criminal screening policies are discriminatory under disparate impact theory.

HUD justifies the Guidance based on criminal statistics. Specifically, “across the United States, African Americans and Hispanics are arrested, convicted and incarcerated at rates disproportionate to their share of the general population. Consequently, criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers. While having a criminal record is not a protected characteristic under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters or other housing market participants of one race or national origin over another (i.e., discriminatory effects liability).” Regardless of HUD’s statements and intent, the defacto affect of the Guidance is to significantly increase the housing rights of criminals.

HUD’s Guidance was published less than thirty days ago. The countless number of articles that have been written about the Guidance, in this short time, illustrate the tremendous impact the Guidance will have on the rental industry. The articles we reviewed, while informative, have tended to oversimplify the complex legal and operational issues involved, generally lack a substantive discussion of the difficult policy decisions that will need to be made, and understate the effort needed to address the issues raised by the Guidance. You can’t just have your policies reviewed to see

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WHAT IS IN A NAME? continued from page 1

The tenant’s Abbey and Ben, are behind on their rent.

The case starts off with a demand for payment or possession given by Management Company. The manager signs and serves the demand. The community name on the demand is listed as Blackacre.

The tenants fail to pay rent after the demand has expired. Management Company proceeds to send off the expired demand to their lawfirm. The Management Company files their eviction cases under the abbreviation MC.

Abbey and Ben file an answer to the Court claiming that they do not know who MC is because MC is not on their lease agreement. Their lease agreement is with Old Management Company, and Abbey and Ben counterclaim for a million dollars for a claim of damages. The details of the damages are not important. The important aspect is that a counterclaim above $15,000 is beyond the jurisdiction of the County Court. The counterclaim results in the case being transferred from County Court to District Court resulting in a delay. The hearing is set promptly, but the District Court deals with a variety of cases both criminal and civil, and while evictions are set on a fast track, that fast track in District Court is not as fast as it is in County Court.

The District Court sets this matter for a possession hearing. Abbey and Ben prior to the possession hearing do some research on the Secretary of State’s website, and discover that Blackacre Square Apartments and Blackacre Square are not registered tradenames. And, neither is the Management Company’s nickname MC. Abbey and Ben decide to go ahead and register the tradenames of Blackacre Square Apartments, Blackacre Square and MC into their names personally. Abbey and Ben raise the issue at the possession hearing that the case is not filed in the correct name, because Abbey and Ben are the legally registered owners of the tradename MC as well as Blackacre Square and Blackacre Square Apartments. Despite, the obvious trickery of the tenants, Abbey and Ben, the Court continues the possession hearing to give the parties an opportunity to amend their pleadings.

The case is amended into the name of the ownership on the lease agreement, Ownership, LLC. The Court at the next possession hearing, considers the motion to amend and allows the change of the name from MC to Ownership, LLC. The Court continues the case one more time to allow Abbey and Ben to get an attorney continued on page 4

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if they comply, and if they don’t comply promptly make

them compliant. You will need to undertake a comprehensive analysis of the issues, evaluate the many choices and risks, decide which road to take, and know that no road is one hundred percent safe.

The complexity of the Guidance and compliance challenges are illustrated by two competing but arguably contradictory policies. The Guidance requires a landlord’s criminal screening policies to be justified by a policy statement (what are the necessary business interests for your screening policies). As at least one reason, landlords will claim that ensuring tenant safety and protecting property is a substantial and legitimate business interest and criminal screening policies and practices are necessary to achieve these interests. However, in an effort to limit liability, most landlords also frequently adopt policies that disclaim safety and security responsibilities. Alternatively stated, most landlords make it clear to tenants that the landlord is not and cannot be responsible for the safety of tenants. Landlord disclaimers regarding security are often set forth in extensive lease language. Given the apparent contradiction, HUD might argue that the landlord’s purported reasons for criminal screening policies are a pretext given the landlord’s disclaimer of security responsibility in the lease. Do landlord’s jettison security disclaimers? Or do landlord’s keep both policies in place, and take their chances that the business reasons for their criminal screening policies will withstand attack when HUD points out that the reasons for the policies is contrary to landlord’s other stated policies?

Commentators to date have also largely failed to address the obvious: compliance with the Guidance will be extremely challenging, no policy is guaranteed to meet the Guidance requirements, and there is no bullet proof or entirely safe criminal screening policy. First, your screening policies have to be justified by a necessary business interest. While justifications appear obvious and logical (less criminals equals less crime), HUD can legally challenge your business reasons. Additionally, justifying your policy is only the first step. Second, if challenged, you must prove that your criminal screening policy achieves the business interests supporting the policy. Proving that your criminal screening policy achieves your stated interests will be difficult. How do you prove that tenants are safer or less crime took place because of your policy? Assuming you can justify your policy and prove


that your criminal screening policies achieve your business interests, you are still not out of the disparate impact liability woods created by HUD. HUD or the tenant can try to prove that you can meet your business goals by using other methods that don’t impact protected class members as much as your policies. It is also highly likely that you will only know whether you have a legitimate business interests for your screening, whether your screening achieves those interests, and whether there is not a less discriminatory means to achieve your business interests when HUD or a court says so.

Under the Guidance, HUD is free to second guess your policy decisions (argue that there are less discriminatory methods to achieve your business interests). Specifically, even if you have substantial legitimate interests for criminal screening policies, and can prove that your screening policies achieve those interests, HUD wants you to make “individual assessments” (individual judgment calls) about applicants’ criminal history. If you don’t, as set forth in the Guidance, HUD may argue that screening policies that do not provide for individual assessments have a greater discriminatory effect than policies that looks at the facts and circumstances of every applicant’s criminal history. According to HUD as set forth in the Guidance, an “individualized assessment of relevant mitigating information beyond that contained in an individual’s criminal record is likely to have a less discriminatory effect than categorical exclusions that do not take such additional information into account.”

Forcing landlords to individually assess individual criminal records creates a clear dilemma or choice of the lesser evil scenarios for landlords. On the one hand, HUD says that a landlord who doesn’t make individual assessments is committing disparate impact housing discrimination. On the other hand, if a landlord makes countless individual assessments (judgment calls) about relevant circumstances, mitigating circumstances, and the seriousness of crimes, HUD will argue that such judgment calls are inconsistent, and the landlord has therefore committed intentional housing discrimination by treating applicants differently (disparate treatment).

Whether or not to make individualized assessments is a significant decision that landlords will need to make. We have significant concerns about making individualized assessments. Those concerns are too lengthy to be addressed in this article. However, chief among our concerns is the lack of any specifics surrounding the continued on page 4

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vague criteria set forth by HUD. For example, HUD states that “the facts or circumstances surrounding the criminal conduct” might be relevant. Might be relevant? Are they relevant or not? To top it off, HUD provides no specifics regarding what makes one criminal’s circumstances worthy of admission (you making an exception to your criminal policies), and another criminal’s circumstances unworthy.

Based on the examples discussed, analyzing the Guidance’s affect on criminal screening is involved and complicated. By publishing the Guidance, HUD has laid down the proverbial gauntlet. Based on the Guidance, HUD will use the Disparate Impact Regulation to challenge criminal screening if HUD deems that a screen goes too far. Defining “too far” is the problem. The Guidance provides few clear concepts and safe harbors. For the most part, the Guidance creates an ever shifting amorphous landscape, and leaves HUD and tenant lawyers free to argue that almost any criminal screening policy results in disparate impact housing discrimination. For these reasons, landlords have essentially two options. One, open the flood gates (drop or reduce criminal screening to near zero, arguably HUD’s goal). Two, adopt a policy that is thoroughly evaluated and documented.

Under the shifting landscape created by HUD there is no one hundred percent safe criminal screening policy. However, a landlord can attempt to adopt the best, under the circumstances, criminal screening policies to achieve policy goals and minimize risk. Best under the circumstances policies would attempt to achieve three goals. One, screen out criminals to the greatest extent possible but minimize potential challenge by HUD and others. Two, be legally defensible if challenged. Three, be capable of being implemented consistently and at reasonable cost. Because there are no magic solutions to the issues created by the HUD Guidance, we can’t offer one size fits all recommendations. However, we can discuss the few portions of the HUD Guidance that are clear or at least clear enough to make concrete recommendations.

Based on the Guidance, arrests should be immediately eliminated from your criminal screening. Generally, this means you should not ask an applicant if they have ever been arrested for any crime. HUD’s position is clear. According to HUD, arrests have no value (do not continued on page 5

WHAT IS IN A NAME? continued from page 2

and reconsider their position with the current case in the Ownership’s name.

Prior to the hearing, Abbey and Ben attempt to get the case dismissed based on the name of the parties and they try to get money for sanctions against the Ownership entity. Ownership, responds to the motions and the Court takes them under consideration at the possession hearing. After hearing arguments the hearing is allowed to proceed, but only after Abbey and Ben file additional motions to try and delay the possession hearing based on the name change. And, so the soap opera continues!

While you never can predict what will happen in Court, an issue with the name of the Plaintiff can create delays and additional costs. What started off as a straightforward rent demand case, ended up being an extended case of litigation, resulting in delays, and additional costs. While in the above case, the tenant’s were likely to use or manufacture anything they could to create a delay, it is a good reminder of what could happen if a name is not registered with the State and should serve as a cautionary tale to be taken seriously.

Given the issues raised by Abbey and Ben in their counterclaim, it is clear that regardless of the name issue this dispute would have resulted in prolonged litigation. It is an important reminder to avoid giving the opposing side any argument that you can easily take away. So make sure that you are filing cases in the proper name, and that the entity is registered to do business in the State of Colorado, and that the Landlord has the authority to act on behalf of that entity. Or, the next “Name Issue” soap opera at THS could feature you and your property in a starring role.

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prove anything, especially that the person committed the crime), and therefore landlords do not have a legitimate non-discriminatory business reason for asking applicants about arrests and denying tenancy based on arrest records. With that said, under a comprehensively evaluated policy arrests or multiple arrests reported on your screen might be addressed and considered as part of your policy. However, if arrests are going to be factored in applicant decisions, you should only use arrests after thoroughly evaluating their use as part of a comprehensive policy.

Develop and implement a process to handle mistakes in criminal records. While barely mentioned in the Guidance, a policy to deal with mistakes makes sense for many reasons. Although rare, mistakes do happen (an innocent person can come back with a criminal decline), especially when identity theft is so rampant. Further, individuals who are denied based on criminal history that didn’t commit the crime are much more likely to sue. Thus, a criminal screening policy should acknowledge that mistakes are possible and have a process to address mistakes when raised by applicants.

Regardless of the crime, the look back period for criminal screens should be limited to seven years from date of conviction. According to the Guidance, the likelihood that a person with a criminal record will commit an additional crime diminishes greatly over time. The Guidance cites a study that concludes after six years or seven years, if a convicted criminal hasn’t committed a crime, the probability of the criminal committing an additional crime approaches the likelihood of a person with no criminal history committing a crime.

Limiting the criminal screen look back period to seven years should not be a big issue because the seven year look back period should already exactly match the data landlords receive from criminal screening providers now. Under the Fair Credit Reporting Act (FCRA), as a general rule, a Consumer Credit Reporting Agency (CCRA) is limited to reporting activity for the last seven years. Criminal screening providers have taken the position that they are CCRA’s subject to the FCRA,


and thus are most likely only reporting back seven years already. However, landlords should discuss this with their criminal screen provider and confirm that the look back period for the criminal data being used in a screen is in fact seven years.

Landlords may safely deny, without fear of liability, any individual that has been convicted of manufacturing or distributing a controlled substance. This is the only one hundred percent safe harbor in the Guidance. The HUD Guidance had to allow for this safe harbor based on the Fair Housing Act (FHA) which provides that “nothing in this title prohibits conduct against a person because such person has been convicted by any court of competent jurisdiction of the illegal manufacture or distribution of a controlled substance.” Landlords should be aware that the FHA’s drug prohibition only applies to the “manufacturing or distribution” of drugs, and does not cover convictions based on possession. Although another HUD regulation allows federally assisted landlords to decline tenancy if it is determined that the applicant has or is currently engaging in drug related criminal activity. Our recommendation is that you can safely deny applicants with convictions involving controlled substances. The use of other drug related criminal history should be thoroughly evaluated when developing a comprehensive policy.

Sex offenders also can probably be safely denied. The Guidance does not specifically address sex offenders or sexual related offenses, or any specific crimes for that matter. However, HUD regulations covering federally assisted housing prohibits the admission of any tenant that is subject to a lifetime registration requirement under a state sex offender program. HUD’s prohibition also prohibits admission if any other member of a tenant household is a registered sex offender.

Criminal screens should be primarily focused on violent felonies, and not misdemeanors and what are considered to be victimless crimes. Violent crimes are also referred to as crimes against the person because such crimes typically involve bodily physical harm to another. HUD regulation also prohibits tenancy to federally assisted housing if a landlord determines that the applicant has engaged (a reasonable time before admission) in any “other criminal activity that would threaten the health, safety, or right to peaceful enjoyment of the premises by other tenants.” Common violent offenses include: assault and battery, homicide, domestic violence, robbery, sexual assault and abuse, and false imprisonment. There is no safe or approved list. You will have to decide which crimes are considered violent as part of your review and comprehensive evaluation.

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Every landlord will need to have a detailed written policy statement justifying their criminal screening policies and practices. Policies are adopted for reasons, and if your criminal screening policies are challenged by HUD or a tenant, you will be required to provide the business reasons for those policies. To withstand legal challenge, a landlord’s criminal screening policies must be supported by a substantial and legitimate business interest. Written policies demonstrate that a landlord has thought about the reasons for the policies and determined such policies are necessary to serve the landlord’s legitimate and substantial non-discriminatory business interests. However, having a substantial legitimate business reason for a criminal screening policy is insufficient for HUD. In addition, a landlord must prove that the criminal screening policy or practice promotes or achieves the landlord’s stated interest. Thus, when formulating criminal screening policies, a landlord should determine not only what interests are served by the policy, but think about whether the landlord can prove that the policy achieves the stated interest.

Overall, HUD’s Guidance extremely complicates criminal screening for the rental industry, and is an attempt to extend by governmental agency fiat the HUD Disparate Impact Regulation that came out in March of 2013, and makes criminals a defacto protected class. Three years have passed since HUD promulgated the disparate impact regulation. Fortunately, there has not been a flood of lawsuits over criminal screening. However, we are concerned that the Guidance will embolden tenants and tenants’ rights advocates to file litigation. Since it’s always about the money, owners and managers with regional and national portfolios should be particularly concerned as they have the greatest probability of being targeted.

We recommend clients thoroughly review and evaluate criminal screening policies and practices. However, be clear. This is no run of the mill review of operating procedures and policies. Designing the best criminal screening policies that minimizes liability (liability cannot be eliminated) under the Guidelines will be time consuming and involved. This process must involve decision makers at the highest level. To formulate best under the circumstances policies, a landlord will have to have a thorough understanding of the challenges created by the Guidance and the Disparate Impact Regulation, including the various risks and costs. A landlord will have to be committed to spending the necessary time and resources to thoroughly evaluate current policies, develop new policies, and make various liability risk decisions. A landlord will also have to decide whether it can develop processes and train staff to consistently execute those processes. The only solution to this problem is legislation amending the Federal Fair Housing Act to eliminate disparate impact housing discrimination.

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May 11th EVICTIONS WORKSHOP THS Lower Conference Center 3600 S. Yosemite Street Denver, CO

8:30 a.m. – 11:30 a.m.

May 19th AASC Fair Housing Workshop

545 E. Pikes Peak Ave #105

Colorado Springs, CO May 20th South Client Lunch

Dave & Busters South Colorado Blvd 11:15 a.m. – 1:00 p.m.

May 25th AAMD Education Conference & Tradeshow

Denver Mart

7:30 a.m. – 5:00 p.m.