Avoiding Disparate Impact Discrimination Under Fair Housing Act
Property management stakeholders today have a wealth of tools and information at their fingertips to help make better business decisions and choices. But, as the saying goes, too much of a good thing may be just that, too much of a good thing.
The everyday use of an applicant screening system, for example, could inadvertently reject a protected class. Or, a well-researched redevelopment plan that involves bulldozing low-income homes to clear the way for luxury condos could be argued to discriminate against minorities who depend on affordable housing.
These are just a couple of examples of “disparate impact,” the new watchwords in the multifamily industry.
Disparate impact: understanding the issue
Disparate impact is on the minds of apartment industry professionals and the Supreme Court alike. A hearing on a housing discrimination case citing disparate impact was settled out of court, further clouding its meaning in relation to Federal Housing Administration laws and how they pertain to the apartment industry.
For example, a developer’s intent to raze an affordable income neighborhood to build more expensive homes can violate FHA laws by discriminating against the tenants living there who, not being able to afford raised rent prices, would potentially lose their homes.
Civil rights groups argue that challenging and defeating the disparate impact theory will undermine FHA policies. Financial services groups, however, want to see a case tried and ruled by the high court to add credence to the industry’s rigorous credit screening practices.
Either way, the apartment industry can only wait and see what the next curve in the road brings – and be careful.
Defining disparate impact
Disparate Impact is a policy or practice that while neutral on its face has a disproportionate impact on a protected class. To prove discrimination, the plaintiff has to show evidence of the effect.
In the past, the U.S. Department of Housing and Urban Development (HUD) ruled to implement the Fair Housing Act’s Discriminatory Effects Standard while establishing uniform standards for determining when a real estate practice or policy violates the act. The rule recognizes that liability exists on behalf of landlords under the disparate impact theory.
But the theory is a bit more complicated and can put property owners in a potentially litigious situation while making “seemingly neutral and common business policies, such as occupancy limitations, criminal background screening and Section 8 voucher policies, among others,” says the NMHC. Such could trigger discrimination claims even though the property owner has no intent of singling out a particular group adversely.
NMHC says that more clarity is needed on the applicability of disparate impact liability. “It could be used to undermine apartment providers’ otherwise valid policies to ensure safe and decent housing for residents.”
In other words, disparate impact can inadvertently penalize a property owner for falling out of Fair Housing compliance by doing his job – providing housing.
Determining liability for disparate impact
Property owners can use HUD’s rule that establishes a three-part burden-shifting test to determine liability for discrimination.
First, the charging must prove that a challenged practice caused or predictably will cause a discriminatory effect. Second, the respondent then has the burden of proving that the challenged practice can be supported by a legally sufficient justification. And, finally, the burden shifts back to the plaintiff to prove there are other practices that can be employed that have a less discriminatory effect.
Harry J. Kelly of Nixon Peabody, LLP, said that it’s not clear whether federal courts will feel compelled to adopt HUD’s standards and procedures, although the courts tend to look at HUD as a housing authority. The courts may not defer to the HUD rule but most likely will test the waters with their own procedures and policies against what HUD has established.
He reminded that disparate impact does not apply only to the big portfolio property owners, but does so even on the smallest level of property management.
Two ways to mitigate disparate impact implications
While the future of disparate impact is anything but clear, property owners can adopt some common practices to help steer clear of any potential issues that may inadvertently discriminate against a protected class and cause them to fall out of Fair Housing compliance. Kelly pointed out:
1. Property owners should make sure all marketing materials are free of potentially discriminatory statements and that data and methods that may have an impact on minority status should be reviewed. This is particularly necessary when screening residents.
2. Also, take a “color blind” approach while using information solely for neutral credit decisions, and be flexible with applicants who may have a bad credit history or criminal record from the past but recent conduct is positive. Following strict data privacy policies are recommended.
Property owners need to be very mindful of this Fair Housing wrinkle. Have you thought about disparate impact could impact the way your property company’s way of doing business?
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