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Screening tenants just got more complicated—here’s what you need to know

Legal Concerns

Tenant screening has never been easy. Landlords and property managers have to balance their desire to find good tenants—those who will pay on time, take good care of the property, etc.—with the requirements set forth in the Fair Housing Act, which makes it unlawful for a person to refuse to rent or sell a dwelling to someone based upon his/her inclusion in a “protected class.” In other words, landlords cannot discriminate against someone based upon their race, color, religion, sex, disability, familial status, or national origin.

Landlords and property managers have strived to take an objective, numbers-based approach to tenant screening. They generally rely on income verification, a credit report, and a tenant background check to make an unbiased decision.

The HUD Tenant Screening Policy Update

But now, the Department of Housing and Urban Development (HUD) is warning that these numbers may be inherently biased.

HUD rolled out a 10-page policy update last year advising all landlords and property managers that using criminal history for the purpose of tenant screening may actually be discriminatory. HUD notes that nearly one-third of the U.S. population (or 100 million U.S. adults) have a criminal record of some sort, and the misuse of background checks during the tenant screening process can hinder their ability to find safe, secure, and affordable housing—a key aspect of rehabilitation. Sometimes, even those who have been arrested but not convicted have difficulty securing housing based upon their prior arrest.

Black and Latino Americans are disproportionately affected, the memo notes, as they are incarcerated at rates disproportionate to their share of the general population. Black and Latino individuals comprise an estimated 58% of the U.S. prison population, despite accounting for only 25% of the total U.S. population.

Consequently, the memo states:

Criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers. While having a criminal record is not a protected characteristic under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters or other housing market participants of one race or national origin over another (i.e., discriminatory effects liability). Additionally, intentional discrimination in violation of the Act occurs if a housing provider treats individuals with comparable criminal history differently because of their race, national origin, or other protected characteristic (i.e., disparate treatment liability).

Distinguishing Between Arrest and Conviction

This does not mean that criminal history cannot be considered at all during the tenant screening process. Instead, HUD is basically telling landlords and property managers:

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  • You cannot institute a blanket ban on all applicants with a criminal history.
  • You cannot reject a tenant based upon an arrest that did not result in conviction.
  • You must treat comparable criminal histories similarly without consideration of race, national origin, or other protected classes.

Because Black and Latino Americans are incarcerated at higher rates than their peers, any blanket policy for tenant screening that bans applicants with a criminal history would inadvertently discriminate against minorities. HUD cites a Supreme Court decision in reminding us that simply being arrested often has little probative value in showing that someone has actually engaged in misconduct—which is why arrests without convictions should not be used as the basis for denying a tenant.

Convictions are treated differently. Landlords and property managers may reject an applicant whose background check reveals that he/she has been convicted of a crime. There’s one big caveat: The landlord or property manager must show that excluding a person with a conviction achieves a “substantial, legitimate, nondiscriminatory purpose.” To put it simply, you have to distinguish between criminal activity that creates a demonstrable risk to resident safety and/or property, and criminal conduct that does not.

Given the new HUD guidelines, landlords and property managers should consider the following questions when reviewing a person’s criminal history:

  • Was the applicant convicted of a crime, or were they just arrested?
  • What was the severity of the crime?
  • How long ago was the crime committed?
  • Has the person reoffended since their original conviction?
  • Was it a drug-related crime? (HUD allows a blanket ban on those who have been convicted of illegal drug manufacturing or distribution.)

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New Guidelines for Tenant Screening

HUD’s new policy memo has the downside of making the tenant screening process more complicated than it already is. It muddies the waters in terms of how landlords and property managers evaluate criminal history, as there is no guidance on which crimes should generally considered acceptable and which are not. Landlords and property managers are asked to use their discretion, with the memo acknowledging the need to look at circumstances on a case-by-case basis.

Here are a few tips to help you to comply with the new HUD policy:

  • Screen tenants based on their financial and other qualifications first. Only conduct a background check if a person appears to be otherwise qualified. This will protect you from denying a tenant based upon another qualification, and having the tenant argue that they were denied based upon their criminal background.
  • If a background check reveals a criminal history, evaluate the nature of the crime (see questions above). If you plan to deny a person based upon this information, put a note in your internal file explaining why you felt a denial was appropriate (e.g. how this protects you, other tenants, and the property). Sign and date the note. This will protect you if the applicant ever alleges discrimination.
  • Review all existing rental policies and tenant verification procedures. Some landlords or companies may be facing a complete overhaul given the new HUD guidelines. Be sure that all members of your team clearly understand the new policies so they can be implemented uniformly by all.

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Amanda Maher

Amanda Maher

Amanda Maher is a self-proclaimed policy wonk who dabbles in real estate law. Amanda holds a B.S. in Political Science and Sociology from Boston University, as well as a Masters in Urban and Regional Policy from Northeastern.

  • Mike Watson

    With these changes, it would be GREAT if Buildium could work with Trans Union to unbundle the credit and background reports. Allow us to pull credit separately from criminal background. If the credit Report is unacceptable then we would not have to also do the background report. We could disqualify the tenant based upon financial reasons.

    • Ken

      This is critically important. Please un-bundle.

    • Jose Nieves Lagunas

      Yes they need to unbundle so property manager can make decisions based on financial status and not criminal background.

  • Dennis Templeton

    After a particularly frustrating experience in obtaining a credit check through Buildium, I sent the following suggestions to TransUnion. I concur with others that criminal checks should be unbundled as well.

    I have addressed the issues below with Buildium, who claimed no responsibility. After a legal issue this year in which the TransUnion report and recommendations came into play, I am concerned that their recommendations, and the inaccessibility to many applicants, is evidence that we are discriminatory despite our best efforts.

    I use mysmartmove through buildium, and have had problems with every single Spanish speaking applicant. Yesterday I had to sit down with an applicant and walk through the process. How, in this day and age, can you not accommodate the 16% of American residents that speak Spanish? I have begged Buildium to address this with you for years, and now I am looking for other solutions.

    Why on earth does an applicant need to come up with three answers to secret questions to approve a check? My pplicant had no way of understanding what this was all about. I have had many applicant simply GIVE UP when faced with your web site. I have also seen first hand how impossible it is to navigate the site on a smart phone. FEW of my applicants have access to an actual computer.

    Secondly, when I submitted this, I waited with the tenant for 60 minutes for a response, that did not come until about two hours later. A response in ‘minutes’?? maybe 120 minutes.

    Lastly, twice I have had the report recommend that I accept applicants with multiple recent evictions, court settlements, and criminal offenses. The recommendation for ‘accept’ appears in both cases to be based on co-tenants who did not have these things, but in my case had total debt that equaled three times their annual pay, and for which monthly payments were 60% of their take home pay. I would never have accepted these applicants, yet your advice is “APPROVE.”

    This causes a legal problem for me, since an applicant claiming discrimination can (and has, with the insistence of the local HUD office) point to the Transunion report as evidence that there was no financial reason to reject the applicant.

    I and thousands of other landlords need:

    SIMPLE APPROVAL PROCESS for Spanish speakers and others using a smart phone
    Rapid response, not in hours but actually in minutes (I see Buildium advertises this at permium cost, that’s offensive)
    a Cautionary recommendation for any applicant that has evictions, bankruptcies, or other court actions.

    I hope that you can accommodate these needs, since TransUnion is not serving me right now.

  • Facebook User

    Totally disagree! Primarily, Fair Housing says to treat everyone the same, regardless of color or race. This is engraved into our practices. In most cases, the person doing the application never meets the applicant, and does not know what color or race they are. What would your owners say when you tell them you allowed a violent offender or sexual predators to live in their home? Color and Race has nothing to do with our choice in tenants, and it should always be that way. Until HUD adds criminal to the protected class, our policy will remain the same.