Criminal Background Checks - HUD’s New Perspective

Ryan EganRyan Egan

There has been much publicity devoted to the role of criminal background checks in the residential housing rental and lease application process. On April 4, 2016, the General Counsel for the U.S. Department of Housing And Urban Development ("HUD") issued a memorandum on "Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions" ("Guidance"). HUD’s New Guidance memorandum will certainly impact use of criminal background checks since many manufactured housing communities may learn that their current policy may expose them to liability. This article will discuss two things: (1) how HUD evaluates denials based in whole or in part on use of a criminal background check; and (2) factors a community should keep in mind when formulating or employing a policy about criminal "history".

HUD’s Guidance memo identifies methods of ‘proof’ that are used when analyzing a fair housing claim in the context of a housing provider who denies an applicant tenancy based in whole or in part on a criminal background check. According to HUD, criminal background checks have a disproportionate impact on minority home seekers, largely due to disproportionate conviction and incarceration rates for minorities and others in protected classes.

In other words, even though tenancy is not denied based on direct discrimination against the applicant as a member of a protected class (race, religion, nation origin, etc.), background checks that reveal convictions could nevertheless, in HUD’s view, have a disproportionately negative effect (disparate impact) on members of protected classes resulting in a discriminatory housing practice. While HUD is not outlawing use of criminal background policies, HUD aims to prevent use of these policies if that use ultimately has a discriminatory effect on people in a protected class.

All communities are unique, and so too are important and legitimate interests that a community must protect. A community’s size, geographic location, and its age all play a direct role in corresponding issues regarding safety, security, and/or criminal activity. The initial decision to even use a "criminal background check" policy in the first place rests largely on whether the policy will further that community’s interests, be it safety, security, or crime prevention, and ultimately enhancing the living environment for all residents.

By and large, all communities share core interests, like screening out financially unqualified applicants and minimizing risk to community residents by applicants convicted of recent violent crimes, drug related crimes, and/or crimes involving children. Of course, the specific interest in maintaining a criminal background check policy varies depending upon the nature and characteristics of the community that justify the purpose.

If your community uses a "criminal background check", a typical scenario might be this: Applicant seeks to lease a space, submits the required application with supporting documentation, and answers "yes" to having a prior felony conviction. Owner denies the application, on the conviction. Applicant, now angry, lodges a fair housing complaint alleging the community discriminated against him/her. Once that complaint is assigned, HUD will use the following three (3) step-analysis to address the claim:

Step 1: The applicant must prove the background check policy has a discriminatory effect, meaning the policy results in a disparate impact on a group of persons in a protected class. Said applicant need only prove the policy "actually or predictably results" in a disparate impact. This will usually involve an extensive investigation of community residency applications reflecting a criminal conviction.

Step 2: If the applicant satisfies step 1, the community must then show the background check policy is justified, meaning the community must show: (a) that it has a substantial, legitimate, nondiscriminatory interest for screening an applicant’s criminal background; and (b) running the criminal background checks achieves or furthers this interest.

Step 3: If the community establishes that the policy furthers a substantial interest, the burden shifts back to the applicant to prove the community interest could be served by another practice with a less discriminatory effect.

Simply put, it’s a game of ping-pong with some vague standards of proof. So, what should communities do? Well, if you screen criminal backgrounds when deciding if an applicant qualifies, you should ensure that your policy stays within HUD’s newly published requirements. Review your policies with your legal counsel to confirm this.

At a minimum, a community should keep the following important points in mind.

First, arrests are not sufficient. An actual conviction is required. Second, blanket tenancy prohibitions for all convictions is not wise. Rather, a policy should focus on (1) what the conviction was for (i.e. nature and severity of the conviction); (2) when it happened (i.e. how much time has elapsed since the conviction, as recidivism risk decreases gradually); and (3) the applicant’s post-conviction actions, particularly rehabilitation efforts. Keep a policy objective, with distinct standards.

While HUD guidelines are national and set a base standard, some states may further regulate the application process by statute, meaning a community must comply with stricter standards.

For instance, in California, residency approval for a manufactured housing community is statutorily limited and significantly more restrictive than HUD guidelines: Approval can only be withheld if (1) the applicant does not have financial ability to pay the rent and charges of the Park or (2) based on the applicant’s prior tenancies, the landlord reasonably concludes the applicant will not comply with community rules and regulations.

Interestingly, California permits a community to terminate a homeowner or resident’s tenancy if they are convicted of certain crimes committed on community property, including, for example, prostitution, assault with a firearm or semiautomatic firearm, or a felony controlled substance offense. (Civ. Code § 798.56(d).) In California, an applicant’s prior conviction does not provide a proper basis to per se deny a tenancy application. Yet, an applicant’s conviction stemming from actions in a park during a prior tenancy may reflect an inability to follow community rules, meaning a community could possibly withhold approval. States differ, so communities should understand HUD standards and respective state requirements.

No community wants to be on the receiving end of a discriminatory housing claim. To avoid the potential pitfalls of a "criminal background check" policy, communities should develop and employ policies in close consultation with legal counsel.


Ryan Egan is a litigation associate with the Southern California law firm, Hart | King, and is a member of the firm’s Manufactured Housing Industry Practice Group. You can reach Ryan directly at 714.432.8700 or at regan@hartkinglaw.com. This article is for general information purposes and is not intended to be and should not be taken as legal advice for any reader.