How to Reject Applications Without Violating Fair Housing Law

This month we are going to show you how to reject applications without violating fair housing law.

You have the right to reject applications when they do not meet your community's screening criteria. If, for example, an applicant can't show that he can afford your rent, you can legally refuse to rent to him. Whatever the reason for the rejection, it can be painful for the applicant. And if you do not do it right, it can be painful and costly for you, too.

Most applicants whose applications you reject will simply leave and look elsewhere. But some will claim that you rejected their applications because you are prejudiced or for an illegally discriminatory reason. You know you can't reject an application based on the applicant's race, religion, or disability, for example. However, even if you have a valid and legal reason for your rejection, an applicant could claim that you rejected him because he is a member of a class protected by fair housing law. Therefore, you must take precautions to prevent such accusations and to protect yourself and your community from fair housing liability.

In this month's lesson, we will give you nine rules to follow to reject applications without getting into fair housing trouble. At the end of our lesson, you can take the Coach's Quiz to see how much you have learned. And you can copy and distribute the “At a Glance” box on the last page of this issue so you and other staff members at your community will have a quick reference to help you remember and comply with the rules.

WHAT DOES THE LAW SAY?

The Fair Housing Act (FHA) bars discrimination against prospects or residents based on seven characteristics—race, color, religion, national origin, sex, disability, and familial status. This means that you may not reject an application because of one or more of the applicant's protected characteristics.

Federal regulations interpreting the FHA add that it is illegal “to impose different terms, conditions or privileges” on people because of one or more of these protected characteristics. Therefore, you may not require an applicant to meet different application standards or criteria simply because of these protected characteristics.

It is important to note that many states and local governments have their own fair housing laws that protect additional characteristics, such as sexual orientation or source of income.

Although the FHA requires you to treat applicants fairly during the screening process and not penalize them for being members of a protected class, you still have the right to find financially stable, responsible residents for your apartments. You do not have to give applicants special treatment simply because of a characteristic that federal, state, or local fair housing law protects, notes Mark S. Alper, director of compliance services for the National Center for Housing Management.

It is acceptable to reject applications from applicants with protected characteristics, as long as you have applied objective criteria to all your evaluations and treated every application in the same way. “When you think about deviating from your regular screening practice, a red light should go off in your head,” says Alper.

NINE RULES FOR REJECTING APPLICATIONS WITHOUT DISCRIMINATING

Rule #1: Reject Applications, Not Applicants

A good way to protect yourself from accusations that you discriminated against an applicant is to reject applications, not applicants, says Nadeen W. Green, senior counsel at For Rent Magazine. This means that you should not get personal in your application decisions. You must base your decisions only on the information provided by the applicant, not on personality and personal perceptions.

Then, if you reject an application, you will be able to show that your rejection was based on the information the applicant gave you and not on the applicant's personal characteristics. But if you reject an application based on something other than information in the application, you could run into fair housing trouble.

Example: A Washington, D.C., lawsuit involved an applicant with HIV, which is a disability that is protected under the FHA. The applicant never told the property owner or manager that he had HIV, nor did he mention it on his application or in any other documents he gave them. He did tell them that some late payments on his credit history several years earlier were the result of paying medical bills for his partner, who later died of AIDS.

When the applicant applied for the apartment, he had fully recovered financially and was able to pay the rent. The court ruled that there was enough evidence to show that the property owner and manager rejected his application not because he could not pay the rent, but because they suspected he had AIDS, a rejection that is a violation of fair housing laws [Neithamer v. Brenneman Property Services].

Rule #2: Apply Same Reasonable, Objective Screening Criteria to All Applications

You and your staff should use the same objective criteria to evaluate all applications. Every application should be subjected to the same evaluation process. The criteria should be reasonable. If they are not, you could be accused of fair housing discrimination.

Objective, reasonable screening criteria are those that relate to your business goals—for example, finding responsible tenants who can pay the rent. The criteria seek to evaluate applicants on their ability to pay the rent, their housing history, and whether they may pose a threat to your property or other residents in your community. The criteria are not based on personal characteristics, such as applicants' religion, race, or the presence of children.

Make sure, though, that your screening criteria are reasonable. For example, very high income standards—such as requiring applicants to have income at least eight times the monthly rent—could be considered unreasonable and, as a result, discriminatory. An applicant may get the impression that your high income requirement is really a pretext for keeping certain groups of people out of your community.

For instance, single mothers with children often struggle financially because they are not receiving their court-ordered alimony and child support regularly. If your community's income criteria are out of proportion to the amount of rent you charge, one of those single mothers may think you are trying to keep families like hers out of your community, and she could file a discrimination complaint against you. Setting unreasonably high standards could be viewed as a back-door way of illegally discriminating, says Alper.

Make sure that when you establish your criteria, you can defend it, advises Green. For example, be able to demonstrate that the income criteria relate to the rent you charge. Specify what you will accept on a credit history. For example, will you accept one bounced check or a bankruptcy? The same applies to criminal history. Will your community's criteria accept parking violations? Will they accept arrests for sex offenses?

Have all these criteria worked out before you start to use them, and make them as specific as possible. If you do, it will be easier to treat all applicants alike.

Coach's Tip: Atlanta attorney Robin Hein points out that income criteria are usually market-driven, and neither source of income nor earning capacity is protected by federal fair housing law. Applying these criteria consistently should keep you out of fair housing trouble here.

Rule #3: Put Your Screening Criteria in Writing

Now that you have made your screening criteria reasonable and objective, make sure everyone knows what they are. Print your screening criteria and make them a part of the information packet you give to your rental staff and all applicants. This way, all your rental staff members will know what your application screening criteria are, and all applicants will be informed of your reasonable, objective criteria at the outset of the application process. This will make it tougher for a rejected applicant to later claim that you rejected her for a discriminatory reason.

These written screening criteria should be part of your community's statement of rental policy (SORP). Having a SORP is a good business practice, even though it is not specifically required by federal law, advises Hein.

Your SORP should say that your community follows the fair housing laws and does not discriminate based on race, color, religion, sex, familial status, disability, national origin, or any other characteristic protected by state or local law. And it should tell prospects what kind of information and documents to provide when submitting an application, says Hein.

The SORP should say how the information is used and what will cause an application to be rejected. Let applicants know, for example, that you intend to contact owners of apartments where applicants previously lived to find out about nonpayment of rent or other lease violations.

The plan should specify what kinds of lease violations or how many instances of nonpayment of rent will result in an application's rejection. You could also include your community's policy regarding pets, and the requirements for giving proper notice to vacate at the end of a lease term.

Rule #4: Apply Screening Criteria Consistently

Having reasonable and objective criteria is not enough. You and your staff must use them and apply them consistently. You must apply all of your criteria to every application in the same way to avoid fair housing liability, Alper says.

If your SORP requires a credit check on all applicants, do not fail to run those checks just because an applicant seems nice or trustworthy or because you think you have enough information without the credit check. If you do so, another applicant may learn that you treated someone else more leniently and are holding her to a higher standard because she is a member of a class protected by fair housing law.

Let's assume, for example, that one of your screening criteria is that the applicant must not have paid rent late more than three times in the past year. You accept the application of a white woman who paid her previous landlord late four times in a year. Later you reject the application of a black woman, who also paid her rent late four times in a year. The black applicant could claim that you discriminated against her because you did not apply your criteria consistently.

Owners and property managers often will claim that they rejected an application because it didn't meet the community's screening criteria. However, they can't back up this claim, because they didn't follow their own rental selection policy. In other words, they used something in the application—such as a disability—as a reason for the rejection, when they really just didn't want to rent to the applicant, because of her disability. The courts consider that this practice is using the application rejection as a pretext for discrimination.

Example: Mobile home park owners agreed to a settlement with the federal government over claims that the owners discriminated in violation of fair housing laws. The owners were accused of denying a rental space and subsequent opportunity to purchase a home to the mother of a mentally disabled son because they didn't want a mentally disabled resident.

Initially, the owners said they rejected the application because of a lack of rental references and employment history. Later, they admitted that the rejection was a pretext and that they just didn't want any mentally disabled residents. The owners agreed to pay the mother and son $30,000 [U.S. v. Madsen].

Rule #5: Keep Records of Exceptions or Modifications to Screening Criteria

If you modify your screening criteria in response to market conditions—for instance, you temporarily lower your income criteria because you have increasing vacancies—make sure you put that modification in writing, advises Shirley A. Robertson, community liaison and EHO compliance officer for Southern Management Corp.

A “best practice” procedure is to keep a file that contains all business decisions to modify policies, plus the date the modification was made, the reason for the modification, and the date when the community returned to the original policy or procedure.

Rule #6: Reject Applications that Do Not Meet Your Criteria

It is part of your responsibility as an owner or manager to determine who is qualified to live in your community. That is why you developed reasonable, objective screening criteria. Along with that responsibility is the obligation to reject an application when it does not meet those criteria.

Many community leasing staff members are afraid to reject applications, because they fear that they or their community could be subjected to fair housing fines and penalties. You may be worried, for instance, that if you reject a single woman with children, she will claim that you rejected her based on her sex and her familial status. But these fears should not stop you from rejecting an application based on a valid, nondiscriminatory reason.

Fair housing laws do not require you to give special treatment to applicants just because they have protected status, with the exception of your duty to make reasonable accommodations for people with disabilities. If your screening criteria are reasonable, and if you apply them consistently and keep records documenting this, you can reject the applications of those who do not meet the criteria, without getting into fair housing trouble.

Rule #7: Keep Records of All Applications and Actions on Them

Keep a full record of every application and the actions taken on those applications (whether they were accepted or rejected) for every applicant to your community. Include all letters, notes of phone and personal conversations, and any documents given to you or obtained through the application process. Then, if an applicant claims that you rejected her application for a discriminatory reason, you can show, for example, that her record of nonpayment of rent did not meet your community's screening criteria and that is why you rejected her application.

By keeping full and accurate records on all of your applicants, you will also be able to show that you rented to another person with the same protected characteristic who did meet your financial criteria. When HUD investigates a claim, it will ask to see applications you rejected and accepted in the past. Showing that you accepted someone with the same protected characteristic as the person complaining will go a long way toward keeping you out of fair housing trouble.

Rule #8: Send Letter Stating Why Application Was Rejected

When you reject an application, always send a rejection letter to the applicant explaining your reasons. Since rejections happen frequently, prepare a standard form letter to make this kind of correspondence consistent. Robertson suggests attaching a written checklist to the application with the reasons for the rejection checked off.

In the rejection letter, tell the applicant why his application has been rejected. Be specific: If the applicant does not earn enough money or has a bad credit history, tell him that and include the name, location, and phone number of the credit reporting agency. Be sure to tell the applicant which particular criteria in your SORP he failed to meet.

Later, if you are sued for discrimination, you will have the application rejection letter in your records and will be able to show which of your screening criteria this applicant did not satisfy.

Rule #9: Be Kind and Courteous When Rejecting Application

It pays to be nice when rejecting an application. Your letter and language should be courteous and professional. Even if rejecting the application was legal, if you were rude or insensitive when you rejected her application, an applicant may think she was rejected because of her race, religion, national origin, or sex. “Avoid misunderstandings by treating people with dignity,” advises Green.

You will probably be able to defend a lawsuit successfully if you follow our rules, but why not avoid a lawsuit by using a little courtesy at the start?

• Fair Housing Act: 42 USC §3601 et seq.

• Neithamer v. Brenneman Property Services: No. 98-1969(GK), 1999 U.S. Dist. LEXIS 19747 (U.S. Dist. Ct. D.C. 1999).

• U.S. v. Madsen CIV-01-0468-S-BLW (U.S. Dist. Ct. Idaho 2002).

Coach Sources

Mark S. Alper: Director of Compliance Services, National Ctr. for Housing Mgmt., 350 Corporate Way, Ste. 400, Orange Park, FL 32073; 888-291-5562; Mark@nchm.org.

Nadeen W. Green, Esq.: Senior Counsel, For Rent Magazine, 294 Interstate N. Pkwy., Ste. 100, Atlanta, GA 30339; (770) 434-6347, Ext. 3003; nadeen.green@forrent.com.

Robin Hein, Esq.: Attorney at Law, 2970 Clairmont Rd., Ste. 220, Atlanta, GA 30329; RobinHein@ApartmentLaw.com.

Shirley A. Robertson, CPM: Community Liaison and EHO Compliance Officer, Southern Mgmt. Corp., 1950 Old Gallows Rd., Ste. 600, Vienna, VA 22182; (703) 902-9423; shirley@smcmail.com.