Recent HUD Memo Puts Crime Free Housing Policies Under Fire

A recent memorandum from the U.S. Department of Housing and Urban Development’s (HUD) General Counsel targets the use of criminal history in housing decisions as a possible violation of the Fair Housing Act (FHA).

Generally, the FHA prohibits real estate providers from discriminating against persons based on a protected class—race, color, religion, national origin, sex, disability, and familial status—in the sale, rental, or financing of housing. Historically, real estate providers were permitted to deny housing based upon an applicant’s criminal record. HUD’s recent memorandum calls that long-standing practice into serious question.

According to HUD, intentional discrimination is prohibited and occurs when a real estate provider uses a person’s criminal history as a pretext for denying them housing based upon a protected characteristic/class. For example, and not surprisingly, a landlord that refuses to rent to an African-American applicant with a prior criminal history, but rents to a Caucasian applicant with a similar criminal history, commits intentional discrimination. However, HUD’s newfound policy on incidental discrimination is far more complex and provides a myriad of traps for the unwary provider.

Incidental Discrimination in a Nutshell

According to the recent memorandum, a real estate provider may now violate the FHA “when the provider’s policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate.” As a practical matter, HUD now prohibits blanket policies against selling, renting, or providing financing to someone with a criminal history because, according to HUD, such policies unfairly and disproportionately affect minorities.

That said, providers of real estate may still consider criminal history in housing decision so long as their policy for doing so is narrowly “tailored to serve the housing provider’s substantial, legitimate, nondiscriminatory interest[s]. . . .” HUD is clear, however, that determining whether such a policy is permissible or discriminatory is a fact-specific, case-by-case inquiry that courts will scrutinize using the following three-step inquiry:

  1. Whether the policy has a discriminatory effect;
  2. Whether policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest; and
  3. Whether there is a less-discriminatory alternative practice available.

The effect of this three-step inquiry is that even tailored policies that consider criminal history in housing decisions can still constitute discrimination.

What Does This Mean For You?

Ultimately, HUD wants real estate providers to craft narrowly tailored policies that distinguish between different types of crimes because, in the eyes of the government, not all are created equal. In other words, the rationale supporting a provider’s refusal to rent housing to someone convicted of murder likely does not apply to someone convicted of petty theft 25 years ago.

Similarly, HUD also wants real estate providers to consider other mitigating factors related to the nature and severity of the person’s criminal history, such as: (1) the facts or circumstances surrounding the criminal conduct; (2) the age of the individual at the time of the conduct; (3) evidence that the individual has maintained a good tenant history before and/or after the conviction or conduct; and (4) evidence of rehabilitation efforts.

According to HUD, “a policy that fails to consider the nature, severity, and recency of criminal conduct is unlikely to be proven necessary to serve a ‘substantial, legitimate, nondiscriminatory interest’ of the provider.” Therefore, at a minimum, every real estate provider should implement a written policy regarding the use of criminal history in housing decisions that: (1) clearly expresses their substantial, legitimate, nondiscriminatory interest; (2) differentiates between different types of crimes; and (3) factors in mitigating factors (as discussed above), and actually adhere to it.

Wait . . . There is One Blanket Exception

Notwithstanding the foregoing, HUD permits housing providers to exclude people because they have been convicted of a crime for drug manufacturing or distribution. Two important clarifications: first, the person must actually have been convicted—mere arrest is not enough; second, mere drug possession does not fall under this exception.

Bottom Line

Although HUD’s memorandum does not have the force of law, its implications are extremely important for real estate brokers, landlords, HOAs, and everyone else involved in real estate. Providers may no longer deny housing to people based upon the simple fact that they were convicted of a crime.

Now, any decision to exclude people from housing based on criminal history must be based on a substantial, legitimate, nondiscriminatory interest, and take into account other mitigating factors. Providers must now carefully tailor their policy regarding criminal history and its impact on housing decisions, and takes steps as necessary to ensure its implementation.