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HUD Guidelines Provoke Change to Process & Criteria

November 29, 2016 1:51 pm

Rethink Button in Flat Design with Long Shadows on Turquoise Background.Two recent developments have “encouraged” us to take a fresh look at the use of criminal records for tenant screening purposes – the process and criteria.

  1. Washington State’s Office of the Attorney General is actively shopping rental properties and taking action against those they judge to be in violation of HUD’s “Criminal Records Guidelines” and “Discriminatory Effects Standard.
  1. The United States Justice Department filed a statement of interest arguing that the Fair Housing Act (FHA) requires that landlords who consider criminal records in evaluating prospective tenants do not use overly broad generalizations that disproportionately disqualify <protected> individuals.

 

Landlords and property managers are being asked (compelled) to conduct individual assessments of an applicant’s criminal history before denying tenancy – to take into account the nature of the offense, when it occurred, the applicant’s age at the time and other factors.

There are several potential problems associated with individual assessments.

  1. Staff (managers and leasing personnel) will in most cases lack the knowledge and tools necessary to conduct such evaluations – to look beyond the nature of the offense and the wisdom of the jury.
  2. Individual assessments introduce an element of subjectivity (and inconsistency) that makes it harder to control for bias.
  3. Individual assessments will increase the cost of the leasing process – which is ultimately borne by the applicant.

 

As always, we have a choice. We can assume the fetal position (my favorite response) – complain about government overreach – and throw in the towel.  Or… we can keep our wits about us –apply a little right and left brain action, and find a way through this steaming pile.

Lawmakers and regulators have shown themselves to be either unwilling or unable to guide us through this minefield – to provide specific guidance as to what is and is not OK – what offenses and what timeframes will support a denial.  So… we are left to our own devices… which at the end of the day… is probably a good thing

Pulling It All Together

First, let’s put this in perspective.  Turns out the problem isn’t nearly as big as one might fear.  Why?

  • Less than 1% of our applicants are actually denied due to criminal history.
  • Roughly half of those are due to the nature of the offense.
  • The remainder are due to falsification or non-disclosure.

For example, a 1,500 unit portfolio might cough up 15 denials for criminal records in a year– little more than one per month.  Yes, an extra step (an individual assessment) has been added to the process. But the impact will be small.

The Bottom Line

We are being asked (compelled) to individually assess an applicant’s criminal history – to take into account the nature of the offense, when it occurred and other mitigating factors.  But the decision is our own.

The number of individual assessments is (on average) small.

Being a target of the office of civil rights or the regulators can be costly – in time, treasure and reputation.  We are wise, then, to review our process and criteria. In an effort to reduce risk – add individual assessments to any denial due to criminal records.

Best Practices

You may wish to consider the following – in your effort to get small (as in small target) – avoid the dubious honor of “making law,” while continuing to carefully vet prospective residents.

  • Limit consideration of criminal records to convictions for the most serious of offenses (against persons & property), the dates of final disposition of which precede the application less than seven years.  Seems a reasonable and defensible approach.
  • State clearly in your criteria that the existence of a criminal history does not automatically result in denial. Consider language similar to the following:

“We do not automatically deny applicants based on criminal history.  Rather, criminal history is considered based on the nature of the offense and time passed since the date of final disposition (e.g. applicant was released from prison, probation or parole).  We limit consideration to convictions, the dates of final disposition of which pre-date the report by no more than seven years.  Note that convictions for the following offenses may result in denial… ”

  • Then list the specific offenses that “may” result in denial – required in Washington State. See RCW 59.18.257.
  • Insist that your tenant screening company search AKA’s and additional addresses and that they confirm that records returned are correctly associated with your applicant.
  • Create a formal review committee (of at least one!) to conduct “individual assessments.” Apply your best judgment and document the decision accordingly. Remember… the HUD guidelines require an individual assessment.  But the ultimate decision is yours!  Document it!
  • Conduct Rental references. Do them yourself or outsource them.  Just do them.  They may well be the best (most direct and least discriminatory) data available to landlords.  When done well, references are, arguably, the best predictor of whether or not an applicant will fulfill the terms of their rental agreement.

Conclusion

There is no practical way to “zero” the legal and regulatory exposure associated with the HUD guidelines – and still adequately screen prospective residents.  The best we can do is minimize the exposure through education and a handful of best practices.

Visit Moco Inc or MyScreeningReport.com® for more information on tenant screening basics and best practices.

Disclaimer: Information contained in this blog post may touch upon important legal matters and developments.  It does not constitute, however – nor is it a substitute for – advice of counsel.  You should not act upon this information without first discussing it with your attorney.

 

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