Tenant Screening – Changes You Need To Know

There’s no doubt that tenant screening can be one of the most complicated aspects of owning rental properties because you have to follow the requirements of the Fair Housing Act and not offend anyone. 

In 2017 tenant screening has gotten a little more complicated for owners thanks to recent policy updates from the Department of Housing And Urban Development.

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).

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:

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.)

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 guidelines:

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 applicant screening 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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