FHA Trends: How New “Protected Classes” Impact Your Liability Risks

We explain practical measures you can take in light of five emerging trends.

 

 

In recognition of National Fair Housing Month, the Coach is stepping back to offer big-picture perspective on recent legal trends and their impact on your liability risks and compliance strategies. The starting point is that fair housing lawsuits are increasing at record rates. Although it hasn’t yet released its 2023 findings, the National Fair Housing Alliance (NFHA) reports that 33,007 fair housing complaints were filed in 2022. That’s the highest one-year total since the not-for-profit advocacy group began tracking discrimination lawsuits 26 years ago. And that record will likely fall when the NFHA releases the numbers for 2023.

The numbers tell only part of the story. Of particular concern to landlords struggling to remain compliant with fair housing laws isn’t just that people are suing more often but what they’re suing about. The federal Fair Housing Act of 1968 (FHA) bans discrimination on the basis of only seven characteristics or “protected classes,” namely, race, color, religion, sex, national origin, familial status, and handicap (disability). But the scope of “protected classes” is continually expanding. In recent years, other marginalized members of society who aren’t mentioned in the FHA have nevertheless been successful in seeking protection under the law.

One reason for this is that many states and municipalities have adopted fair housing laws that cover groups not listed as protected classes under the FHA (such as marital status, age, ancestry, sexual orientation, and source of income, to name just a few). At the same time, the federal FHA hasn’t undergone significant legislative change since 1988 when Congress added handicap (disability) and familial status to the list of protected classes. But the recent evolution of federal fair housing law has been driven not by legislation, but regulations and guidelines from the agency that enforces the law, U.S. Department of Housing and Urban Development (HUD), as well as by the rulings of courts and tribunals that interpret the law in real-life cases.

The dynamic: Interpret FHA current “protected classes” broadly as including subclasses by implication on the basis of indirect effects—for example, “race” as including individuals with criminal records since African Americans are arrested and incarcerated at disproportionate rates. 

5 NEWLY EMERGING PROTECTED CLASSES

Here’s a broad overview of five of the most significant new FHA “protected classes.” First, we’ll explain the legal basis for extending FHA protection to the group. Then, we’ll list the practical measures landlords can take to manage liability risks when dealing with members of each group. We’ll conclude the analysis of each new emerging protected class with a quiz question enabling you to apply the principles to a real-life situation involving an applicant or tenant from that particular group.

1. Housing Voucher Holders & Others with Nontraditional Sources of Income

Legal Risk: “Source of income” discrimination is among the fastest growing areas of fair housing litigation, generating 1,713 complaints in 2022, a year-over-year increase of 39.8 percent, according to the NFHA. Source of income discrimination occurs when landlords reject applicants or evict tenants not because they can’t afford the rent but because they use something other than traditional income from employment to pay, such as Section 8 or other housing vouchers, welfare, disability, unemployment, veteran, or other government benefits. The case can be made that source of income discrimination violates the FHA to the extent that racial minorities, people with disabilities, and other FHA-protected classes rely on these income sources at disproportionate rates. However, the principal risk of liability stems from the 20 states and over 70 major cities whose fair housing laws expressly ban source of income discrimination.

States that Ban Source of Income Discrimination in Housing: California, Connecticut, Colorado, Delaware, District of Columbia, Hawaii, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Oklahoma, Oregon, Rhode Island, Texas (covers homeowners associations only), Utah, Vermont, Virginia, Washington, Wisconsin (doesn’t cover housing vouchers)

Solution: There are five steps you can take to guard against inadvertent liability for source of income discrimination:  

1. Accept all forms of legal income;
2. Don’t charge fees or impose less favorable rental conditions based on a tenant’s source of income, for example, by requiring a tenant to get the lease guaranteed because they don’t pay in cash;
3. Don’t require prospects or tenants to be employed if they have the non-employment income necessary to pay rent;
4. Be careful about imposing minimum income requirements or credit score benchmarks; and
5. Keep your ads free of statements, images, or other content that express or imply a preference for or against prospects with housing vouchers or other forms of income.

You Make the Call

Can you reject a rental applicant who’s unemployed and dependent on welfare and alimony because she doesn’t meet your community’s income requirements?

a.         Yes, as long as you consistently reject other applicants who don’t meet your income requirements

b.         No, because rejecting her would be discrimination based on sources of income

c.          Yes, because applicants who don’t have steady jobs are too great a financial risk

Answer:

a. If an applicant has the lawful funds to pay her rent each month, you can’t reject her simply because you object to where those funds come from. On the other hand, you don’t have to accept an applicant with insufficient income. So, a. is the right answer.

Wrong answers explained:

b. is wrong because an insufficient amount of income, regardless of source, is a legitimate, non-discriminatory reason for rejection as long as you consistently apply the income standard with all prospects.

c. is wrong because requiring applicants to have a steady job is a form of source of income discrimination that the laws ban. As long as applicants can get the money they need to pay rent from legal sources, the source of that income is none of your concern.

2. Undocumented Aliens

Legal Risk: People who are in this country illegally can’t sue for discrimination under the FHA if that’s the sole reason they experience discrimination. Explanation: In January 2003, HUD issued a memo clarifying that the FHA “does not prohibit discrimination based solely on a person’s citizenship status”; nor, the memo adds, does the law bar discrimination based on “immigration status or resident alien” status. However, undocumented aliens and non-U.S. citizens who get excluded may have valid grounds to sue for other forms of discrimination, including religion, race, and especially national origin. Rule: FHA protections extend to every person in the U.S., regardless of their immigration or citizenship status. Stated differently, a person doesn’t have to be a U.S. citizen to sue for discrimination.

Solution: There are five steps you can take to minimize discrimination risks when dealing with undocumented aliens: 

1. Don’t make U.S. citizenship or immigration status a qualifying criterion for renting unless you have a legitimate, nondiscriminatory, and documented business justification for doing so—for example, because state or municipal law requires it;
2. Be consistent in applying whatever screening policy you do adopt;
3. Ask for the right form of verification of citizenship and/or immigration status (discussed below);
4. Apply your normal screening standards to immigrants; and
5. Don’t use an applicant or tenant’s immigration status as a bargaining chip.

How to Verify Immigration/Citizenship Status. Acceptable proof depends on whether you’re seeking to verify an applicant’s status as a citizen, immigrant, or nonimmigrant:

• Citizenship: Acceptable proof of U.S. citizenship includes a valid current U.S. passport, birth certificate, or certificate of naturalization;
• Legal immigrant: Proof of legal immigrant status, i.e., noncitizens who have the right to permanently remain in the U.S., include a Permanent Resident Card (a.k.a., “Green Card”) and an official Social Security number;
• Legal nonimmigrants: Legal nonimmigrants are persons allowed to be in the U.S. on a temporary basis for specific reasons. Such applicants should have a non-U.S. passport from their native country along with a Form I-94, a.k.a., Arrival Departure Record or Entry Permit listing when they entered the U.S. and how long they have a right to stay. They also need a visa, such as an F-1 visa for students, unless they’re from one of the countries that has signed a visa waiver agreement with the U.S.

You Make the Call

Which of the following would be a legitimate reason to reject applicants who aren’t U.S. citizens?

a.         Being a U.S. citizen is required for leasing property under HUD program rules and/or state or local law 

b.         A non-U.S. citizen is generally less likely to pay rent on time each month

c.          Non-U.S. citizens are totally judgment proof

Answer:

a. The fact that HUD program rules and/or state or local laws require landlords to verify that applicants are U.S. citizens before accepting them is a legitimate, nondiscriminatory justification.

Wrong answers explained:

b.         The assumption that noncitizens are less likely to pay rent is just that—an assumption, and one based on stereotypes. Consequently, it’s not justification for requiring applicants to be U.S. citizens.

c.          The reason c. is wrong is that it’s overstated. While evicting or suing a noncitizen for lease violations poses challenges, it’s not accurate to characterize immigrants as “judgment-proof.” In fact, persons in the U.S. illegally are likely to be far more amenable to threats of litigation.

3. Persons with Limited English Proficiency

Legal Risk: While not on the FHA list of protected classes, in 2016, HUD issued guidance making it clear that it considers the exclusion of individuals because they have limited English proficiency (LEP) a form of discrimination based on national origin, race, and religion. The link between national origin and LEP is not only fairly intuitive but also supported by census data. Thus, in the U.S.:

• 34 percent of Asians and 32 percent of Hispanics are LEP, as compared with 6 percent of whites and 2 percent of non-Hispanic whites;
• 61 percent of persons born in Latin America and 46 percent of persons born in Asia are LEP, as compared with 2 percent of persons born in the U.S.; and
• Over 63 percent of noncitizens are LEP, compared with 39 percent of naturalized citizens and 1 percent of native-born citizens.

In addition, landlords that participate in federally assisted housing programs must not only refrain from excluding but take proactive steps to accommodate LEP persons.

Solution: There are five things you can do to minimize risks of liability for LEP-based discrimination: 

1. Don’t base housing decisions on how well a person speaks English or any other language (note that excluding somebody because English is their primary language, rather than Korean or other language the landlord or tenants speak, is just as illegal as LEP discrimination);
2. Ensure leasing agents don’t engage in linguistic profiling, or treating people differently, whether overtly or subconsciously, because of the way they speak or sound on the phone;
3. Avoid steering, or seeking to influence prospects’ housing choices on the basis of their English language skills or lack thereof, for example, by suggesting that a prospect from Argentina might be “more comfortable” leasing an apartment on a floor where most of the tenants speak Spanish; 
4. Avoid “English only” and other restrictive language policies; and
5. Warn leasing agents to be patient and sensitive when dealing with people who have trouble speaking English.

You Make the Call

Which of the following is a legitimate reason for refusing to rent to an applicant who speaks heavily accented English?

a.         You can’t understand a word she’s saying

b.         Her rental history is unsatisfactory

c.          She wouldn’t fit in or feel comfortable with your predominately white, English-speaking tenants

Answer:

b. It’s perfectly legitimate to reject an LEP person because of her poor rental history just as long as you would reject anybody else with such credentials. But the fact that an applicant is LEP or part of any other protected class doesn’t entitle her to more favorable treatment.

Wrong answers explained:

The reason a. is wrong is that a person’s accent is what HUD describes as “inextricably intertwined” with their national origin. To quote the 2016 HUD guidance: “It is thus inconceivable that a housing decision that treats someone differently because he or she speaks English fluently but with an accent is anything but intentional discrimination because of national origin.” 

c. is wrong because refusing to rent to applicants on the basis of their “comfort” or “fit” with other tenants is illegal steering to the extent your assessment is based on the applicant’s protected characteristic(s), including LEP. Accent discrimination equals national origin discrimination. 

4. Persons with a Criminal Record

Legal Risk: According to 2016 HUD guidance, excluding people because they have a criminal record may constitute what’s known as “disparate impact” discrimination, which occurs when a policy that appears neutral on its face has the effect of discriminating against one or more protected classes. Explanation: National statistics show that African Americans and Hispanics are arrested at a rate of more than double and incarcerated at a rate of nearly three times their proportion of the general population. Imprisonment rates for African-American males is almost six times greater than for white males, and for Hispanic males, it’s over twice that for non-Hispanic males. Accordingly, rejecting applicants because they have a criminal history may have a disparate impact on the basis of race, color, and national origin.

Solution: The HUD guidance suggests that screening prospective tenants on the basis of criminal history may be justified when it’s necessary to achieve a “substantial, legitimate and nondiscriminatory interest” and there are no less discriminatory alternatives available. Steps landlords can take to ensure that criminal screening meets these standards include:

1.     Establishing clear, nondiscriminatory guidelines for performing criminal record checks and how you use the data you get from the outside screening agencies you hire;

2.     Not imposing a blanket ban on renting to applicants because they have a criminal record;

3.     Rejecting applicants on the basis of criminal convictions and not simply arrests;

4.     Distinguishing between dangerous and non-dangerous convictions (discussed below); and

5.     Assessing each felony conviction individually, taking into consideration the circumstances surrounding the criminal conduct, how old the applicant was when engaging in the conduct, evidence that the individual has maintained a good tenant history before or after the conviction, and evidence of rehabilitation efforts.

How to Assess If Criminal Convictions Justify Rejection. The mere existence of a criminal conviction isn’t enough to meet the HUD “substantial interest” standard. That’s because all crimes aren’t the same. The landlord’s responsibility, the guidance clarifies, is to distinguish between criminal conduct that does indicate a risk to resident safety or property, and criminal conduct that doesn’t rise to that level. The guidance also sets out criteria for making such determinations:

• Felonies vs. misdemeanors: The crime must be serious. And while the guidance doesn’t expressly say this, the consensus is that the conviction must be for a felony rather than a misdemeanor.
• Type of felony: Although the guidance doesn’t specify the types of felonies that landlords may reasonably consider as posing a danger to safety and property, legal experts and case law suggest that the list includes convictions for: illegal manufacture or distribution (but not mere possession) of drugs and other specified controlled substances; sexual assault; other violent crimes like homicide, assault and battery, domestic violence, robbery and false imprisonment; and arson, vandalism, and other crimes causing significant damage to property.
• How long ago the felony occurred: The more recent the conviction, the greater the justification for considering the person who committed it as posing a risk of danger to safety and property. Based on court cases, the unofficial window is seven years. Exception: Sexual assault convictions don’t have a shelf life. In other words, they may be grounds for denying an applicant housing regardless of how long ago they occurred.  

You Make the Call

A criminal records check reveals that a rental applicant was arrested on rape charges twice, once in 2004 and again in 2011. Do you have legitimate, nondiscriminatory grounds to reject his application?

a.         No, because the arrests happened more than seven years ago

b.         Yes, because arrests for sexual assault are grounds to reject regardless of how long ago they happened

c.          No, because you don’t know if the applicant was actually convicted

Answer:

c. While this looks like a question about differentiating felony convictions, the trick is that the applicant wasn’t convicted of but only arrested for rape. And an arrest record alone isn’t enough to exclude an applicant regardless of how serious the crime of arrest was.

Wrong answers explained:

a. is wrong even though sexual assaults are among the kinds of offenses most likely to justify a decision not to rent to an applicant. But there are two problems with this answer: (1) the seven-year window that applies to other felonies doesn’t apply to sexual assaults; and (2) the applicant in this case was only arrested for but not convicted of rape.

b. doesn’t work because while it’s true that sexual assault convictions don’t have a shelf life, the key fact is that the applicant wasn’t convicted of but only arrested for rape.

5. Victims of Domestic Violence

Legal Risk: While the FHA doesn’t list it as a protected class, HUD has made it clear in 2011 guidance that excluding persons because they’re victims of domestic violence may constitute discrimination on the basis of sex as well as race, color, and national origin. Explanation: Statistics show that:

• Approximately 85 percent of all domestic violence victims are women;
• African-American women experience intimate partner violence at a rate 35 percent higher than that of white females, and about 2.5 times more frequently than women of other races;
• Native American women are victims of violent crime, including rape and sexual assault, at more than double the rate of other racial groups; and
• Women of certain national origins and immigrant women also experience domestic violence at disproportionate rates.

In addition to federal, state, and municipal fair housing laws, treating domestic violence victims as if they’re radioactive is highly problematic for landlords in public housing, Section 8 voucher, Low Income Housing Tax Credit, and other HUD housing programs. That’s because the federal Violence Against Women Act (VAWA) makes it illegal for participants in these programs to deny housing, evict, or otherwise discriminate against individuals because they’re victims of domestic violence, dating violence, sexual assault, or stalking. Many states and municipalities have passed parallel domestic violence protection laws requiring private landlords to implement measures similar to what VAWA requires of federally assisted landlords. 

Solution: There are seven things you can do to avoid liability for domestic violence discrimination:  

1.     Don’t punish prospects or tenants because they’ve experienced domestic violence;

2.     Beware of “zero tolerance” policies that treat domestic violence and victims the same way—for example, by seeking to evict the whole family because one spouse engaged in violence against the other. Instead, seek what’s called “bifurcated eviction” of the perpetrator while allowing the victim to stay in the unit;

3.     Don’t punish or retaliate against tenants for reporting domestic violence or abuse to law enforcement or other authorities;

4.     Honor the terms of abuse protection orders and other court orders such as divorce decrees that require changing the locks or restricting a person’s access to the property or unit;

5.     Honor victims’ rights under state domestic violence protection laws.

6.     Consider releasing victims of domestic abuse from their leases early without penalty; and

7.     Keep the identity of domestic violence and details of their situation strictly confidential.

How to Verify Domestic Violence Victim Status. Although rules vary, state domestic violence protection laws generally allow landlords to require tenants seeking domestic violence protection for verification in the form of: 

• A domestic abuse/sexual assault/stalking restraining order against the abuser;
• Evidence of a criminal charge against the abuser for domestic abuse/sexual assault/stalking for the tenant, their child, or a household member;
• A condition of release ordering the abuser not to contact the tenant, their child, or household member because of domestic abuse/sexual assault/stalking; and/or
• A protective order or letter from a “qualified third party,” such as a law enforcement officer, court employee, counselor, clergy member, crime victim advocate, physician, nurse, or other healthcare provider.

You Make the Call

After a tenant physically assaults his wife, the landlord seeks to evict the couple under its “zero tolerance” policy banning tenants or persons under their control from engaging in violent criminal activity in the apartment. The wife tells the landlord that this isn’t an isolated incident and that she fears for her life. What should the landlord do? 

a.         Evict the husband but not the wife for violating the zero tolerance policy

b.         Evict the couple for violating the zero tolerance policy

c.          Evict neither tenant since this is a strictly private matter

Answer:

a. Committing domestic violence on community property would be legitimate grounds for evicting the husband. But evicting the couple would be tantamount to punishing the wife. Accordingly, the landlord’s best option is to seek eviction on a bifurcated basis, especially where it’s required under VAWA or state domestic violence protection laws.

Wrong answers explained:

The reason b. is wrong is that it treats the victim and perpetrator of domestic violence the same way. This is why zero tolerance policies are so problematic.

c. is wrong because it leaves the wife at the husband’s mercy. Although intervention isn’t called for in all situations, it’s required when the situation is life-threatening. In addition to being morally wrong, failing to take steps to protect the wife could expose you to liability under VAWA, state domestic violence protection, and negligence laws.