ARRESTS DON’T DISQUALIFY APPLICANTS UNDER HUD’S NEW POLICY

On November 2, 2015, HUD announced its policy that Public Housing Authorities (PHAs) and federally-assisted properties should exclude the use of arrest records in housing decisions. The stated purpose of the policy announcement was to “inform PHAs and owners of other federally-assisted housing that arrest records may not be the basis for denying admission, terminating assistance or evicting tenants, to remind PHAs and owners that HUD does not require their adoption of “One Strike” policies, and to remind them of their obligation to safeguard the due process rights of applicants and tenants.” HUD’s policy only applies to subsidized housing. However, because HUD’s announcement will likely generate substantial discussion in the rental industry, we review HUD’s policy and discuss criminal background checks in this newsletter

The number of persons arrested every year is staggering. In 2014, law enforcement made an estimated 11,205,833 arrests, 498,666 were for violent crimes, and 1,553,980 were for property crimes. However, as set forth in the HUD memo, “HUD has reviewed relevant case law and determined that the fact that an individual was arrested is not evidence that he or she has engaged in criminal activity. Accordingly, the fact that there has been an arrest for a crime is not a basis for the requisite determination that the relevant individual engaged in criminal activity warranting denial of admission, termination of assistance, or eviction.”

HUD goes on to state that in the 75 largest counties in the country, approximately one-third of felony arrests did not result in conviction, with about one-quarter of all cases ending in dismissal. HUD also points out that “arrest records are often inaccurate or incomplete (e.g., by failing to indicate whether the individual was prosecuted, convicted, or acquitted), such that reliance on arrests not resulting in conviction as the basis for denying applicants or terminating the assistance or tenancy of a household or household member may result in unwarranted denials of admission to or eviction from federally subsidized housing.” Further, according to a 2006 Attorney General Report on background checks commercial criminal record databases and services, especially name-based searches, have been found to be rife with errors and may report irrelevant arrest records or outdated convictions that have been expunged from an individual’s history.

Based on these facts, a PHA or owner of a federally-assisted property may not conclude that an applicant engaged in criminal activity, warranting a denial of admission, based on a record of arrest alone. If an applicant has an arrest record, a landlord may inquire further whether sufficient evidence exists that an applicant engaged in disqualifying criminal activity. According to HUD, subsidized landlords must utilize other evidence such as police reports, witness statements, and other relevant documentation to determine the applicant engaged in criminal activity warranting a denial. In short, under HUD policy, a landlord must conduct its own investigation and conclude that the applicant committed the crime for which they were arrested. Obviously, HUD has no idea of the burden this would place on the rental industry if this were to apply to all rentals, and the lack of existing resources to implement this edict.

HUD’s stated goal is for landlords to “consider all of the circumstances relevant to the particular admission decision, including but not limited to the seriousness of the offending action.” To meet this goal, PHAs and owners should “institute protocols that assure that its procedures and standards are consistently applied and that decisions are made based on accurate information.” The HUD Memo goes on to suggest application policies and best practices to meet these goals. “Some PHAs allow public housing and Housing Choice Voucher applicants to address and present mitigating circumstances regarding criminal backgrounds prior to admission decisions.” Limiting the lookback period for arrests and criminal convictions based on type of crime. HUD also suggests that landlords should consider the nature or seriousness of the crime, i.e. was it violent or the type of crime that threatens the health, safety, or right to peaceful enjoyment of the premises by other residents.

We are concerned that HUD’s policy will ensure the failure of the very goals HUD is attempting to promote. Fair housing is about consistency. HUD’s goal is to be consistent. However, we are concerned about how any landlord can be consistent when being mandated by HUD to make case by case determinations based on “all of the relevant circumstances”. Who determines what circumstances are relevant? Relevant evidence is any evidence that makes a fact more likely or less likely. Often relevancy is obvious. Many times, it is not. Judges who are trained to determine relevancy often have difficulty determining what evidence is relevant. Different judges could rule differently on the same piece of evidence. We don’t see how untrained laypersons are going to consistently make determinations regarding relevant circumstances. Similarly, what constitutes mitigating circumstances? Obviously, different landlords aren’t always going to agree on what is a serious or violent crime, or what crimes threaten others safety or their right to peaceful enjoyment. If HUD asked existing tenants, they likely would feel that any new tenant with an arrest record threatens their safety or peaceful enjoyment of the premises. Over the years, existing tenants nearly riot when they discover another tenant has been charged (arrested) for a sex-related offense.

Ironically, as justification for the new policy, HUD refers to a 2000 court decision. Specifically, HUD cites a federal circuit court of appeals case for the proposition that inconsistent application of admission criteria based on partial or inaccurate information may result in liability under federal civil rights laws. In this case, the court held that allegations by a protected class member (an African American applicant) was given less opportunity to contest an erroneous criminal record than two similarly situated white applicants was enough to establish a prima facie case of discrimination under the Fair Housing Act. In other words, landlords can be liable for not having consistent application policies or not consistently carrying them out. Thus, first HUD justifies the new policy by recognizing current law that landlords are liable for treating applicants differently. Then HUD adopts a policy that forces landlords to make countless individual judgment calls about relevant circumstances, mitigating circumstances, and the seriousness of crimes, which in all likelihood will result in applicants being treated differently.

The good news is that HUD’s new policy only applies (for now) to PHAs and federally-assisted properties. The bad news is that HUD’s policy, along with the Supreme Court’s recent disparate impact decision (See July 2015 Edition of Landlord News), is likely to result in increased legal challenges to application related policies, especially criminal background check related policies. HUD’s policy doesn’t mean that conventional communities need to change their policies. However, with more legal challenges likely on the horizon, it would be a good time for all landlords to review their criminal background check policies.

If you are a conventional community, your review should include answering some key questions. Do you automatically exclude applicants with arrest records? Do you make exceptions depending on surrounding circumstances, mitigating circumstances, or nature of crimes? If you do look at the surrounding circumstances, do you have well thought out written policy that attempts to set forth objective criteria for evaluating every case? Do you limit the lookback period for arrests or convictions? If not, why not? Do you have a policy that addresses potential errors in criminal background checks? Is it well defined? Is it consistently followed?

If you want to adopt or are forced to adopt HUD’s policies (you are a PHA or federally assisted property), do you have the resources to carry them out? We would say probably not. Based on our experience, the multifamily industry is ill-equipped to deal with the extensive burdens that would be imposed on the multifamily industry if HUD’s new policy were to apply to all apartment communities. Most managers and owners simply don’t have the necessary resources to be conducting individual investigations into tenants’ backgrounds. Ask yourself, how many applicants were denied at your property in the past year based on criminal background checks? Do you have the time to meet with each one individually, hear their side of the story, gather necessary documentation including police reports, and then make a determination? Unfortunately, if HUD’s policy applies to you, you will have to find the resources.

You should also consider the risks of various criminal background check policies. Excluding arrests is the least risky from a fair housing liability perspective. However, it may be more risky from an NOI perspective, i.e. your community may become less desirable if most or many tenants have arrest records. Remember, tenants have access to the internet too, including many sources of publicly available arrest records. Exclusion of arrests may also result in potential liability (something HUD probably didn’t consider). Specifically, if you rent to someone with an arrest record, and then they commit a crime on the property or against another tenant (assault or kill another tenant), you may be sued. Your legal liability for such acts is tenuous in most circumstances, but clients have been sued based on allegations that they introduced (allowed) a known dangerous person into the community. Even though you will likely prevail in this type of lawsuit, you still have to deal with the lawsuit and incur the corresponding legal costs.

Excluding prospective tenants with serious felony arrests, violent or sexually related crimes, is less risky from a fair housing liability perspective than HUD’s policy. Such a policy is based on objective criteria. The applicant either has been arrested for a serious felony or they have not. This policy also avoids the fair housing liability quagmire of having untrained onsite teams making individual judgment calls regarding the surrounding circumstances of applicant arrests, or attempting to establish whether the applicant committed the crime for which they were arrested. The policy is also a bulwark against liability claims based on persons with violent felony arrest records committing crimes on your property or against other tenants. While excluding felony arrests decreases fair housing liability, based on disparate treatment (every applicant is treated exactly the same based on legitimate non-discriminatory business reasons), it does leave the door open for fair housing claims based on disparate impact.

Remember, under fair housing disparate impact theory, you can still be liable for fair housing discrimination even if your policy is facially neutral (everyone is treated the same), but the policy has a disproportionately negative impact on protected class members. The argument would go like this. Protected class members are more likely to have arrest records. Thus, your policy of excluding applicants with arrest records disproportionately impacts them. Overall, from a fair housing liability prospective, the less risky policy is to have objective criteria applied to everyone, and except for errors, individual circumstances are not considered. Under this policy, the possibility of a disparate impact claim exists. However, when your policy has onsite teams making individual judgment calls (evaluating individual circumstances), you are almost guaranteed to be facing multiple disparate treatment fair housing claims.

Finally, as further insulation against liability, both your criteria and your lease should clearly address criminal background checks. Specifically, owner may, but has no obligation to conduct criminal background checks on actual or potential residents or occupants. If owner does conduct criminal background checks, owner cannot and does not guarantee the accuracy of such checks, or that any resident or occupant does not have a criminal record. Information regarding registered sex offenders is available from local law enforcement agencies upon request.

If you are interested in reading the full memo, HUD’s memo can be downloaded from the sparkling new THS website: https://0820.thslawfirm.com/resource-information/legislative-industry-alerts/2016.

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