How to Comply with Laws Banning Discrimination Based on Source of Income

In this month’s lesson, Fair Housing Coach explains how to comply with fair housing laws banning discrimination based on source of income. The federal Fair Housing Act (FHA) doesn’t prohibit discrimination based on source of income, but an increasing number of states and municipalities have added these provisions to their fair housing or civil rights laws in recent years.

In short, the ban on discrimination based on source of income means that you can’t exclude or otherwise discriminate against applicants and residents because of where they get their money or financial support. The specifics of the laws vary, but most cover lawful sources of income such as wages, retirement benefits, child support, and public assistance.

Many—but not all—also cover housing subsidies, most notably, the Housing Choice Voucher program, still commonly referred to as “Section 8” vouchers, which is the federal government’s major program for helping very low-income families, the elderly, and disabled individuals to afford housing in the private market. Though federal law generally makes participation in the Section 8 program voluntary for private communities, fair housing laws in some jurisdictions make it unlawful to turn away individuals who use Section 8 housing vouchers to pay their rent.

Moreover, fair housing advocates are increasingly pushing for reforms to ban discrimination based on source of income, including Section 8 housing vouchers. Fair housing advocates, such as the National Fair Housing Alliance (NFHA), have repeatedly called on Congress to add source of income to federal fair housing law, arguing that discrimination against voucher holders disproportionately affects low-income women and families, people of color, and people with disabilities.

HUD officials have tried to inch towards federal source-of-income protection in the past, starting in 2010 when the agency announced new requirements for grant recipients to comply with state and local laws banning housing discrimination based on source of income. This requirement is still in effect in the latest HUD 2018 notice of funding. At minimum, HUD is concerned about discrimination against voucher holders: In August 2018, HUD completed a pilot study on landlord acceptance of Housing Choice Vouchers, finding extensive fair housing tests revealed significant levels of discrimination against voucher holders. The study found that “[t]he difficulty finding landlords who will accept vouchers, particularly in low-poverty areas, likely increases the cost and duration of voucher housing searches, limits voucher holders’ housing and neighborhood options, and increases costs to local PHAs and HUD.” Among the possible solutions to these obstacles, the study recommends adding legal protections to the Fair Housing Act, as well as incentives for landlords, more competitive rent standards, and providing additional tenant assistance in finding housing.

It’s still uncertain if or when lawmakers will heed the call to expressly add source-of-income protections to the federal Fair Housing Act, but over the past 10 to 15 years, the issue has gained increasing traction on the state and local level, with mixed results. Numerous state and local statutes banning source-of-income discrimination are already on the books and more are proposed and passed every year. In 2017, a bill to extend fair housing protection based on source of income died in the state senate in Maryland, but in New York, several bills are pending in the state senate, including one advanced by Gov. Andrew Cuomo to outlaw discrimination against tenants who pay rent using Section 8 Housing Choice Vouchers, veterans’ benefits, or other non-wage income sources.

In this lesson, we’ll review fair housing laws protecting source of income and offer eight rules to help you comply with applicable laws to avoid discrimination claims. Then you can take the  Coach ’s Quiz to see how much you’ve learned.

WHAT DOES THE LAW SAY?

The FHA prohibits discrimination in housing because of race, color, religion, sex, national origin, familial status, or disability.

Though it’s not expressly covered under federal law, source-of-income discrimination is banned under some state and local laws. In general, the laws protect applicants from discrimination because of where they get their income or means of financial support. They generally apply only to lawful sources of income—earnings from criminal activity are not covered. Examples of lawful income include:

• Wages
• Grants
• Gifts
• Inheritance
• Retirement benefits
• Annuities
• Alimony
• Child support
• Unemployment benefits
• Veterans benefits
• Disability benefits, and
• Government or private assistance.

Some laws also protect prospects and residents against discrimination based on lawful occupation. This means you can’t discriminate against someone whose occupation is legal, even if it offends you or your staff or you have preconceptions about certain occupations.

Mixed Rules on Housing Subsidies

Some source-of-income laws also ban discrimination against applicants whose rent is paid with housing subsidies, including Section 8 vouchers. The Section 8 program allows voucher holders to live in any housing that meets program requirements, including private housing where the owner agrees to rent under the program. Funding for the voucher program comes from HUD, but it’s administered by local public housing authorities.

In a nutshell, the Section 8 voucher program creates a three-way relationship among the landlord, the tenant, and the local housing authority. After the tenant finds a unit and comes to terms with the landlord, the local housing authority must approve the rental based on several factors, including the amount of the rent and results of a health and safety inspection. Once approved, the tenant and the landlord sign a lease with a HUD-required addendum, and the landlord signs a standard housing assistance payment contract with the housing authority. The amount of the voucher is based on the tenant’s income—tenants must pay at least 30 percent (but no more than 40 percent) of their monthly income for rent; the voucher makes up the difference and is paid directly to the landlord by the housing authority.

To avoid the regulatory and administrative requirements that the contracts impose, many communities choose not to accept Section 8 housing vouchers. Unless your community participates in certain federal affordable housing programs, such as the Low Income Housing Tax Credit program, there’s no direct requirement in federal law or HUD regulations that a community must accept Section 8 vouchers. So, it’s usually lawful to decline to participate in the program in a majority of states—but not if your community is subject to state or local laws banning discrimination based on source of income, including housing subsidies. In those jurisdictions, communities may be liable for fair housing violations if they turn away or otherwise discriminate against applicants or residents who wish to pay their rent using Section 8 vouchers. But if you have communities in multiple states and local jurisdictions, this makes avoiding liability even more complicated.

FOLLOW 8 RULES FOR AVOIDING

SOURCE-OF-INCOME DISCRIMINATION

Rule #1: Know Your State and Local Laws

Find out whether your community is subject to state or local laws banning discrimination based on source of income. Currently, 14 states and the District of Columbia include protections based on source of income in their fair housing or civil rights laws. They include:

• California;
• Connecticut;
• Delaware;
• District of Columbia;
• Maine;
• Massachusetts;
• Minnesota;
• New Jersey;
• North Dakota;
• Oklahoma;
• Oregon;
• Utah;
• Vermont;
• Washington; and
• Wisconsin.

If your state is on the list, check the details to determine what the law covers—and specifically what it says about Section 8 housing vouchers and other federal, state, or local housing subsidies. In Massachusetts, for example, the law bars communities from discriminating against individuals who receive public assistance or rent subsidies, including Section 8 housing vouchers. But in Oregon, the law bans discrimination based on source of income, but it specifically excludes federal housing subsidies under the Section 8 housing program.

Even if your state isn’t on the list, it’s important to check the details of local fair housing laws. In many states, county and municipal governments have taken the lead to ban discrimination based on source of income, with particular attention to Section 8 housing vouchers. For example, even though California’s state statute doesn’t protect Section 8 voucher holders, San Francisco passed a local ordinance that does. So far, about 75 other local and county jurisdictions have adopted such measures, including New York, Chicago, Los Angeles, Philadelphia, Seattle, and many smaller cities, along with county governments in Illinois, Maryland, New York, Oregon, Washington, and other states.

Coach’s Tip: Be sure to have your attorney research the current status of your community’s laws, as not every type of state or local housing subsidy has stood up to challenge in local courts. For example, earlier this year prospective tenants sued a New York City landlord for source-of-income discrimination for not accepting a rent voucher issued by the local Living in Communities (LINC) program. The court ruled that the specific terms of the LINC voucher violated a state law regulating rents, so the court dismissed the tenants’ case [Alston v. Starrett City, Inc., April 2018].

Rule #2: Don’t Reject Applicants Based on Source of Income Where Doing So Is Locally Banned

Failure to abide by state, county, or local laws banning discrimination based on source of income can lead to fair housing trouble, including damages, hefty fines, attorney’s fees—not just for your own attorney, but in some cases, you’ll have to pay the tenant’s attorney as well. And you could be ordered to change your practices and take future actions to comply.

The number of discrimination complaints based on lawful source of income has spiked over the last five years, from 569 complaints in 2012 to almost 700 complaints in both 2016 and 2017, according to NFHA’s 2018 report. But that’s only the tip of the iceberg. According to HUD’S August 2018 pilot study on landlord acceptance of Housing Choice Vouchers, extensive fair housing tests revealed significant levels of discrimination against voucher holders, especially in areas where there is no current source-of-income protection. The study found lower landlord denial rates in locations that have legal protections against voucher discrimination. Meanwhile, fair housing advocates continue to pursue active investigations into compliance with laws banning discrimination based on source of income.

Example: In March 2013, the Equal Rights Center (ERC) released the latest in a series of reports in its ongoing investigation into discrimination against Section 8 voucher holders in the District of Columbia. The latest investigation found that 28 percent of voucher holders encounter housing discrimination, down from 45 percent in 2010 and 65 percent in 2005.

To comply with laws banning discrimination based on source of income, communities should make sure that they don’t turn away applicants simply because they’re unemployed or receive financial assistance, such as rental assistance or disability benefits. Otherwise, you could trigger a fair housing complaint—and win or lose, it still can be costly to resolve.

Example: In November 2017, a Washington, D.C., landlord agreed to pay $125,000 to cover costs, attorneys’ fees, and damages to settle a fair housing case alleging that it unlawfully refused to accept Section 8 vouchers as a lawful source of income. The lawsuit was based on an ERC telephone testing investigation showing that the landlord refused to rent available units in several locations around D.C. to recipients of Housing Choice Vouchers, which is expressly prohibited by the local ordinance. As part of the settlement, the landlord also agreed to:

• Affirmatively market units to voucher holders by providing timely vacancy information to a pre-identified list of service providers that assist voucher holders with locating and securing housing that meets their needs;
• Disclose their tenant selection criteria to applicants before an application is submitted;
• Identify and train two employees to serve as Housing Choice Voucher liaisons to applicants seeking to rent available units with vouchers;
• Hold open for 30 days any units for which a voucher holder is the first applicant to allow sufficient time for D.C. Housing Authority processing; and
• Undergo extensive fair housing training and civil rights testing over the course of a three-year term to ensure compliance with the agreement and fair housing laws.

Rule #3: Check Whether Your Community Participates in Federal Programs that Ban Source-of-Income Discrimination

Even in locations where there are no source-of-income protections in state or local law, you may still find yourself in hot water if you refuse certain applicants based on their source of income that’s protected by certain federal programs. For example, several federal housing programs that finance or govern certain communities have rules that prohibit discrimination against applicant households with Housing Choice Vouchers, including:

• HOME Program
• Low-Income Housing Tax Credit Program
• Mark to Market
• Multifamily Units Purchased from HUD
• National Housing Trust Fund
• Neighborhood Stabilization Act of 2008
• Capital Magnet Fund

The most common types of communities with federal rules against this type of discrimination are those financed by federal tax credits. Both HUD and the IRS make very clear that owners and managers of these sites can’t “refuse to lease a unit in the project to an applicant because the applicant holds a voucher or certificate of eligibility under section 8 of the United States Housing Act of 1937” [26 C.F.R. §1.42-5(c)(1)(xi)].

Rule #4: Don’t Use Source-of-Income Discrimination Where Legal as Pretext for Illegal Discrimination

Even if your state and local laws don’t ban source-of-income discrimination, be careful that when denying an application based on the applicant’s source of income, you’re not inadvertently discriminating against one of the protected classes in the Fair Housing Act, says fair housing expert Bill Caruso. For example, even if your state has no source-of-income protections, refusing to take applicants who receive disability benefits could trigger a fair housing violation for discrimination based on disability. Likewise, refusing any applicants whose income is largely based on alimony payments could be viewed as discrimination based on familial status, Caruso warns.

HUD’s current regulations make clear that liability may be established under the Fair Housing Act if a practice has a discriminatory effect on a protected class or “creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin” [24 CFR 100.500]. Though HUD hasn’t applied this to source of income, HUD’s Office of General Counsel issued a 2016 opinion letter about the impact of denying housing to applicants with criminal records and stated that “a discriminatory effect resulting from a policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified, and therefore such a practice would violate the Fair Housing Act.” HUD is currently reviewing its disparate impact regulation for possible revision, but as of this writing, it is still in effect.

Fair housing advocates argue that similarly, source-of-income discrimination claims under the Fair Housing Act may be justified, because the act prohibits practices that may appear neutral—such as electing not to accept vouchers—but result in “disparate impacts”—for example, residential segregation—for a protected class.

For example, in 2017, the ERC filed a lawsuit against a D.C. landlord, alleging that by refusing to rent to Section 8 voucher holders, the landlord discriminated against applicants not just based on source of income, which is illegal in D.C., but also based on race under the Fair Housing Act, due to the disparate impact that the refusal has on African-American applicants. In its complaint, the ERC cited statistical data showing that a refusal to rent to voucher holders is 71 times more likely to exclude African-American renters than white renters, a disparate impact that violates prohibitions on racial discrimination under both the FHA and the local D.C. housing rights act. To resolve the matter, the landlord agreed to a court-enforced consent agreement with ERC, including paying $125,000 for costs, attorneys’ fees, and damages, and taking action to make it easier for voucher holders to find and secure housing at their communities.

The NFHA also recently filed a similar fair housing complaint against a landlord in D.C. NFHA’s complaint alleges that the landlord systematically and directly discriminates against people with Housing Choice Vouchers, which according to NFHA’s complaint, perpetuates residential segregation and has a disparate impact based on race, color, national origin, sex, and familial status in violation of the federal Fair Housing Act.

Rule #5: Watch Your Language

Make sure that your compliance efforts extend to what you say in your advertising—and how you respond to telephone or online inquiries—about your willingness to accept Section 8 housing vouchers or other forms of public assistance, says Atlanta attorney Lynn Wilson. The wrong message may trigger a fair housing complaint—or draw the attention of fair housing enforcement officials or organizations, who are monitoring online advertising for compliance with state and local laws banning discrimination based on source of income.

If these laws apply to your community, then it’s unlawful to make statements or disseminate advertising that indicates a preference or limitation based on a prospect’s source of income. For example, your community may not publish advertisements that say, “No Section 8,” or tell prospects over the phone that you don’t accept Section 8 housing vouchers. If you do, you may trigger a fair housing complaint because you’re effectively screening out all Section 8 prospects before they even apply. Other phrases to avoid include:

• “We don’t take people on Social Security.”
• “Applicants must provide written verification of employment.”
• “Even if you have a Section 8 voucher, you still need to earn three times the full rent to qualify.”
• “You just have alimony? Suppose your husband stops paying?”
• “Why didn’t you tell me right away that you have a voucher?”
• “People on public assistance must go to our other office downtown to fill out a different application.”

Example: In March 2016, New York City’s Human Rights Commission’s court issued its highest civil penalty in its history in a source-of-income discrimination case, fining a management company and one of its employees $100,000 in civil penalties for refusing to show a prospective tenant an apartment after he revealed he had a Section 8 voucher. According to testimony, the applicant saw an ad on Craigslist that was within his price range and called the company’s phone number listed in the ad. During the phone conversation, the company’s agent offered to show the applicant another similar apartment and arranged a meeting time. At this point in the conversation, the applicant mentioned he had a Section 8 voucher. The agent told him that “it’s a problem,” that “no landlords are going to take it,” “that [he] should tell people right away about the voucher,” “that [the applicant] was wasting his time,” and that “[he] wouldn’t show him any apartments.” Even after the applicant explained that he can’t discriminate based on a Section 8 voucher, the agent responded, “no landlords [the management company] works with would take [the Section 8 voucher]” and hung up on the applicant.

In its decision, the court said, “Individuals using Section 8 vouchers or other rental assistance are some of New York City’s most vulnerable residents, which makes this form of discrimination particularly harmful. Here, the undisputed evidence in the record shows that Respondents were initially willing to show [the applicant] available apartments and decided against doing so solely based on his source of income being a Section 8 voucher.” Based on this behavior, the commission ordered both the management company and the individual agent to pay a fine of $100,000, pay the applicant damages for emotional distress, and take actions to remediate its discrimination, including attending fair housing training and posting notices of rights in their offices. The commission also ordered that the New York Department of State be informed of any unlawful activity that may warrant revocation of their real estate licenses [Commission on Human Rights v. Best Apartments, March 2016].

Be sure to also watch the language you use in all emails, online advertising, social media, and rental website information, like Craigslist, as well as the language you give brokers to use, says Wilson. (For more information about how to comply with fair housing requirements when promoting your property online, see the September 2018 Fair Housing Coach, “How to Avoid Discrimination Claims When Advertising Online.”)

In addition, it’s unlawful to provide inaccurate or untrue information about the availability of units for discriminatory reasons. Such prohibited conduct includes indicating, through words or conduct, that an available unit has been rented, or limiting information about suitably priced available units, because of the prospect’s source of income.

When meeting with prospects, make sure to tell them about all vacancies that meet their needs, regardless of their source of income. Telling applicants receiving housing assistance about vacancies in only particular sections of the community amounts to unlawful steering, a form of discrimination based on source of income.

Rule #6: Follow Standard Procedures Regardless of Source of Income

Follow standard policies and procedures when dealing with prospects and applicants to ensure that every prospect visiting your leasing office is treated the same way, regardless of her source of income. For example, you should offer every prospect—regardless of her source of income a rental application and invite her to fill it out. Be consistent in applying your screening criteria—including credit history, rental history, criminal background, and the like—to all applicants, regardless of the source of funds used to pay rent.

It’s unlawful to refuse to allow a prospect to apply to live in the community—or to impose procedural hurdles that make it more difficult for prospects with housing assistance to get through the application process. Fair housing organizations are taking notice—and acting on complaints of discriminatory treatment during the application process.

In New York City, the Fair Housing Justice Center (FHJC) has filed discrimination complaints against several very large New York City landlords for this practice, including one recently filed lawsuit on behalf of a woman living with AIDS, who claimed she was denied a unit in a 5,000-unit community because she intended to pay her rent using a housing subsidy. A FHJC investigation allegedly revealed systemic discrimination based on source of income and disability at all the owner’s rental buildings in New York City.

The lawsuit accused the community and its rental management company of treating applicants with rental assistance of any kind, including persons with a HASA (HIV/AIDS Services) housing subsidy, differently and less favorably than applicants with income from employment. For example, the complaint alleged that applicants who were employed were allowed to go directly to a convenient on-site leasing office, meet with a leasing agent, obtain floor plans, and view available apartments before having any income verified or completing a rental application.

In contrast, the complaint alleged that applicants with any type of rental assistance, including those with a HASA rental subsidy, were required to go to a separate off-site leasing office, speak with employees behind a glass window, complete a rental application, submit to a credit and criminal background check, and provide other documentation just to be placed on a waiting list and before any information would be provided about apartments for rent or available apartments would be shown. The lawsuit alleged that this different treatment constitutes intentional source-of-income discrimination under the New York City Human Rights Law.

Rule #7: Apply the Same Screening Policy Regardless of Source of Income

Source-of-income laws ban discrimination against applicants because of where they get their income—not the amount of their income. You may ask about the source of the applicant’s income, as long as you don’t discriminate or impose different screening policies and procedures based on this information.

Screen all applicants using a uniform policy, regardless of source of income. This is particularly important if your community, your management agent, or the brokers and online real estate services you hire post screening requirements or use online application platforms, says Wilson. Make sure that emails, online social media, and web locations where applicants will interact or apply to live in your community show the same policy for all applicants and meet all the same standards as your written documents. Don’t use application programs that create barriers, have different pulldown menus or jump pages, or add extra forms based on the type of income. Use the same application platform and process for all applications, says Wilson.

Example: The NFHA recently filed a fair housing complaint against a D.C. landlord for discrimination against people with Housing Choice Vouchers. NFHA’s investigation found that the landlord uses its website to deter prospects who intend to use Housing Choice Vouchers. When prospective tenants visited the landlord’s website and tried to schedule an apartment viewing, they were required to identify whether they intend to use a “Section 8” voucher to pay rent. If the prospective tenant selected “yes,” the system did not let them schedule a viewing. NFHA’s investigation also found that when testers called the landlord to inquire about viewing an apartment, the company’s owners consistently indicated they don’t accept Housing Choice Vouchers.

If you have communities in multiple states and cities, some of which have source-of-income protections and some don’t, it’s not a good idea to try to create and manage different screening policies and procedures through the various online platforms of agents, brokers, and community websites. Doing this is a recipe for legal trouble, says Wilson. It’s smarter to use one uniform company screening and admission policy that treats all applicants the same, regardless of source of income.

Communities have the right to rent only to applicants they believe to be responsible and who will pay the rent. You may require applicants to satisfy your screening criteria—such as credit checks, criminal background checks, and rental history—as long as you apply the same standards to all your applicants, regardless of their source of income. For example, you don’t have to accept an applicant who receives financial assistance if you have other nondiscriminatory reasons for rejecting him, such as a criminal record, as long as you apply that policy consistently to all applicants. Other legitimate, nondiscriminatory reasons for rejecting an applicant might be bad credit history or prior evictions for nonpayment of rent or damage to the apartment.

Regardless of the applicant’s source of income, you don’t have to accept individuals who can’t demonstrate their ability to pay their rent. Communities may require all applicants to satisfy minimum income requirements, such as two or three times the rent, and may verify that the applicant can satisfy that standard. Doing so doesn’t violate state or local laws banning discrimination based on source of income—as long as you apply the same income criteria (taking into account their financial assistance) to all applicants. Specifically, if you’re screening applicants with Section 8 or other housing vouchers, don’t require applicants to meet the income requirements for the entire rent; rather, use your standard formula based on the portion of the rent not covered by the voucher, says Caruso.

Rule #8: Apply the Same Occupancy Terms and Conditions, Regardless of Source of Income

To comply with laws protecting source of income, communities must treat all applicants and residents equally in the terms, conditions, or privileges of the tenancy, regardless of their source of income. In jurisdictions where the laws include protections for housing subsidies, it would be unlawful to require Section 8 voucher holders to pay a larger security deposit or higher rent than required of other residents.

It would also be unlawful to treat residents differently or enforce community rules and policies more strictly against them based on their source of income. You could face a discrimination claim, for example, if maintenance requests by individuals using Section 8 housing vouchers are ignored or put at the bottom of the list. The same would be true if you singled out residents receiving housing assistance for rules violations, while ignoring similar infractions by people who don’t receive such assistance.

Similarly, don’t limit access based on source of income to the community’s common areas, facilities, or services available to other residents with different sources of income. For example, New York State expressly bars owners that have both market-rate and affordable units at their communities from requiring the residents who live in the affordable units, many of whom use housing subsidies or public assistance to pay the rent, to use a different entrance or elevator to get to their homes than those in the market-rate units.

Carolyn E. Zezima, Esq. writes frequently on fair and affordable housing issues and is the author of Sustainable Affordable Housing Management. She is also the president of NYC Foodscape, which works with food and farming enterprises and food policy organizations in Chicago and New York to promote fair, healthy, sustainable food systems, urban agriculture, and regional farming. She can be reached at nycfoodscape@gmail.com or (847) 507-1785.

Coach Sources

F. Willis Caruso, Esq.: Professor Emeritus John Marshall Law School Fair Housing Legal Support Center and Clinic, Chicago, IL

Lynn M. Wilson, Esq.: Partner, 990 Hammond Dr. Ste. 300, Bldg. One, Atlanta, GA 30328; (678) 686-6936; lwilson@mmmlaw.com.