IREM Special Report: New Twists for Background Checks

Tips on complying with new HUD guidance from a veteran real estate attorney and Fair Housing Act expert.

San Diego—Does a criminal record provide sufficient reason to turn down a prospective resident?

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Caroline Elmendorf, a veteran attorney and chief compliance officer for the Bozzuto Group, discusses the use of criminal background checks last week at IREM’s national conference.

That sensitive question is more complex than ever in the wake of a 2015 U.S. Supreme Court ruling and guidance issued this year by the U.S. Department of Housing and Urban Development.  At the Institute of Real Estate Management’s Fall Conference in San Diego last week, a veteran attorney and expert in fair housing issues offered tips on navigating uncertain waters.

Among the key recommendations from Caroline Elmendorf, chief compliance officer for the Bozzuto Group, during the Thursday afternoon session:

  • Don’t ask about an applicant’s prior arrest record,
  • Limit the period for reviewing conviction records to seven years.
  • Exclude applicants only for crimes related to safety of people or property.

“If you do the three things on the checklist, you’ll be way ahead,” Elmendorf said.

The U.S. Supreme Court set the stage for the issue last year in a landmark ruling on a Texas housing discrimination lawsuit. housing discrimination ruling Texas Department of Housing and Community Affairs v. The Inclusive Communities Project. Applying a principle known as disparate impact theory, the high court ruled that practices disproportionately affecting specific groups can be considered discriminatory, even if the discrimination is unintentional. The court held that the concept applies to the use of criminal background checks in evaluating applications, because African Americans and Hispanics are arrested and convicted at rates disproportionate to their share of the population.

The practical implications of the ruling began unfolding in April when the U.S. Department of Housing and Urban Development issued formal guidance on enforcement. The justification for performing criminal background checks must be “substantial, legitimate and nondiscriminatory,” Elmendorf noted. The strictest interpretation suggests that criminal background checks are permissible only after a credit check comes back clean.

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Caroline Elmendorf of the Bozzuto Group talks with audience members following presentation on new HUD guidance on criminal background checks.

Reasons to decline an application include convictions for violent felonies that would endanger residents or property, selling or manufacturing drugs, or registration as a lifetime sex offender. Nonviolent offenses, such as drug possession or illegal gambling, generally do not constitute grounds for turning down an applicant, according to HUD’s guidance. HUD also set limits on the use of criminal records and specified a seven-year window for reviewing a conviction.

Room for Interpretation

While detailing some points, HUD also left room for further interpretation, thus creating considerable uncertainty. “In some ways I wish HUD would give us more specific guidance so we don’t have to do all this guesswork,” Elmendorf told her audience. One particularly thorny element, she noted, is that owners and managers are in the position of evaluating circumstances that may mitigate a conviction record. Those can range from the person’s age at the time of the offense, a positive history as a resident before or after that conviction, and evidence of the applicant’s rehabilitation.

Another apparently ambiguous area relates to offenses that are nonviolent but raise doubts about the applicant’s potential to be a good resident, such as check kiting. “How are we going to make that assessment?” Elmendorf asked. “That’s really creating like a whole new section of our business to handle this. It’s an unfunded mandate.”

Despite these challenges, Elmendorf suggested that the new federal guidance offers an upside as well. To begin with, she said, “We are not, in many cases, reinventing the wheel.” A seven-year limit to criminal background checks already exists in some states, offering a potential pathway to compliance. Many multifamily operators and managers, if not most, are well versed in comparable federal standards set by the Equal Employment Opportunity Commission. Moreover, lifting restrictions on criminal background checks may enable operators to accept more new residents.

And if the decision to decline to admit a resident on account of a criminal record does land the owner of an apartment community in court, rejected applicants likely face a high bar for proving violations. As Elmendorf put it: “If you show you have good procedures and you follow them, you have a good defense in any area, including fair housing.”


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