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Brokers walking on eggshells in wake of new fair housing guidelines

The U.S. Department of Housing and Urban Development’s (HUD) new guidelines for fair housing have everyone talking, but no one saying anything.

Released by HUD in April, the regs warn that landlords and sellers who turn down potential tenants or buyers based on their criminal backgrounds could be violating the Fair Housing Act.

“Right now, many housing providers use the fact of a conviction, any conviction, regardless of what it was for, or how long ago it happened, to indefinitely bar folks from housing opportunities,” said HUD Secretary Julian Castro in a statement in April.

“Many people who are coming back to neighborhoods are only looking for a fair chance to be productive members of society, but blanket policies like this unfairly deny them that chance.”

While the Fair Housing Act outlawed the denial of housing to an individual based on race, color, religion, sex, or nationality when it was established in 1968, those with criminal backgrounds were not protected under the law.

The new guidelines initially sent shockwaves throughout New York City residential brokerage firms, who called staff meetings and asked REBNY for guidance on how to deal with the issue.

However, most brokers and executives from residential brokerages contacted declined to speak to Broker’s Weekly about the new guidelines on the record.

“I’m just worried I’ll get in trouble regardless of what I tell you,” said one broker who admitted that her colleagues were “flipping out” after being presented with the new guidelines during a meeting.

The brokers, the agent told us, were worried that the guidelines implied that the mere act of just running a background check in and of itself would be a violation, despite any eventual decision that was made based on the check.

The tricky subject pins two beliefs against one another — the right to fair housing, and the right of housing providers to determine who has the right to live there.

Aaron Shmulewitz, a partner at Belkin Burden Wenig & Goldman, LLP, has represented more than 250 co-op and condo boards in New York City during his career, including many of the city’s most prestigious apartment buildings.

Aaron Shmulewitz
Aaron Shmulewitz

He called the new guidelines “mind-boggling,” and the biggest change to how housing providers vet potential tenants and purchasers that has ever occurred.

“Right now they’re just guidelines, but government agencies don’t just issue guidelines without wanting to do force of law,” said Shmulewitz. “They won’t waste time and resources on a ten-page memo and let it die as guidelines. They are much more likely to, after some period of time, adopt them as regulations.”

Up until now, denying an individual housing based on their criminal background didn’t constitute discrimination. This would be the first effort to do so, said Shmulewitz.

“It’s common practice to do a criminal background check, now HUD comes in and says you can’t do that,” said Shmulewitz. “Just doing that could be discrimination, and if you want to do it, you’ll have one and a half hands tied behind your back.”

He doesn’t think the rulings will accomplish anything, but that they instead take away rights from owners.

“People who provide housing have a vested interest in making sure people with criminal backgrounds don’t live in their housing. People who already live in housing have a vested interest in trying to, or hoping, that new neighbors don’t have a criminal background,” he said.

REBNY recently e-mailed a guide to the guidelines — authored by in-house attorney Neil Garfinkel — to help brokers better understand the new rules.

Neil Garfinkel
Neil Garfinkel

What the HUD guidelines address is how the “disparate impact” theory of liability applies “in Fair Housing Act cases in which a housing provider justifies an adverse housing action — such as a refusal to rent or renew a lease — based on a person’s criminal history.”

The “disparate impact” theory refers to when a housing or lending policy meant to be non-discriminatory, actually instead has a disproportionate or negative effect on members of the protected category under the Fair Housing Act.

An important factor pointed out by Garfinkel is that individuals with a criminal history are not a “protected category” under the Fair Housing Act. Instead, race is the relevant protected category addressed by the new HUD guidelines.

According to Garfinkel, race is protected based on the fact that certain racial groups are arrested, convicted, and incarcerated at higher rates than the share of the general population, therefore barriers to housing, like discriminating based on criminal background, are very likely to create a disparate impact on the racial groups.

It’s this confusing double-edged sword that appears to be what is keeping brokers tight-lipped.

“This is really about minorities,” said one broker from a major NYC firm who wished to remain anonymous.

The broker said executives at his firm have said nothing about the guidelines to brokers.
“I don’t understand what people are freaking out about, you just have to follow the rules,” the broker said.

He believes the guidelines have shone a light on “grey areas,” such as vetting an individual who was convicted of a crime 30 years ago but is a model citizen now.

“They’re telling you that you can’t discriminate over past criminal records, but there are many different kinds; someone who might have done something at 20 and is 60 now, why should that be held against them?” the broker said.

“But at the same time, they don’t want to let someone in with a dangerous past, and then something happens, and the building is held responsible.

“It’s a tricky situation. But it’s part of human rights stuff — you can’t say this, you can’t do that — it’s almost like you don’t really know what to do.”

Back at REBNY, Garfinkel points out that the Fair Housing Act only prohibits “arbitrary and overbroad bans” related to criminal history, which indicates housing providers have some wiggle room in weighing a particular individual’s criminal history, which can vary widely.

He recommended that housing providers “revise the policies they have in place in order to undertake a holistic approach to evaluating candidates. Any policy that prescribes for an absolute ban on applicants with a criminal history will violate the Fair Housing Act.”

Bscially, use your own judgement? Right?

Just in case, the HUD guidelines lay out a three-step framework used to judge claims against a housing providers’ allegedly discriminatory policy. Within the framework, a housing provider only has the burden of proving the second step.

The first step says that the claimant must show that a disparate impact has actually resulted from the policy, then, in the second step, the housing provider must be able to prove with evidence that the housing provider has a “substantial, legitimate, nondiscriminatory interest supporting the challenged policy and that the challenged policy actually achieves that interest.”

And in the third step, the burden shifts back to the claimant to prove that such interest could be served by another practice that has a less discriminatory effect.

In plain speak? If you have a recently released sex offender looking to rent an apartment next to a pre-school, you have a right to refuse. If your background check throws up a 10-year-old failure to pay parking fines against a former NYU student-turned-doctor wanting to move into the same apartment, then we think you can rent to them without being accused of discriminating, regardless of the would-be tenant’s race.

The distinction between an arrest and an actual conviction is also addressed, with the guidelines spelling out that an arrest history cannot be used as a basis for denying an individual access to housing.

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