Under new guidance issued by the Department of Housing and Urban Development (HUD), landlords and property managers can no longer adopt a tenant screening standard that excludes all applicants with any conviction record. The guidance also states that screening standards based on prior arrests are unlawful because arrest records do not prove past unlawful conduct and thus are an unreliable measure of an applicant’s potential risk to neighbors or property. The guidance advises that blanket policies routinely excluding anyone with a conviction record or turning away applicants based on an arrest record will most likely be in violation of the federal Fair Housing Act (FHA).

Landlords must now balance the risk of FHA liability with their ongoing responsibility to protect other tenants and the owner’s property from those who may cause injury or property damage. This new high-wire balancing act should be undertaken with great care. It’s not clear how landlords and property managers should treat potential renters with criminal convictions. The guidance does not prohibit consideration of conviction records but says that “arbitrary and overbroad criminal history-related bans” will likely be found to violate the FHA.

Traditional screening standards

The key to tenant screening is to be objective, consistent and fair; treat every applicant the same using the same checklists and criteria. Tenant screening requires a landlord to balance between finding good “customers” who will be able to pay rent and respect the landlord’s property with avoiding illegal discrimination against applicants. Landlords and property managers typically screen prospective tenants with respect to income, credit, references and eviction records, and some also use criminal background checks, often using the Consolidated Court Automation Programs (CCAP) at wcca.wicourts.gov. Screening may include examination of the applicant’s identification — such as making a copy of their driver’s license or passport, running a credit report, checking references and conducting a criminal background check. The landlord or property manager should have predetermined consistent standards in each of these categories that are applied uniformly to all applicants. It is beneficial to provide these standards in writing to all applicants. 

Fair housing laws do not require landlords to rent to people in protected classes if there is a legitimate reason to deny their applications. Legitimate reasons include poor references or credit, a record of eviction, an incomplete application, or false information on an application. Criminal convictions were previously another legitimate reason for rejecting a tenant application, but any such screening standards must now be carefully crafted such that they do not have an unjustified disparate impact.

Disparate-impact analysis of screening based on criminal records

HUD’s guidance document, “Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions,” found at portal.hud.gov/hudportal/documents/huddoc?id=HUD_OGCGuidAppFHAStandCR.pdf, calls into question any screening standards based on a past history of arrests or convictions.

Under the guidance, if landlords or property managers refuse to rent to people who have been arrested or convicted, and this policy unintentionally ends up discriminating against a protected class, the policy is unlawful “if it is not necessary to serve a substantial, legitimate, nondiscriminatory interest of the housing provider, or if such interest could be served by another practice that has a less discriminatory effect.” The guidance reaches this conclusion by applying the disparate-impact analysis recently upheld by the United State Supreme Court. For more details about this case, see “Waging the War Against Discrimination,” in the April 2016 Wisconsin Real Estate Magazine, at www.wra.org/WREM/Apr16/Discrimination. 

In the first step of the disparate-impact analysis, the challenger — such as HUD or another party — must prove that the landlord’s criminal history screening standard has a discriminatory effect and results in a disparate impact on a protected class. HUD looked at statistics provided by the Justice Department that demonstrated a disproportionately high rate of arrest and incarceration based on race. Across all age groups, the imprisonment rates for African American males is almost six times greater than for Caucasian males; the imprisonment rate for Hispanic males is twice that for non-Hispanic white males.

In the second step of the disparate-impact analysis, the burden shifts to the landlord to prove that the challenged policy or practice is justified, that it “is necessary to achieve a substantial, legitimate, nondiscriminatory interest.” The landlord must demonstrate that he or she has a substantial, legitimate, nondiscriminatory interest supporting the challenged policy and that the challenged policy actually achieves that interest. Landlords and property managers generally cite protection of other residents and the property as the reason for such policies. The courts typically consider such interests to be both substantial and legitimate, but the landlord must also be able to prove through that its policy based on criminal history actually assists in protecting tenant safety or property.

Arrest records under the guidance

The guidance observes that a landlord or property manager with a policy or practice of excluding tenant applicants because of one or more prior arrests — without any conviction — cannot show that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest. Denying housing based on a record of arrest is not legitimate because arrests alone are not proof of guilt. Landlords must distinguish between arrests and convictions and cannot use arrests as the justification to deny applicants.

Conviction records under the guidance

While a record of conviction as opposed to an arrest will serve as sufficient evidence to prove that an individual engaged in criminal conduct, the guidance emphasizes to landlords that “blanket bans” are most likely illegal. A landlord with a blanket rejection of any person with any conviction record — no matter when the conviction occurred, the nature and severity of the conduct, or what the person has done since — will be unable to prove that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest.

A landlord with a more tailored policy that excludes individuals with only certain types of convictions and examines the nature, severity and recency of the conduct must still prove that its policy is necessary to serve a substantial, legitimate, nondiscriminatory interest. This will be determined on a case-by-case basis. HUD gives no examples as to what types of criminal conduct, such as murder or grand theft, could be considered under this policy. The landlord must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to safety or property and criminal conduct that does not. 

The third step of the disparate-impact analysis comes into play if the landlord or property manager successfully proves that the criminal history policy is necessary to achieve its substantial, legitimate, nondiscriminatory interest. Then the burden shifts back to the challenger or HUD to show that interest could be served by another practice with a less-discriminatory effect.

An individualized assessment of relevant mitigating information beyond that contained in an individual’s criminal record is likely to have a less-discriminatory effect than categorical exclusions, according to the guidance. Relevant factors might include the circumstances of the criminal conduct, the person’s age at that time, the person’s tenant history and signs of rehabilitation. In addition, the guidance observes that delaying consideration of criminal history until after financial and other qualifications are verified may minimize any additional costs that such individualized assessment might add to the applicant screening process.

This aspect of the analysis runs completely counter to the tried-and-true recommendations for tenant screening. Objective and consistent standards will be challenging at best when HUD essentially recommends an individualized assessment when it comes to an applicant’s criminal history. 

Tenant screening standards after the guidance

The guidance sheds little light on what crimes may be considered or what proof will show a legitimate connection between a criminal conviction, and tenant safety and property protection. Certain principles, however, may be derived:

1. Arrest records are not a valid reason to deny a rental applicant.
2. Blanket standards rejecting any applicant with any criminal convictions are discriminatory and in violation of the FHA. 
3. Blanket standards disallowing anyone convicted of drug manufacture or distribution are allowed — it is the one exception to HUD’s rule.
4. Convicted criminals possibly may be denied housing if the reason for their convictions clearly puts the safety of other tenants or the property at risk. 
5. Tenant screening policies apparently should look at criminal convictions on an individualized basis with a focus on the nature, severity and recency of the conviction as well as the underlying situation.

Unfortunately there are no precise standards that landlords and property managers can adopt and be safe against any legal challenge. Landlords and property managers certainly should reevaluate their tenant screening standards in light of the guidance, preferably with the assistance of legal counsel. 

Be sure to see NAR’s helpful list of do’s and don’ts for the development of criminal history-based housing policies in “Fair Housing Act: Criminal History-Based Practices and Policies,” at www.realtor.org/articles/fair-housing-act-criminal-history-based-practices-and-policies.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.