H.U.D. Issues a “Guidance” Related to Criminal Background Check

By: Christopher J. Hanlon, Esq.

In yet another attempt to make law, outside of the context of what we all traditionally understand to be lawmaking (either through statutory amendment or the adoption of regulations after public comment) the Office of the General Counsel of the U.S. Department of Housing and Urban Development has issued another “Guidance.”  This one relates to the application of Fair Housing Act protections to the use of criminal background checks (“CBCs”) by housing providers to make decisions regarding occupancy in your properties.  If you are a landlord, this directly affects your screening protocol.

The purpose of this guidance memo is to discourage the use of criminal background checks by housing providers. On its face it purports to identify the law applicable to a challenge to the use of CBCs.  In so doing it identifies a three part test. It identifies the factors which support the arguments against their use, with citation to the data bases which can be used to support those arguments. While identifying the “argument” that can be used in their support, it offers no source of support for this justification – leaving that to housing providers to prove – and, according to HUD – prove it you must.

Prior to this HUD memo it has been generally recognized under the law that landlords have the right to engage in screening for both new tenants and persons who desire to be occupants in the tenant’s rented property by the use of a CBCs.  There are numerous citations to the law which support the general use of CBCs, and that support the proposition that the landlord could set the bar regarding what type of criminal history would disqualify tenancy/occupancy.  Some are from Congress and even from HUD. (In order to conserve space in this article I have deleted citations for that authority, but anyone can contact the author for these details). Those days may be over.

The three step analysis HUD identifies in the memo are: the Plaintiff, or HUD, must prove that the criminal history policy results in a disparate impact on a group of persons because of their race or national origin. If this is demonstrated (HUD demonstrates it in this guidance  memo by citation to national demographic data showing that a disproportionate percentage of African Americans and Hispanics have been convicted of crimes), then the second phase of the analysis requires a Landlord to prove the policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest.  If this can be demonstrated, then the burden shifts back to the applicant to demonstrate that there is a less discriminatory alternative than denial of the application (e.g., consideration of mitigating factors).

By its memo the General Counsel for H.U.D. is doing two, somewhat contradictory  things.  This Guidance specifically indicates that if landlords are going to use criminal background checks, in order to avoid discrimination claims based on the argument that use of convictions will have a disparate impact on African American and Hispanic populations, a landlord will have to justify the use of the criminal record and show it is “necessary to achieve a substantial legitimate non-discriminatory interest.”  In that regard it is the opinion of the H.U.D. General Counsel that you cannot presume that there is a connection between an applicant’s prior criminal record, and your ability to make your rented premises safer for the other residents without “empirical validation” for this conclusion.  Furthermore, General Counsel concludes that even if you tailor your policy (to only address more serious crimes for example, let’s say murder) you still have to show your policy is “necessary” to serve a “substantial legitimate non-discriminatory interest.”  Therefore you must show that your policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to residents’ safety and/or property and criminal conduct that does not.  Consistent with this rationale, the guidance memo concludes “…a policy or practice that fails to consider the nature, severity and recency of criminal conduct is unlikely to be proven necessary to serve a “substantial legitimate non-discriminatory interest of the provider.”  The memo goes on to indicate that the determination of whether any particular criminal history based restriction satisfies the housing provider’s burden of proof must be made on a case by case basis.  It also concludes that a policy or practice that fails to take into account the nature and severity of an individual’s conviction is unlikely to satisfy the standard.  Furthermore a policy or practice that does not consider the amount of time that has passed since the criminal conduct occurred is unlikely to satisfy this standard.

The H.U.D. memo also indicates that – if you can prove the “necessity” component – there is a requirement to consider whether there is a less discriminatory alternative than the application of the policy or practice.  H.U.D. thinks that an individualized assessment of relevant mitigating information beyond that contained in the individual’s criminal record is likely to have a less discriminatory effect than categorical exclusions.  For example, H.U.D. thinks you should consider “…the facts or circumstances surrounding the criminal conduct, the age of the individual at the time of the conduct, the evidence that the individual has maintained a good tenant history before and/or after the conviction or conduct, and evidence of rehabilitation efforts.”  It further suggests that you delay consideration of the criminal history until after you have completed your analysis of their financial or other qualifications, so that you can minimize additional costs that “individualized assessment” might add to the screening process.

The memo points out that it is important that any criminal background screening criteria be uniformly applied to all applicants.  Hopefully, anyone reading this article will have known that already for years.  When conducting any type of screening and using any criteria – financial or behavioral related – the absolute, number one rule is “no exceptions.”

The H.U.D. Guidance strongly discourages the use of “arrests” as opposed to convictions in the screening process.  Since this author has always discouraged the use of arrests, as they are not a reliable indication of guilt, I offer no further comment, other than “don’t use them.”

H.U.D. has essentially come out and stated that a discriminatory effect resulting from a policy or practice that denies housing to anyone with any kind of criminal conviction cannot be justified and would violate the Fair Housing Act. That would seem to discourage any use of CBCs.  Nevertheless the guidance memo also states that if any policies can sustain challenge they must be tailored to serve the housing provider’s substantial legitimate non-discriminatory interest and therefore take into consideration such factors as the type of crime and the length of time since conviction.

As indicated the guidance memo “tilts” the analysis against the use of CBCs as it supplies a daunting list of citations to data supporting the disparate impact argument – part one of the analysis. While it recognizes arguments can be made that “national statistics” related to incarceration rates may not be applicable in certain localities, it cites no data supporting the correlation between a prior criminal act, on the one hand, and the likelihood that similar behavior is likely to be repeated (despite the recognition of that conclusion by Congress and by HUD in other laws still on the books). This office will follow up with a second article regarding the ways that a landlord will be able to address this three part test in more detail in order to continue to  use criminal background checks as part of its screening policy.  Certainly getting involved with such subjective factors as “what the underlying conduct entailed, or what the convicted person has done since then” just presents an alternative, unacceptable subjective slippery slope.  This information is not widely available. (The use of Open Public Record Act requests, or even subpoenas to obtain these details is quite often opposed by County Prosecutors, if the information is still available.) The practical result which will result from this position taken by H.U.D. is that you are going to have to take the applicant’s word for a lot of these mitigating factors.  Where else will you be able to get the facts and circumstances surrounding the criminal conduct from a ten year old aggravated assault conviction, for example?  How do you evaluate the “he started it” explanation in the context of applicant screening? This requirement is, more likely than not, going to put a landlord in the position where it has to make a subjective decision related to its screening criteria.  That is the worst position you can be in as a landlord.  A truly unbiased and risk free screening criteria should be based on objective facts which are not subject to your “evaluation.”  Use of objective criteria takes your judgment out of it (some might argue – that is more fair to an applicant) and that insulates you from claims that your judgment was motivated by an applicant’s perceived protected class status.

Generally speaking H.U.D. Counsel Guidance Memos are not the law.  Under certain circumstances such memos are entitled to certain “deference” in interpretation of the law should you get caught up in a claim that your criminal background check is having a disparate impact upon a protected class.  In any such dispute the analysis undertaken in Court to determine how much sway the agency interpretation will get is based on an analysis of whether or not Congress has clearly addressed the subject matter in enabling legislation.  If not, the question for the Court is whether or not the agency’s position is based upon a permissible construction of the statute (which supports the proposition that the agency’s interpretation can be challenged if it is not based upon a permissible construction of the statute).  The Court will look at whether or not the agency’s interpretation is contained in a regulation or other promulgation intended to have force of law.  If so, if will be given “substantial deference”.  If not, it is afforded a lesser level of deference.  Under the lower level of deference the Court will give way to the agency’s interpretation of the statute “in proportion to its power to persuade.”

The deference analysis in this instance is not immediately clear.  In 2013, H.U.D. did pass a regulation, 24 C.F.R. 100.500, (cited in this Guidance memo) which set forth a “discriminatory effect” analysis for Fair Housing claims.  That regulation was invalidated by a D.C. Federal District Court Opinion as being inconsistent with Congressional Intent.  Last year the United States Supreme Court decided the Texas Dep’t of Housing v. Inclusive Communities Project case which accepted the argument that Congress did intend that disparate impact claims are cognizable under the Fair Housing Act. This overrides the earlier lower court case invalidating the regulation. This latest development buttresses any argument that the HUD memo would be given “substantial deference” in court.

However, Congress did include a specific clause in the Fair Housing Act (a statement of its intent) which H.U.D. has to “dance around” in the memo. The Fair Housing Act indicates that it does not prohibit “conduct (which would include the denial of an application based upon screening criteria) against a person because such person has been convicted…of the illegal manufacture or distribution of a controlled substance as defined in Section 102 of the Controlled Substances Act.”  The HUD memo points out that this language reflects Congressional intent only to permit housing providers to take adverse action against persons convicted of “manufacture or distribution” of drugs, but not possession of drugs.  The glaring inconsistency is that Congress recognizes that any conviction for manufacture or distribution of drugs – even if it occurred thirty years ago, can be the basis for a denial which does not trigger Fair Housing implications. Congress did not seem to be open to “mitigating factors”. Yet, according to this guidance memo, an aggravated sexual assault conviction which is ten years old would have to be “evaluated.” Arguably H.U.D.’s position is illogical, contrary to the Congressional intent and even its own regulations regarding Section 8 housing, where banning drug possession is recognized as a stronger public policy than even that recognized by New Jersey’s Anti-Eviction Act. (In New Jersey you can evict a tenant only if you can prove the tenant herself possessed the drugs or had actual knowledge of and acquiescence to their presence on the rented premises – under section 8 regulations the tenancy can be terminated if anyone has drugs on the premises regardless of the tenant’s knowledge or acquiescence.)  This article is intended to inform about the promulgation of this HUD guidance memo. Additional analysis of ways to continue to protect your existing residents by the use of CBCs requires more research.

For any landlord who just wants to comply with this HUD guidance memo now, you should either discontinue use of your criminal background checks, or reduce you risk by the use of screening criteria which will be based upon the following, for example:

  • The landlord will not run the criminal background check unless the applicant has satisfied all other screening criteria (income requirement, creditworthiness, etc.).
  • The Landlord will deny occupancy to any person convicted of a felony (or in New Jersey, a crime of the first, second, third or fourth degree) within the last five years which felony involves any act of violence (including sexual assault), burglary, property destruction, or fraud.
  • The Landlord will deny occupancy to any person convicted of a felony (or in New Jersey, a crime of the first, second, third or fourth degree) involving any illegal drug manufacture or distribution conviction, no matter how old.
  • The Landlord will deny occupancy to any person convicted of a felony (or in New Jersey, a crime of the first, second, third or fourth degree) within the five years preceding incarceration, if the applicant has just been released from incarceration within the two years preceding application. which felony involves any act of violence (including sexual assault), burglary, property destruction or fraud.
  • In addition, the landlord will give consideration to mitigating factors related to the reported criminal activity.

Christopher J. Hanlon is a partner with the firm Hanlon Niemann, P.C. and the head of the firm’s litigation department.  He can be reached via email at chanlon@hlawfirm.com or via telephone at (732) 863-9900 x 108.

Please follow and like us: