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Answer. I believe that what you want to do is possible; you want to verify with your own legal counsel.

But let me suggest that you asked the question in the wrong way. Rather than asking whether the law allows this, you should ask whether the law disallows it. In other words, in most cases, when it comes to landlord-tenant legal rights and duties, Chapter 90 sets a "floor" below which you cannot go.[1] So although the law does not address this specific issue, that does not mean you cannot do institute such a policy, so long as it does not violate other portions of the chapter.

What laws might apply? Here are the ones that come to mind:

90.130 Obligation of good faith. Every duty under this chapter and every act which must be performed as a condition precedent to the exercise of a right or remedy under this chapter imposes an obligation of good faith in its performance or enforcement. [Formerly 91.730]

90.135 Unconscionability. (1) If the court, as a matter of law, finds:

(a) A rental agreement or any provision thereof was unconscionable when made, the court may refuse to enforce the agreement, enforce the remainder of the agreement without the unconscionable provision, or limit the application of any unconscionable provision to avoid an unconscionable result; or

(b) A settlement in which a party waives or agrees to forgo a claim or right under this chapter or under a rental agreement was unconscionable when made, the court may refuse to enforce the settlement, enforce the remainder of the settlement without the unconscionable provision, or limit the application of any unconscionable provision to avoid an unconscionable result.

(2) If unconscionability is put into issue by a party or by the court upon its own motion the parties shall be afforded a reasonable opportunity to present evidence as to the setting, purpose and effect of the rental agreement or settlement to aid the court in making the determination. [Formerly 91.735]

90.220 Terms and conditions of rental agreement; smoking policy; rent obligation and payment. (1) A landlord and a tenant may include in a rental agreement terms and conditions not prohibited by this chapter or other rule of law including rent, term of the agreement and other provisions governing the rights and obligations of the parties. ****

90.262 Use and occupancy rules and regulations; adoption; enforceability; restrictions. (1) A landlord, from time to time, may adopt a rule or regulation, however described, concerning the tenant's use and occupancy of the premises. It is enforceable against the tenant only if:

(a) Its purpose is to promote the convenience, safety or welfare of the tenants in the premises, preserve the landlord's property from abusive use, or make a fair distribution of services and facilities held out for the tenants generally;

(b) It is reasonably related to the purpose for which it is adopted;

(c) It applies to all tenants in the premises in a fair manner;

(d) It is sufficiently explicit in its prohibition, direction or limitation of the tenant's conduct to fairly inform the tenant of what the tenant must or must not do to comply;

(e) It is not for the purpose of evading the obligations of the landlord; and

(f) The tenant has written notice of it at the time the tenant enters into the rental agreement, or when it is adopted.

(2) If a rule or regulation adopted after the tenant enters into the rental agreement works a substantial modification of the bargain, it is not valid unless the tenant consents to it in writing. ****

90.510 Statement of policy; rental agreement; rules and regulations; remedies. ***

(6) Every landlord who rents a space for a manufactured dwelling or floating home shall provide rules and regulations concerning the tenant's use and occupancy of the premises. A violation of the rules and regulations may be cause for termination of a rental agreement. However, this subsection does not create a presumption that all rules and regulations are identical for all tenants at all times. A rule or regulation shall be enforceable against the tenant only if:

(a) The rule or regulation:

(A) Promotes the convenience, safety or welfare of the tenants;

(B) Preserves the landlord's property from abusive use; or

(C) Makes a fair distribution of services and facilities held out for the general use of the tenants.

(b) The rule or regulation:

(A) Is reasonably related to the purpose for which it is adopted and is reasonably applied;

(B) Is sufficiently explicit in its prohibition, direction or limitation of the tenant's conduct to fairly inform the tenant of what the tenant shall do or may not do to comply; and

(C) Is not for the purpose of evading the obligations of the landlord. ****

Conclusion. Note that ORS 90.295 pertains to "applicant" screening charges, etc. The statute is very specific and detailed. However, that is because it is limited to situations where a prospective tenant is seeking entry into the park as a tenant. There is nothing in Chapter 90 dealing with background check for guests who will remain at the park in excess of 14 days. However, if I were to draft a rule to implement your suggested policy, I would likely use it as a general template of issues that should be addressed, since some of them are the same, e.g. denial of the right to remain at the premises because of a failure to pass the background check. Additionally, you would want to make the list of disqualifying criteria known in advance, so tenants and applicants knew whether it would be worth the cost and effort to apply.

Lastly, I suggest that you implement such a rule through a rule change in accordance with ORS 90.610. Good luck!

[1] For example, on nonpayment of rent notices, you would not want to institute a payment period shorter than 72 hours. Similarly, you would not shorten the cure time for a rules violation to less than 30 days. Conversely, if you wanted to lengthen the time to pay late rent or cure a violation, you can certainly do so.

Earlier this week the 2015 Oregon Legislative Session adjourned.    This session was notable for two reasons - the first for passing MHCO's long awaited changes eliminating past due taxes on abandoned homes and the second for the tenacity of rent control to raise it's head in floor debates, a legislative work group proposal and amendments. 

The increase in the cost of housing  particularly in many of Oregon's urban areas manifested itself in a drive to bring forward rent control in various forms.  This will not be the last we hear of rent control as we head into 2016.  Considering that in many cases MHCO was able to defeat rent control by just one vote in committee raises concerns as we set our sights on the February 2016 Oregon Legislative Session and especially the 2017 Oregon Legislative Session if elections continue to go as badly as they have for the business community over the past four years. 

In the end, MHCO is thrilled with what we were able to accomplish in the 2015 Legislative Session - one of the best pieces of pro-landlord legislation in the last decade, but we have serious reservations where the Legislature is headed on issues that are of great concern to landlords and business owners. 

MHCO will be providing extensive information on the new tax rules for abandoned homes later this year at the MHCO Annual Conference as well as information on other issues in the 2015 Landlord Tenant Coalition Bill that passed in this Legislative Session.  The new laws do not go into effect until January 1, 2016.  New forms will be necessary - MHCO will have those available to members on-line later this year as well.

Finally, here is a summary of some of the legislation that MHCO worked to defeat this session.  Other than the Coalition Bill (HB 3016) there were no other bills that MHCO supported - that in itself is a sad commentary on this legislative session considering the thousands of bills introduced.

MHCO Legislative Summary - MHCO Defeated Proposed Legislation

HB 2564 - (Inclusionary Zoning) Permits local governments to impose conditions on approved permits that effectively establish sales price for up to 30 percent of residential development or limit purchase to class or group of purchasers in exchange for one or more developer incentives.

This bill was the source of a lot of angst this session - with rent control advocates mentioning the need for rent control during the House Floor debate on this bill.  In the Senate rent control advocate drafted a rent control amendment (dash 5) - amendment defeated by just one vote in committee.

HB 2573 - Authorizes residential tenant to install on premises and use electric vehicle charging station for personal, noncommercial use.  Likely to be re-visited in Feb 2016.

HB 3494 - Prohibits landlord from requiring applicant or tenant to declaw or devocalize animal otherwise allowed on premises or to advertise in manner that discourages application from potential applicant with otherwise allowed animal that has not been declawed or devocalized.  Fine up to $1,000.

HB 3076A - Requires Oregon Health Authority to analyze ground water contaminant data and provide education in problem areas.  Would have increased reporting requirements for manufactured home communities operating wells.  Likely to be re-visited in Feb 2016.

HB 3081 - Directs Department of Consumer and Business Services to adopt by rule standards to address conflicts of interest of manufactured structure dealers that are also residential landlords.

HB 3129 - Authorizes tenant to whom real estate has been leased by landlord to install and use electric vehicle charging station for personal, noncommercial use.

SB 592 - Repeals law that prevents local governments from imposing conditions on approved permits that effectively establish sales price for residential development or limit purchase to class or group of purchasers. 

This bill became the vehicle for a proposed Legislative Work Group on Manufactured Housing.  This amendment was defeated in committee by one vote. 

WHAT DOES THE LAW SAY?

The federal Fair Housing Act (FHA) makes it illegal to refuse to rent or deny a person housing because of his or her race, color, religion, sex, handicap (disability), familial status, or national origin. Although many states also ban discrimination on the basis of a person’s criminal record, this isn’t one of the protected grounds listed in the FHA.

Question:How can criminal record discrimination be illegal if the FHA doesn’t mention it?

Answer:Refusing to rent to people with a criminal record may be an indirect form of racial, national origin, and other forms of discrimination the FHA does prohibit.

Explanation: The reason for this has to do with the so-called rule of “disparate impact” discrimination that holds that policies and practices that are neutral on their face may still be illegal if they have the effect of discriminating against a group the law protects. This is true even if there was no intent to discriminate.

Example: A fire department policy bans any persons from being promoted to the position of chief unless they have at least 10 years of service in the department. On its face, this seems like a perfectly neutral, legitimate, and nondiscriminatory policy. The problem is that the department began hiring women only five years ago. Before that, it was exclusively male. As a result, the 10-years’ service policy has the effect of excluding women from being promoted to chief and is thus a form of illegal sex discrimination.

Although the potential of disparate impact liability for criminal history restrictions began as an employment principle, the U.S. Supreme Court and HUD have made it clear that it also applies to fair housing. In 2016, HUD published guidance to address the issue. Citing the widespread racial and ethnic differences in the U.S. criminal justice system and statistics showing that across the nation, African Americans and Hispanics are arrested, convicted, and incarcerated at disproportionately higher rates than whites with respect to their share of the general population, the guidance states that barriers to housing based on criminal records are likely to have disproportionate impact on minority home seekers.

The HUD guidance also explains what owners can do to avoid disparate impact liability when carrying out criminal history screening. The eight rules below come from the guidance and later court cases applying them to actual situations.

8 RULES FOR AVOIDING DISCRIMINATION

WHEN SCREENING APPLICANTS’ CRIMINAL BACKGROUNDS

Rule #1: Continue Performing Criminal Background Checks

The starting point is to understand that nobody is saying that you must stop performing criminal background checks on applicants. On the contrary, apartment communities have every right to establish their own policies governing who may live there, as long as their standards are fair, reasonable, and nondiscriminatory—that is, that they apply equally to all applicants regardless of race, color, religion, sex, familial status, national origin, disability—or any other personal characteristic protected under state and local fair housing laws. The FHA also specifically excludes individuals who pose a direct threat to the health or safety of other individuals or whose tenancy would result in substantial physical damage to the property of others.

Moreover, courts and HUD have long recognized owners’ rights to perform background screening to ensure applicants meet their legitimate rental criteria. That includes criminal background checks to the extent that they serve the owner’s legitimate business interest in:

• Protecting their property and the safety and property of their residents;
• Ensuring that applicants can pay the rent; and
• Retaining other residents who may be fearful and leave the community if a person with a criminal record is allowed to live there.

Bottom line: The liability risk stems not from performing criminal records screening but how you perform it, including not only your screening criteria but how you use the results to make decisions about applicants.

Rule #2: Don’t Do Criminal Checks Until You Determine the Applicant Is Otherwise Qualified

Don’t perform criminal background checks unless and until you complete the credit, rental history, and other necessary checks and determine the applicant is qualified. This rule is based not so much on law as practical considerations. In addition to the legal complications, criminal checks costs time, money, and administrative effort. So, saving them for the end of the process pending the results of the other checks will enable you to avoid having to do them for applicants who aren’t qualified anyway.

Example: Texas fair housing consultant Ann Sadovsky relays the story of an owner/client facing an applicant who wanted to share the apartment with an unusual and highly undesirable pet, a 500-pound hog. “The poor client was all upset about a messy fight over the community’s no-pets policy,” Sadovsky relates. “I told him not to sweat it until after the applicant got a clear credit and rental history report.” In fact, he didn’t—and the hog issue became completely moot.

“Not that I’m comparing a hog to a person with a criminal record, but the principle of not bothering to engage with an applicant on an issue until verifying that he or she’s qualified to rent from you applies to criminal background checks,” notes Sadovsky.

Rule #3: Establish Clear, Nondiscriminatory Guidelines for Criminal Record Checks

Relying on third-party screening companies to perform actual criminal record checks the way most owners do will spare you the headaches of gathering the data yourself. But it’s how you use that data that will determine your liability. Specifically, you must make consistent, reasonable, and nondiscriminatory decisions about whether to reject applicants because they have a criminal background. The remaining rules in this lesson are designed to help you create and implement rental policies enabling you to meet that crucial compliance challenge.

Let’s start with the general rules governing when denying housing opportunities to people with a criminal record runs afoul of the FHA. The HUD guidance sets out three key questions owners should ask to evaluate whether their criminal record check policies are legally sound:

1. Does the policy have a discriminatory effect? As we explained above, excluding applicants for having a criminal record may have the effect of discriminating. But in a court or HUD administrative proceeding, the person claiming discrimination has the burden of proving that the policy under question actually does cross the line.

The most common way to show discriminatory effect is by using national, state, and/or local statistics showing that African Americans, Hispanics, and other minorities have disproportionately high arrest and conviction rates, as compared to white persons. While it doesn’t necessarily prove that a particular policy had a discriminatory effect, the HUD guidance suggests that such statistical evidence is generally enough to deny an owner’s motion to dismiss and allow the case to go to trial. And that’s crucial because it changes the negotiating leverage and pressures the owner to shell out a substantial sum of money to settle the case. 

By the Numbers:

Using Statistics to Prove Discriminatory Effect

HUD cautions owners to be aware of the discrimination risks associated with rental policies that exclude applicants because they have a criminal background. The guidance cites national statistics showing that racial and ethnic minorities face disproportionately higher rates of arrest and incarceration. According to those statistics, African Americans and Hispanics are arrested at a rate of more than double and incarcerated at a rate of nearly three times their proportion of the general population. Imprisonment rates for African-American males is almost six times greater than for white males, and for Hispanic males, it’s over twice that for non-Hispanic males.

Keep in mind that these are just national statistics. State and local statistics exhibiting similar patterns may be even more compelling in demonstrating that criminal record exclusion has a disproportionate and discriminatory effect on minorities. And, of course, most devastating of all to an owner is statistical evidence showing that the particular community’s policies had the effect of excluding minorities.

2. Is the policy necessary to achieve a substantial, legitimate, and nondiscriminatory interest? The second crucial question is whether a policy of denying housing to people with a criminal record is necessary to achieve what HUD refers to as a “substantial, legitimate, and nondiscriminatory interest” (which we’ll refer to as the “substantial interest standard”). Explanation: As noted above, it’s legitimate for owners to want to keep dangerous people out of their community. But, the guidance warns, this general interest and bald assertions based on stereotypes that individuals with criminal arrests and convictions pose a greater risk than people without criminal records isn’t enough. To justify exclusion on the basis of a criminal record, the owner must be able to prove that the policy actually does assist in protecting resident safety and property. Accordingly, blanket policies won’t work, and owners must make decisions based on the particular circumstances of the case, including how long ago the crime happened and what kind of conduct it involved. We’ll delve into these crucial details below.

3. Is there a less discriminatory alternative available? Even if the owner can show that its criminal record policy meets the substantial interest standard, it may still be unlawful if the person complaining can prove that the owner could have served that interest by adopting another policy or practice that has a less discriminatory effect. As we’ll discuss in Rule #7, such alternatives may include performing an individualized assessment of applicants found to have a criminal record.

Rule #4: Don’t Impose a Blanket Ban on Applicants with a Criminal Record

Now let’s talk about the specific things you can do to ensure that your own policy meets the criteria we explained in Rule #3. First rule of thumb: Don’t implement predetermined, blanket rules, such as automatically rejecting any applicant with a criminal record.

Remember that all forms of criminal conduct won’t satisfy the substantial interest standard justifying denying a person housing because of their criminal records. Thus, blanket policies that treat all criminal conduct the same way are highly problematic. They also make you a sitting duck for a statistical analysis showing that minorities are more apt than white persons to get arrested or convicted of a crime as compared to their percentage of the general population.

Example: A New York City community rejected an African-American applicant after learning of his felony conviction. The community claimed that its policy of automatically rejecting anyone with a felony conviction was nondiscriminatory because it applied to all applicants regardless of race, etc. The applicant conceded that the policy was neutral on its face but contended that it had the effect of racial discrimination, citing “empirical evidence showing that nationally, and in New York State, blanket bans on eligibility, based on criminal history, result in the denial of housing opportunities at a disproportionate rate for African Americans and minorities.” Although the applicant would still have to prove his claim at trial, the court found that the statistical evidence was enough to warrant holding a trial and dismissed the owner’s motion to dismiss [Jackson v. Tryon Park Apartments, Inc. et al, No. 6:2018cv06238 - Document 17 (W.D.N.Y. 2019)].

Rule #5: Reject on the Basis of Criminal Convictions, Not Arrests

While you must make decisions about whether to rent to applicants with criminal records on a case-by-case basis, there are a few bright line rules. One of them is that rejection is justified only when applicants have actually been convicted of a crime; merely being arrested isn’t enough.

Explanation: As the HUD guidance explains, an arrest, on its own, is merely an accusation and doesn’t prove that the person actually did anything wrong. Under our justice system, defendants are presumed innocent. To establish guilt, the criminal prosecutor must persuade the court or jury to convict by proving the charge beyond a reasonable doubt. Many people who get arrested are acquitted; others get their charges dropped and don’t even go to trial.

The problem with arrest records is that they often don’t show how the case was decided and whether the individual was prosecuted, convicted, or acquitted of the charges. As a result, the guidance clearly states that an arrest is not a reliable basis for determining whether a particular individual poses a potential risk to safety or property in applying the substantial interest standard.

Exception: There’s some wiggle room for eviction when a criminal background screening reveals an arrest. What you can do, according to legal experts, is ask about the underlying facts of the case. And even if the arrest hasn’t yet resulted in a conviction or conclusive and final finding of guilt, you may still be able to reject the applicant if:

• The applicant admits to committing a crime; or
• The police or other witnesses provide reliable and legally admissible information showing that a crime was committed.

Rule #6: Distinguish Between Dangerous and Non-Dangerous Convictions

The mere existence of a conviction isn’t enough to get you over the substantial interest hurdle. That’s because all crimes aren’t the same. The owner’s responsibility, the guidance clarifies, is to distinguish between criminal conduct that does indicate a risk to resident safety or property, and criminal conduct that doesn’t rise to that level. The good news is that the guidance sets out clear criteria for making such determinations:

Felonies vs. misdemeanors. The crime must be serious. And while the guidance doesn’t expressly say this, the consensus is that the conviction must be for a felony rather than a misdemeanor. But, as the NYC owner learned in the Jackson v. Tryon Parks Apartments case discussed in Rule #4 above, a blanket rule excluding any person with a felony conviction doesn’t work. The owner must take other factors into consideration.

Type of felony. The next factor to consider in applying the substantial interest standard is the nature of the felony a person was convicted of committing. Although the guidance doesn’t specify the types of felonies that owners may reasonably consider as posing a danger to safety and property, legal experts and case law suggest that the list includes convictions for:

• Illegal manufacture or distribution (but not mere possession) of drugs and other specified controlled substances;
• Sexual assaults;
• Other violent crimes like homicide, assault and battery, domestic violence, robbery, and false imprisonment; and
• Arson, vandalism, and other crimes causing significant damage to property.

How long ago the person committed the felony. The other key factor is how much time has passed. The more recent the conviction, the greater the justification for considering the person who committed it as posing a risk of danger to safety and property. Based on court cases, the unofficial window is seven years. Exception: Sexual assault convictions don’t have a shelf life. In other words, they may be grounds for denying an applicant housing regardless of how long ago they occurred.

Rule #7: Assess Each Felony Conviction Case Individually

Following Rules #4, #5, and #6 should enable you to ensure that your criminal background screening policy meets the first two of the three HUD standards, namely, the discriminatory effects and substantial interest standards. But the HUD guidance says there’s one more thing you should do to meet the third standard—that is, lack of less discriminatory alternatives: Incorporate a process for assessing each case individually that takes into account mitigating factors explaining why the person has a criminal record, such as:

• The circumstances surrounding the criminal conduct;
• How old the person was when he or she engaged in the conduct;
• Evidence that the individual has maintained a good tenant history before or after the conviction or conduct; and
• Evidence of rehabilitation efforts.

Example: A Pennsylvania public housing authority rejected an African-American applicant after the criminal records check revealed that he had pleaded guilty to involuntary manslaughter under its policy calling for mandatory denial of persons convicted of homicide offenses. The applicant claimed that the policy discriminated on the basis of race, applying the same basic logic that the applicant in the Jackson v. Tryon Parks Apartments case used to beat back the owner’s motion to dismiss. But this time the argument didn’t work.

The difference: The PHA gave rejected applicants 30 days to dispute the accuracy and relevancy of the information on which a mandatory denial was based. During the hearing, the applicant clarified that the conviction was for a misdemeanor rather than a felony. As a result, the PHA reversed its decision on the criminal conviction rejection. The problem for the applicant was that the PHA had a second reason for rejecting him, namely, a judgment awarding his previous landlord $871 in unpaid rent. And since the applicant didn’t present any evidence or mitigating information about the nonpayment judgment, the court found that the PHA had a legitimate, nondiscriminatory reason to reject the applicant and tossed his discrimination claim [Hall v. Philadelphia Housing Authority, Civil Action No. 17-5753, U.S. District Court, E.D. Pennsylvania, April 5, 2019].

Rule #8: Apply Your Screening Policy Consistently

So far, we’ve been talking about unintentional discrimination on the basis of discriminatory impact. But be aware that rejecting applicants because they have a criminal record may also constitute intentional discrimination. This can happen if you apply your policy inconsistently to people with comparable criminal histories differently based on their race, national origin, etc.

Example: A federal court ordered a Tennessee community and its property management company to pay $42,250 in damages for selectively applying its policy of disqualifying people with felony convictions to minority applicants. The evidence showed that the defendants denied an African-American applicant because of his criminal record while approving the applications of two white applicants with similar, and what should have been disqualifying, felony convictions [U.S. v. Dyersburg Apartments, Ltd., (W.D. Tenn.), Aug. 13, 2019].

The guidance lists other examples of inconsistent application of criminal records policies and practices showing intentional discrimination:

• A community has a policy against renting to people with certain convictions, but makes an exception for white, but not African-American, applicants; and
• A leasing agent helps a white applicant get his application approved despite his potentially disqualifying criminal record, but doesn’t provide the same assistance to an African-American applicant.

Answer:  To clarify, when you refer to the “Moratorium” you are referring to HB 4401 which was signed by the Governor on December 23, 2020. It did two things: 

• Directed the Oregon Housing and Community Services Department to implement a program for direct aid to landlords reimbursing a percentage of outstanding rents; and 
• Modified the Emergency Period and Grace Period created under HB 4213 for tenants who claim financial hardship. 

Your question about the Hardship Declaration refers to what happens if the tenant delivers it to the landlord:  Afteratenantdeliversacopyofthe Hardship Declarationto the Landlord,theEmergencyPeriod andendoftheGracePeriodcreated in earlier legislation areextendedto June 30,2021. The Hardship Declaration can be filed by the tenant as late as the first appearance date after you file for eviction. After the filing, the landlordmaynot takeorattempttotakeanyactiontointerferewithatenant’spossession, subject to the following exceptions:

• Evictions for violation of a rental agreement, other than non-payment may continue;
• Evictions for nonpayment occurring before April 1, 2020 may also continue (Emphasis added);
•  “Landlord-cause” evictions[1]are allowed after the first year of occupancy. Landlord-cause evictions include:

• Demolition or converting dwelling unit to non-residential use;
• Intent to make repairs/renovations to the dwelling unit within a reasonable time, and the building is unsafe/unfit or occupancy or will be unsafe/unfit for occupancy during the repair/renovation period; 
• Landlord intends for immediate family member to occupy dwelling unit as a primary residence and no comparable units at the same location are available; or 
• Landlord has accepted an offer to purchase the dwelling unit; purchaser will use unit as a primary residence.[2]

Since the rents due to you under the Stipulated Judgment arose before April 1, 2020, I interpret your question to asked whether you can pursue them by filing an Affidavit of Noncompliance under ORS 105.146.  

Normally, I might give you a cautious green light. But in this environment, I must recommend against it. First, the court could ignore the above exception under HB 4401. Secondly, and more importantly, the Center for Disease Control and Prevention (“CDC”) has issued a blanket moratorium on nonpayment of rent evictions which arguably supersedes the exception under HB 4401. It was updated today. See details, here.

Bottom line, I would not attempt to enforce what we all agree was a legitimate stipulated judgment at the time. HB 4401 is supposed to end June 30, 2021. But until the CDC moratorium ends, I would follow it, regardless of Oregon law. 

And even though I do not believe the original CDC moratorium was intended to apply to rents due before September 2020, my brief reading of the federal law, including the update, suggests that if the eviction has not been completed– and yours has not because of the stipulated judgment – the filing of the Affidavit of Noncompliance could be interpreted as an attempt to evict in violation of the current CDC moratorium. 

Behind the Headlines: Lessons Learned from the Latest Fair Housing News

This is the first of four articles that MHCO spotlights settlements reached in fair housing cases. The amounts reportedly paid are sometimes staggering—which is news in and of itself—and show just how much it can cost to resolve fair housing complaints. But the real news is in the backstory, the events that led to a complaint against the community. It’s there that you can learn what, if any- thing, the community could have done to avoid the problem in the first place, or once the problem arose, to prevent it from escalating into a formal fair housing complaint.   Over the next four weeks MHCO will run four stories on Fair Housing settlements along with the backstory and lessons learned.  
 

In this lesson, we’re highlighting the news about four fair housing settlements. We’ll start with the headlines and then give you the backstory—the allegations in the complaint—so you can get a feel for how and why the situation led to a formal fair housing complaint. Then we’ll review the lessons learned from each scenario to help you avoid similar fair housing trouble at your community. 

Editor’s Note: Since we’re looking at settlements, we get to hear only one side of the story—the allegations of the resident, the government, or the fair housing advocacy group filing the complaint. It may not be what really happened: All the owners, managers, and communities denied the allegations, so we don’t get to hear their side of the story, which may very well have gotten the whole thing thrown out of court. As a practical matter, however, it’s often better to settle to put an end to the matter, rather than face the prospect of lengthy and expensive legal proceedings. Just remember: The fact that the case was settled doesn’t mean that anyone did anything wrong. 

First Headline:  Landlords Pay $19,500 for Allegedly Denying Housing to Mother of Twins 

HUD announced that a group of landlords have agreed to pay $19,500 to resolve complaints alleging discrimination against families with children. According to the complaint, the owners and their on-site property manager allegedly refused to rent a two-bedroom apartment to a single mother and her twin boys. 

The Backstory:This case started when a mother said she contacted a property manager about renting a two-bedroom unit for herself and her twin 4-year-old boys. She alleged that, after learning she had two sons, the property manager told her that there would be some clean-up involved and that he would get back to her—but he never did. Two weeks later, she said her mother called the property manager on her behalf. When the grandmother reminded him about the two children, the manager allegedly said that he would need to consult with his wife, who wouldn’t be back in town for two weeks. 

Suspecting discrimination, the mother asked her cousin to call about the unit. Allegedly, the property manager asked who would be living there and when the cousin said the apartment would be for her and her husband, he offered to show her the unit the next day.

The mother filed a HUD complaint, alleging that the community denied her the opportunity to rent a two-bedroom unit because she has children. Though the owners and manager denied the allegations, the parties reached a settlement. Without admitting liability, the community agreed to pay the mother $19,500 and to modify its website and advertising policy to clearly state that families with children are welcome. 

“When a property owner refuses to show an available unit to a family because they have children, they’re not only denying them a housing opportunity, they’re violating the law,” Gustavo Velasquez, HUD Assistant Secretary for Fair Hous- ing and Equal Opportunity, said in a statement. “No one should have to hide who they are or who their family is while looking for a place to live. This agreement reaffirms HUD’s commitment to ensuring that housing providers treat all applicants the same, regardless of gender, race or family status.” 

Lessons Learned: 

1. It’s NOT Okay to Turn Away Families with Children:  Though it’s been unlawful for 25 years, communities continue to run afoul of fair housing provisions banning discrimination based on familial status. These rules bar communities from denying housing to applicants because they have one or more children under 18 living with them. Unless the community qualifies as senior housing, it’s unlawful to screen out or deny housing to families with children. 

2. Dot Your I’s and Cross Your T’s to Qualify as Senior Housing: Don’t get lulled into a false sense of security because fair housing law recognizes an exception to the rules banning familial status for senior housing communities. It’s a limited exception, which applies only to “housing for older persons,” and there are lots of hurdles to jump before a community may qualify for the exception. Unless your community meets those specific technical requirements, you can’t simply decide that you’d prefer to rent to adults instead of people who have one or more children in their household. 

3. Testers Are on the Lookout for Discrimination Against Families: 

It’s common for prospects to ask friends or family members to check out suspicions that they’re getting the runaround because they have kids,
but increasingly it’s testers who are contacting communities to check for discrimination based on familial status. To avoid even the hint of discriminatory intent, treat every contact as if he was a fair housing tester—he very well may turn out to be one. 

EDITOR’S NOTE: This settlement is among a string of settlements and court filings in housing discrimination complaints based on familial status. A Wisconsin community agreed to a $100,000 settlement to resolve allegations that it unlawfully excluded families with children from significant portions of its 230-lot mobile home park. 

The U.S. Supreme Court Weighs In. On June 25, 2015, the United States Supreme Court, in Texas Dept. of Housing vs. Inclusive Communities, ruled that under certain circumstances, disparate impact theory can provide the basis for liability in matters pertaining to the sale and rental of housing.

The factual background of the case is as follows: In 2008, Inclusive Communities, a Dallas non-profit, sued the Texas Department of Housing, claiming that the state was awarding tax credits for the construction of affordable housing more frequently in minority neighborhoods than in Caucasian neighborhoods. They argued that this practice resulted in a higher concentration of low-income housing in minority neighborhoods, thus perpetuating de facto segregation in violation of the Fair Housing Act.

The lower federal district court had ruled in favor of Inclusive Communities and the Fifth Circuit agreed, requiring Texas to allocate the subsidies more evenly. The Texas Department of Housing appealed to the U.S. Supreme Court, arguing that it was on the horns of a dilemma: On the one hand it was required not to discriminate based on race, and on the other, it was required to issue housing credits that disproportionally [albeit unintentionally] benefitted neighborhoods with large minority populations.

Thus, so goes the argument, disparate impact theory has created a perverse incentive for businesses, lenders, and municipalities to subtly engage in a form of “reverse discrimination” i.e. benefiting certain protected classes, in order to avoid disparate impact claims. Ironically, in Inclusive Communities, that appears to be exactly what occurred, i.e. the state of Texas tilted in favor of the neighborhoods populated with minorities, rather than poor white communities, in order to avoid a claim of disparate impact against the minorities. But ironically, disparate impact theory can be a two-way street; in the Inclusive Communities case, Texas’s efforts to avoid disparate impacts resulted in exactly what it sought to avoid.

The Majority Opinion. Justice Anthony M. Kennedy wrote for the Majority.[4]

Although the decision was based upon multiple grounds, I will address the most basic – i.e. those relying upon the text of the FHA, rather than delving into the Court’s discussion of prior case holdings.

In order to put the issue in sharp relief, it is important to remember the difference between conduct vs. consequences. One the one hand, the argument is that the FHA only outlaws conduct, i.e. discrimination based upon (or because of) race, color, religion, etc. On the other hand, there are those who believe that the FHA also proscribes consequences, i.e. outcomes that are discriminatory, even though not intentional.

1. Justice Kennedy’s opinion relied upon Section 804(a) of the FHA, which provides that it is unlawful:

“To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the  sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.”   42 U. S. C. §3604(a). [Underscore mine. ~ PCQ]

He also pointed to Section 805(b) of the Act, which provides that:

“It shall be unlawful for any person or other entity whose business includes engaging in real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” §3605(a). [Underscore mine. ~ PCQ]

Based upon the text underscored above, he concluded that:

“Congress’ use of the phrase “otherwise make unavailable” refers to the consequences of an action rather than the actor’s intent. See United States v. Giles, 300 U. S. 41, 48 (1937) (explaining that the “word ‘make’ has many meanings, among them ‘[t]o cause to exist, appear or occur’” (quoting Webster’s New International Dictionary 1485 (2d ed. 1934)). This results-oriented language counsels in favor of recognizing disparate-impact liability. See Smith, supra, at 236. The Court has construed statutory language similar to §805(a) to include disparate-impact liability. See, e.g., Board of Ed. of City School Dist. of New York v. Harris, 444 U. S. 130, 140–141 (1979) (holding the term “discriminat[e]” encompassed disparate-impact liability in the context of a statute’s text, history, purpose, and structure).” [Underscore mine ~ PCQ]

1. The Majority’s next major argument was based upon the fact that although disparate impact theory had been recognized in the lower federal courts, when Congress had the chance to clarify the matter in its 1988 amendments to the Act, it did not do so:

“In addition, it is of crucial importance that the existence of disparate-impact liability is supported by amendments to the FHA that Congress enacted in 1988. By that time, all nine Courts of Appeals to have addressed the question had concluded the Fair Housing Act encompassed disparate-impact claims.[5]

***

When it amended the FHA, Congress was aware of this unanimous precedent. And with that understanding, it made a considered judgment to retain the relevant statutory text.

***

Against this background understanding in the legal and regulatory system, Congress’ decision in 1988 to amend the FHA while still adhering to the operative language in §§804(a) and 805(a) is convincing support for the conclusion that Congress accepted and ratified the unanimous holdings of the Courts of Appeals finding disparate-impact liability. “If a word or phrase has been . . . given a uniform interpretation by inferior courts . . . , a later version of that act perpetuating the wording is presumed to carry forward that interpretation.”

Then in a somewhat about-face, the Majority identified what it called three “exemptions” from liability in the 1988 amendments to the Act[6] that it said “…assume the existence of disparate impact claims.” In other words, although Justice Kennedy acknowledged that the 1988 did not expressly identify disparate impact as a violation of the FHA, he focused on certain provisions of the 1988 Amendments he believed would not have been created, but for the existence of disparate impact claims. He opined:

“The most logical conclusion is that the three amendments were deemed necessary because Congress presupposed disparate impact under the FHA as it had been enacted in 1968. [Underscore mine. ~ PCQ]

***

In short, the 1988 amendments signal that Congress ratified disparate-impact liability.”

I focus on the above two arguments, since without them, the tertiary arguments – which I will not address – are insufficient to stand on their own.

However, in an effort to clarify that disparate impact claims relying solely upon mere statistical outcomes are insufficient, Justice Kennedy wrote:

“In a similar vein, a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity. A robust causality requirement ensures that “[r]acial imbalance . . . does not, without more, establish a prima facie case of disparate impact” and thus protects defendants from being held liable for racial disparities they did not create.  

***

Courts must therefore examine with care whether a plaintiff has made out a prima facie case of disparate impact and prompt resolution of these cases is important. A plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact.

*** 

It must be noted further that, even when courts do find liability under a disparate-impact theory, their remedial orders must be consistent with the Constitution. Remedial orders in disparate-impact cases should concentrate on the elimination of the offending practice that “arbitrar[ily] . . . operate[s] invidiously to discriminate on the basis of rac[e].” Ibid. If additional measures are adopted, courts should strive to design them to eliminate racial disparities through race-neutral means.”

The Dissenting Opinion. Writing for the minority, Justice Samuel A. Alioto looked directly to the text of the Fair Housing Act, and correctly noted there was nothing in that law to support non-intentional discrimination.

He pointed to the 2010 case of Gallagher v. Magner, as a cautionary tale of how disparate impact theory can result in bizarre and unpredictable results. In Magner, the plaintiff slumlords landlords, challenged the efforts of St. Paul, Minnesota to combat rats and other unsafe conditions in the city’s poorer rental housing neighborhoods, by aggressively enforcing the local housing codes.

Plaintiffs argued that these enhanced code enforcement efforts drove up housing rents, thus having a “disparate impact” on minorities, who were more likely to be lower income.  The U.S. Supreme Court had agreed to hear the case, but before it was scheduled, the litigants jointly agreed to dismiss, thus paving the way for Inclusive Communities to become a footnote in Fair Housing history.

Quoting from the first paragraph of Justice Alito’s vigorous dissent:  

“No one wants to live in a rat’s nest. Yet in Gallagher v. Magner, 619 F. 3d 823 (2010), a case that we agreed to review several Terms ago, the Eighth Circuit held that the Fair Housing Act (or FHA), 42 U. S. C. §3601 et seq., could be used to attack St. Paul, Minnesota’s efforts to combat “rodent infestation” and other violations of the city’s housing code. 619 F. 3d, at 830. The court agreed that there was no basis to “infer discriminatory intent” on the part of St. Paul. Id., at 833. Even so, it concluded that the city’s “aggressive enforcement of the Housing Code” was actionable because making landlords respond to “rodent infestation, missing dead-bolt locks, inadequate sanitation facilities, inadequate heat, inoperable smoke detectors, broken or missing doors,” and the like increased the price of rent. Id., at 830, 835. Since minorities were statistically more likely to fall into “the bottom bracket for household adjusted median family income,” they were disproportionately affected by those rent increases, i.e., there was a “disparate impact.” Id., at 834. The upshot was that even St. Paul’s good-faith attempt to ensure minimally acceptable housing for its poorest residents could not ward off a disparate-impact lawsuit.

Today, the Court embraces the same theory that drove the decision in Magner. (footnote omitted.) This is a serious mistake.”

Justice Alito rejected the Majority’s wordsmithing, and focused on the plain language of Section 804 of the FHA:

“I begin with the text. Section 804(a) of the FHA makes it unlawful “[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U. S. C. §3604(a) (emphasis added). Similarly, §805(a) prohibits any party “whose business includes engaging in residential real estate-related transactions” from “discriminat[ing] against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” §3605(a) (emphasis added).

In both sections, the key phrase is “because of.” These provisions list covered actions (“refus[ing] to sell or rent  . . . a dwelling,” “refus[ing] to negotiate for the sale or rental of . . . a dwelling,” “discriminat[ing]” in a residential real estate transaction, etc.) and protected characteristics (“race,” “religion,” etc.). The link between the actions and the protected characteristics is “because of.”

What “because of ” means is no mystery. Two Terms ago, we held that “the ordinary meaning of ‘because of ’ is ‘by reason of ’ or ‘on account of.’”

***

Without torturing the English language, the meaning of these provisions of the FHA cannot be denied. They make it unlawful to engage in any of the covered actions “because  of ”— meaning  “by  reason  of ”  or  “on  account  of,” ….

Put another way, “the terms [after] the ‘because of ’ clauses in the FHA supply the prohibited motivations for the intentional acts . . . that the Act makes unlawful.” *** Congress accordingly outlawed the covered actions only when they are motivated by race or one of the other protected characteristics. [Underscore mine.]

The Dissent also rejects the Majority’s theory that just because Section 804(a) of the FHA used the phrase “or otherwise make available” signaled Congressional intent to include disparate impact theory in the law.  Justice Alito wrote:

“It is anachronistic to think that Congress authorized disparate-impact claims in 1968 but packaged that striking innovation so imperceptibly in the FHA’s text.”

It is perhaps the coup de grâce of legal debate to remind an opponent that their current position conflicts with their prior position. Justice Alito did so when he reminded the U.S. Solicitor General, arguing on behalf of HUD, that the United States had previously claimed that the FHA did not recognize disparate impact:

“Shortly before the 1988 amendments were adopted, the United States formally argued in this Court that the FHA prohibits only intentional discrimination. See Brief for United States as Amicus Curiae in Huntington v. Huntington Branch, NAACP, O. T. 1988, No. 87–1961, p. 15.

(“An action taken because of some factor other than race, i.e., financial means, even if it causes a discriminatory effect, is not an example of the intentional discrimination outlawed by the statute”); id., at 14 (“The words ‘because of ’ plainly connote a causal connection between the housing- related action and  the  person’s  race  or  color”).(footnote omitted)  This was the same position that the United States had taken in lower courts for years.”

Although the dissent continued to address other, more arcane, issues in the disparate impact debate, the theme was the same:

“The FHA is not ambiguous. The FHA prohibits only disparate treatment, not disparate impact. It is a bedrock rule that an agency can never “rewrite clear statutory terms to suit its own sense of how the statute should operate.” [Underscore mine.]

If we acknowledge that judges in all courts, from the lowest to the highest, do not begin writing legal opinions without first knowing how their decision will end, then we must conclude that their published opinions represent little more than the written justification for a decision already reached. In other words, the opinion is written to justify the conclusion.

In the majority’s written opinion, it is apparent they dug deep and hard to find justification for a theory of liability never expressed, described, or proscribed, in either the Fair Housing Act of 1968, or the Fair Housing Amendments Act of 1988. In doing so, it was forced to rely upon intellectual “constructs” based not upon words, but inferences.

Thus, despite the clear use of express proscriptions against discrimination based upon conduct in the FHA, the court construed the words “to otherwise make unavailable,” (with no supporting legislative history) to mean that a statistical outcome, with no prior intent, is illegal under the Act.  Justice Alito’s response was akin to calling the Majority’s theory puffery: “It is anachronistic to think that Congress authorized disparate-impact claims in 1968 but packaged that striking innovation so imperceptibly in the FHA’s text.”

And, doubling down on the same theory, the Majority concluded that since several lower courts had previously recognized disparate impact theory before the Act was amended in 1988, the failure to disavow it in the amendments (again with no supporting legislative history), must have meant Congress intended to adopt the theory – to which Justice Alito respond in his dissent: “…this Court does not interpret statutes by asking for ‘a show of hands’”.[7] 

Although Justice Kennedy sought to contain the inevitable flood of litigation invited by the Majority’s decision (“…a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.”), there is little question that the country’s class action attorneys are already sharpening their knives.

Although the Inclusive Communities case will be followed by years of litigation and rulings over what additional evidence must accompany a disparate impact claim, the die is cast. Perhaps worst of all is the fact that the Majority chose to make its decision based not upon what the FHA says, but upon what it failed to say. This is a very poor rationale upon which to interpret Congressional intent. It is also very poor precedent for municipalities to follow when seeking to improve housing availability.  Applying the Court’s rationale to the Mauger case, St. Paul would have been prohibited from enforcing its own rat abatement programs in poor neighborhoods, since “statistically” that is where the protected classes live.

What Does This Have To Do With Occupancy Limits?  After the Supreme Court’s decision in the Inclusive Communities case, occupancy limits imposed in manufactured housing communities, must be very carefully enforced – if at all.

Under the federal and state fair housing laws, discrimination based upon “familial status” is prohibited. According to the Oregon Fair Housing Council, Familial status

“…means having a child under age 18 in the household, whether living with a parent, a legal custodian, or their designee. It also covers a woman who is pregnant, and people in the process of adopting or gaining custody of a child/children.”

Thus, under the Inclusive Communities holding, by placing occupancy limits for homes in manufactured housing parks, it has the unintended consequence of imposing a disparate impact on persons with children under the age of 18.

 ORS 90.510(7) provides as follows:

(a) A landlord who rents a space for a manufactured dwelling or floating home may adopt a rule or regulation regarding occupancy guidelines. If adopted, an occupancy guideline in a facility must be based on reasonable factors and not be more restrictive than limiting occupancy to two people per bedroom.

(b)As used in this subsection:

(A)Reasonable factors may include but are not limited to:

(i)The size of the dwelling.

(ii)The size of the rented space. (Emphasis added).

Unfortunately, while federal law gives lip service to a 2-person per bedroom limitation, it is not etched in stone, as Oregon’s law suggests. Since federal law is more restrictive (i.e. it recognizes exceptions, e.g. use of the living room for sleeping), it supersedes state law. This means that park owners and managers are not safe by simply imposing a hard and fast 2-persons per bedroom rule. The factors set forth in ORS 90.510(7)(b) must be very carefully and prudently applied – if occupancy limits are to be imposed at all.

In its FAQs, the Oregon Fair Housing Council says:

Can a housing provider set limits on the number of occupants?

Overly restrictive occupancy standards can have a disproportionate effect on families with children and are, therefore, illegal. According to HUD, any occupancy standards in housing should not be more restrictive than two individuals per bedroom, assuming average sized bedrooms.

Conclusion.  Park owners and managers may have had a “safe harbor” under ORS 90.510(7) in the past. After Inclusive Communities, in which the U.S. Supreme Court - for the first time – approved disparate impact theory under the Fair Housing Act, as amended, there is no question that for communities open to families (as opposed to 55+ communities), occupancy limits (except in rare cases, such as limitations on well water or sewage facilities), occupancy limits or charges for extra occupants, should be avoided, or very carefully applied on a case-by-case basis.  

[1] Per the Oregon Fair Housing Council : "Familial status" means having a child under age 18 in the household, whether living with a parent, a legal custodian, or their designee. It also covers a woman who is pregnant, and people in the process of adopting or gaining custody of a child/children.

[2] 42 U. S. C. §3604(a)

[3] And, in fact, as discussed below, the actions were taken with the best of intentions of helping members of those protected classes.

[4]  Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan, joined Kennedy for the Majority. Justice Samuel A. Alito Jr. penned the dissenting opinion, and was joined by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia and Clarence Thomas (who wrote a separate dissent, agreeing with the minority, but addressing a separate issue raised by the Majority).

[5] Justice Alito, writing for the minority, summarily disposed of this argument by noting: “…this Court does not interpret statutes by asking for ‘a show of hands’”. 

[6] “First, Congress added a clarifying provision: “Nothing in [the FHA] prohibits a person engaged in the business of furnishing appraisals of real property to take into consideration factors other than race, color, religion, national origin, sex, handicap, or familial status.” 42 U. S. C. §3605(c). Second, Congress provided: “Nothing in [the FHA] prohibits conduct against a person because such person has been convicted by any court of competent jurisdiction of the illegal manufacture or distribution of a controlled substance.” §3607(b)(4). And finally, Congress specified: “Nothing in [the FHA] limits the applicability of any reasonable . . . restrictions regarding the maximum number of occupants permitted to occupy a dwelling.” §3607(b)(1).”

[7] A likely reason that Congress ignored mentioning disparate impact was that the Republicans and Democrats could not agree upon the theory, and simply left it out of the legislation, agreeing to disagree.  That is not an unusual approach, when the alternative would mean bickering and delay on all of the remaining points agreed upon. If there was no legislative history indicating acceptance of the theory, it is specious to assign as the reason that Congress intended to include it. Silence may signal consent in some matters of daily life, but not when it comes to legislative enactments of the magnitude and importance of fair housing law.

Industry experts on the panel noted that retaining people who are effective with coworkers and the public is an ongoing process. Periodic employment reviews and training programs are generally well received. Most people want to know how well they are doing and what needs to improve. Coaching by regional managers and outside consultants is critical to recognizing employment and operational issues and correcting them before they cause other problems.

Second "tip" is also simple and can be summarized in one word: Documentation. It is critical that your community have well prepared written rental agreements whether for a long-term or month-to-month tenancy. There are, of course, pros and cons to both forms of tenancy. Certainly, in a rent control jurisdiction, long-term leases are preferred. However, it is well understood that obtaining an economically viable long-term lease can be difficult in rent controlled communities because of the legislative constraints on tenant negotiations. To the extent a local jurisdiction has vacancy control it is critical to pay attention to those opportunities to offer suitable long-term lease agreements so that future rent increases are known by both the resident and the park.

Another form of documentation to consider is arbitration agreements. There are intense debates among lawyers, and even within the industry, about whether or not arbitration is a desirable means of conflict resolution. If arbitration is going to be pursued, however, it is critical that the arbitration agreements reference and be drafted in accordance with the Federal Arbitration Act. While the State of California has an arbitration statute, it is effectively useless in compelling arbitration in most circumstances in a mobilehome park context. Numerous appellate State court decisions, when deciding whether or not arbitration can be compelled under the state arbitration law, are uniform in declining to enforce landlord/tenant arbitration agreements.

Documentation also means due consideration of park rules. Park rules are the functional equivalent of covenants, conditions and restrictions created for residential developments such as condominiums and planned unit developments. California law requires that park/community rules be reasonable and that, of course, is key to any judicial enforcement. Park owners differ as to whether they prefer general rules or more detailed rules. Again, there are pros and cons to each. However, when it comes to enforcement, it is this writer's experience that more particular detailed rules are typically easier to enforce than a more vaguely worded general rule where "reasonable" discretion by the park's resident manager might be seen by a judge as being less objective or personal. The courts in California tend to err on the side of tenants and thus making sure documentation (Rules) are objectively reasonable can greatly aid in their enforcement.

Tip three is getting to know your customer/market. Understanding who wants to live in your park and why it is important to properly serve that segment of the public and the larger "neighborhood community".

Consistent with knowing your market and customer, is knowing your competition. A park's competition might be other manufactured housing communities or, possibly, nearby apartment complexes, duplexes and triplexes in the area. Knowing who is renting and at what price is critical to knowing if your park is offering all that it can at a competitive price.

A fourth issue noted by regional park managers is the need to conduct a thorough park assessment. Many of the larger owners in the industry have an annual reassessment of each community including what potential capital expenses and improvements might be required. An annual or semiannual assessment can be done in conjunction with a documented risk assessment and analysis. Reviewing a community's streets, curbs, gutters and any recreational amenities can help a community be prepared for accidents; weather cause events and the ever present potential for litigation. A proactive system of having maintenance logs and keeping records of what has been repaired, when, and by whom is critical in the event of a simple slip and fall accident or, more significantly, if a "failure to maintain" lawsuit is threatened. In California failure to maintain allegations are routinely made against many communities that, from all objective criteria, are well-maintained and are highly desirable places to live.

Capital improvement and risk analysis assessments also lead to insight as to how a community is evolving. Is there a plan for replacing or improving the current housing stock? To the extent the park has the ability to help renovate or replace older functionally obsolete housing is a plan being considered. In some areas of California, the options of potential closure or conversion to a resident owned community are worthy of discussion. In rent controlled communities it might be prudent to have park owned homes so as realize appropriate revenue from the park.

One final tip: manage your revenue properly. Successful park operations need to follow and have a well-defined timeframe and process for rent collections. How rents are collected, managed and deposited is critical to cash flow. An annual review of the community to understand whether reserved parking or storage facilities should be provided, for a fee, should be considered. A number of communities have added solar panels to parking areas that generate revenue and help offset electricity costs in the park. Whether or not the park accepts electronic payments and how it processes resident checks can be critical to cash management. Knowing when and where funds are spent is ultimately the reason that the investment is either successful or not.

Thanks to Mindy Parish from Hometown America and Tom Pacelli from J&H Management for their participation and insight as to how operations for community owners can be managed proactively and efficiently.

Bill Dahlin is a partner with the Southern California law firm of Hart King and a leader in the firm's Manufactured Housing Industry Practice Group. He can be reached at 714-432-8700, 714-619-7084 (direct dial) or bdahlin@hartkinglaw.com.

Most commercial real estate lenders who survived the 2008 market meltdown have worked through their troubled assets, and are once again lending. New lenders, including a multitude of conduit lenders, have joined the fray in anticipation of a large spike in the volume of maturing loans over the next three years. According to a survey released on January 13, 2015, by the Mortgage Bankers Association (MBA), a relative measure of supply and demand showed that lenders were 50% more eager to make loans than borrowers were to take out loans.

Most lenders and participants at the MBA's annual conference, which took place in February 2015, expressed optimism about the overall health of commercial lending markets and future growth prospects. According to the MBA, the amount of commercial and multifamily debt outstanding rose to a record high in the third quarter of 2014, and now stands at $2.6 trillion. New loan originations in 2015 are projected to be $414 billion, an increase of 7% from 2014.

The following is an overview of lending alternatives and the environment we anticipate during the remainder of 2015.

Conduit Lenders

The re-emergence of Commercial Mortgage Backed Securities (CMBS), and conduit lenders who originate these mortgages, has been a key factor in the market's recovery over the past three years. Conduit lenders originate and pool loans that are sold in the capital markets, resulting in attractive financing terms for a wide range of properties and borrowers. While conduit loans are not a good fit for every borrower, they play an essential role underpinning the market by providing lending options for properties that may not otherwise be eligible for competitive financing terms.

Conduit loans have account for as much as 50% of total commercial real estate lending volume in some years. At the peak of the market in 2007, annual U.S. conduit lending volume was close to $230 billion. In 2008, however, the CMBS industry was all but dismantled until the second half of 2012, which marked the comeback of conduit lenders when investors (buyers of CMBS) once again became comfortable with underwriting standards and real estate exposure in general. Conduit loan production in 2014 totaled approximately $101 billion, which was an increase of approximately 19% of 2013, according to a recent issue of Commercial Mortgage Alert. Some insiders are projecting 2015 conduit lending volumes will be as high as $125 billion. CMBS and similar securitized loans currently account for 21% of outstanding commercial and multifamily mortgages in the U.S.

Multifamily properties are highly desired among conduit lenders who need a diverse mix of property types for their loan pools. MHCs in particular are in strong demand among conduit lenders since other lenders, most notable Freddie Mac and Frannie Mae, compete aggressively for traditional apartments thereby making it more difficult for conduit lenders to win that multifamily business.

Government-sponsored entities

Fannie Mae (FNMA) and Freddie Mac are the two government-sponsored entities (GSEs) that actively lend on MHCs. They have the directive from their regulator to enhance the flow of credit to multifamily properties nationwide. Fannie Mae was the most reliable lender, and often the only option, during the most recent lending crisis. On April 29 2014, Freddie Mac received approval from its regulator, the Federal Housing Finance Agency (FHFA), to begin lending on MHCs. This move is reflective of a more expansive role for the GSE's being signaled by FHFA director Mel Watt, who assumed office on January 6, 2014.

FNMA loans are accessed through Delegated Underwriting and Servicing (DUS) lenders who are designated to underwrite, process, close, and service loans for Fannie Mae. Freddie Mac loans are accessed through its designated lenders, called sellers/servicers, who play the same role as Fannie Mae's DUS lenders.

GSE's offer very attractive terms, including recently introduced early rate lock options, and GSE loans now comprise 43% of outstanding multifamily mortgage debt in the United States. In 2014, FNMA and Freddie Mac provided $1.5 billion in financing to MHC owners, and we expect this to be substantially higher in 2015 since Freddie Mac was not lending on MHCs until the second half of 2014. In addition, MHC loans are excluded from GSE annual lending volume caps, which should further increase the GSE's demand for MHC loans.

Life Insurance Companies

Life insurance companies (Lifecos) have an ongoing need to invest money in long-term, fixed rate investments with defined maturities, which includes commercial real estate loans. Lifecos purchase CMBS as investors, and also directly originate loans to borrowers. In 2014, lifecos originated $61 billion of commercial real estate loans, and account for 14% of outstanding U.S. commercial and multifamily debt.

With regard to MHCs, Lifecos continue to focus on higher quality, preferably age-restricted, communities in larger markets with financially strong and experienced borrowers. They generally pursue larger loan sizes ($5 million or more) at lower leverage levels than can usually be achieved with conduit or GSE lenders. Lifecos tend to have a pricing advantage for loans with fixed rate terms in excess of 10 years, and they also offer the ability for the borrower to lock rates at the time of application.

Banks and Thrifts

Bank and thrifts hold the largest share, 37%, of outstanding commercial and multifamily mortgages in the U.S. assisted by the tailwinds of improving property values, bank and thrifts have addressed most of their "bad" real estate loans, and are now expanding loan origination efforts. Additionally, bank deposits have increased, providing additional funds to lend. Banks and thrifts originated $944 billion in new commercial and multifamily loans in 2014.

Bank lending in usually limited geographically to the footprint of the bank's retail network as many banks prefer to lend only to local borrowers to whom they can also provide additional banking services. Furthermore, since banks typically require a personal guarantee, their underwriting focuses more intensely on the individual providing the personal guarantee.

Some banks consider MHCs to be a special purpose property type outside the scope of their normal lending activity, and therefore, approach MHC lending in a conservative manner. However, there are substantial differences across the country in bank lending programs that are offered for MHCs. In some regions, such as the west coast, there are banks that market specifically to the MHC sector.

In summary, financing is readily available for solid quality MHCs in most markets. Lenders will continue to compete heavily for the higher quality properties and borrowers. While disruptions in the capital markets could put the brakes on the good times, it is great to be finally talking about commercial lending without analyzing the state of the market recovery.

Tony Petosa and Nick Bertino of Wells Fargo Multifamily Capital specialize in providing financing for MHCs through Fannie Mae, Freddie Mac, conduit, and balance sheet lending programs. For more information or for a copy of their "Manufactured Home Community Financing Handbook," please contact: Tony at 760-438-2153 or tpetosa@wellsfargo.com; or Nick at 760-438-2692 or nick.bertino@wellsfargo.com; or visit wellfargo.com/mhc.

Spurred by the death of George Floyd, protests across the country have rekindled attention on the Black Lives Matter movement and racial inequities involving policing practices and the criminal justice system. Against the backdrop of the coronavirus crisis, the movement has also drawn attention to broader issues of systemic racism in healthcare, employment, and housing.

The fight against racial discrimination and segregation was one of the main reasons that the federal Fair Housing Act was passed more than 50 years ago. When the landmark legislation was passed in 1968, Congress declared that ensuring fair housing throughout the United States was a national policy of the “highest priority.” The goal of the new law was to replace racially segregated neighborhoods with “truly integrated and balanced living patterns.” 

In the years that have passed since then, the number of complaints of race discrimination, which once held the top spot, have steadily decreased. In the meantime, the number of disability discrimination complaints have steadily increased, now accounting for more than half of all formal fair housing complaints.  

Some see the decreasing number of race discrimination complaints as a sign of progress to achieve equal housing opportunities regardless of race. But others say the country still has far to go to eliminate racial discrimination in housing. Though it’s rare to hear reports of blatantly racist practices, fair housing advocates believe racial discrimination has simply gone underground, replaced by more subtle forms of discrimination that are more difficult to detect.

Example: A June 2020 study by a research team from Suffolk University Law School found that Greater Boston landlords and agents discriminate against Black renters and those with Section 8 housing vouchers, illegally shutting out qualified renters. 

According to researchers, the study revealed that housing providers, mostly real estate brokers, showed Black testers about half the number of apartments they showed to white testers. They told white testers that more units were available, showed them more units, offered them more incentives to rent, and made more positive comments about the units.

Overall, the study showed that Black testers faced discrimination in 71 percent of the tests (for example: not being able to make an appointment, not being offered an application, not being offered financial incentives, like a free parking space or rental discount, that were offered to white testers). When agents dealt with Black testers, the incidence of “ghosting”—cutting off communication—was much higher. White testers continued to hear back from agents 92 percent of the time. Black testers heard back only 62 percent of the time.

The testing also uncovered high levels of discrimination against people with Section 8 housing vouchers, regardless of race. Ninety percent of the testers who indicated they were using a voucher faced discriminatory behavior from a rental agent (such as cutting off communication with the tester, not offering a rental application, not setting up an appointment to visit properties).

“The COVID-19 crisis and killing of George Floyd and so many other unarmed Black people has shone a bright light on the negative effects of the structural racism that has always existed in our country. This is a problem right here in our own community,” said Law Professor William Berman, director of Suffolk Law’s testing program.

Whatever your views in this volatile political climate, it’s essential to remember that multifamily housing communities and other housing providers have a duty to comply with longstanding fair housing laws banning discrimination based on race and color.

In this lesson, we’ll review fair housing requirements and offer six rules to help you fulfill your obligation to prevent race discrimination at your community. Then you can take the Coach’s Quiz to see how much you’ve learned.

WHAT DOES THE LAW SAY?

The Fair Housing Act (FHA) forbids housing discrimination because of race or color, national origin, religion, gender, disability, and familial status (having children under age 18). The law applies to rental, sales, lending, and other housing transactions.

With respect to rental housing, the FHA declares certain practices to be unlawful when based on race and color-and any other protected characteristic. Among the prohibited practices are:

• Making housing unavailable by excluding or otherwise denying housing;
• Imposing different terms, conditions, or privileges for rental, such as higher rental payments or fees, more stringent screening criteria, or different housing services;
• Making discriminatory statements, including advertising;
• Misrepresenting the availability of rental units;
• Threatening, harassing, or retaliating against anyone for exercising their rights under fair housing law.

Tip: Anyone who experiences discrimination because of race or color may pursue a fair housing claim—whether or not she’s a member of a minority group. Early court cases established that white residents may make claims of racial discrimination based on a denial of their right to associate with African Americans. Allegations of fair housing violations have been brought by interracial couples and the parents of biracial children, as well as white residents who were subjected to discrimination because of the race of their family members, friends, or guests.

SIX RULES TO FOLLOW FOR PREVENTING RACE DISCRIMINATION

Rule #1: Keep Race Out of the Leasing Process

Don’t allow race to play any part in decisions about who may live in your community. Under the FHA, it’s unlawful to deny housing or treat people differently based on their race or color. Discriminatory conduct can be overt or subtle—it’s just as unlawful to blatantly refuse to rent to African-American prospects as it is to treat them differently than whites by misrepresenting availability, quoting higher rent requirements, or applying more stringent screening criteria.

Example: In June 2020, HUD announced that it approved a $35,000 settlement resolving claims of racial discrimination at a multifamily community on Long Island, N.Y. Specifically, the complaint alleged that the employees treated white testers posing as prospective residents who were inquiring about apartments more favorably than Black testers posing as prospective residents.

A fair housing organization filed the HUD complaint after several African Americans reported that they believed they were denied the opportunity to rent apartments at the community because of their race. As a result, the organization conducted fair housing testing using white and Black testers who posed as prospective renters. According to the complaint, the organization’s investigation showed that white testers received more favorable treatment, including being told about the upcoming availability of units, while Black testers were told that there was a long waiting list and that no units were available. The owners denied the allegations but agreed to settle the complaint.

“The color of a person’s skin shouldn’t determine whether they have the opportunity to obtain a place to live,” Anna María Farías, Assistant Secretary for Fair Housing and Equal Opportunity, said. “That type of discriminatory treatment is unacceptable, and today’s settlement reaffirms HUD’s commitment to taking appropriate action when housing providers violate the law.”

Example: In March 2020, the Fair Housing Justice Center (FHJC) announced a $300,000 settlement to resolve a fair housing case against the owners, broker, and building superintendent of a 48-unit community in a predominantly white neighborhood in Brooklyn. The lawsuit, filed by the FHJC and five African-American testers, alleged that the community racially discriminated against African-American prospects in violation of federal, state, and local fair housing laws. According to the FHJC, its investigation found that African-American and white testers were treated very differently based on race. The FHJC alleged that for years, white testers were repeatedly shown available apartments at the building while no African-American testers ever saw an apartment. The defendants denied liability but agreed to the settlement.

FHJC Executive Director Fred Freiburg,  “African-American renters and home buyers continue to face persistent and pervasive racial discrimination in housing fifty-two years after the passage of the federal Fair Housing Act. Over the next few years, the FHJC will focus more of its investigative and enforcement resources on ferreting out racially discriminatory housing practices throughout the New York City region.”

Example: In December 2019, the South Suburban Housing Center (SSHC), a regional fair housing agency serving the south metropolitan Chicago area, announced that it filed a lawsuit accusing the owners and managing broker of a community in the metropolitan Chicago area of race discrimination. Specifically, the complaint alleged that the defendants refused to make appointments to show available apartments to African-American prospects and misrepresented the availability of housing to an African-American prospects.

According to SSHC, its fair housing investigation showed that white prospects responding to the community’s online apartment availability ads were able to call and schedule appointments, see the available apartment, and were encouraged to submit applications. When equally qualified African-American prospects responded to the online ads, SSHC said, they were not able to obtain the address of the unit, confirm or set up times to view, and in one instance were falsely told the unit was no longer available.

“Defendants’ actions in not allowing qualified African-American renters to literally get inside the door to apply for their advertised apartment, is the dramatic evidence that compelled SSHC to file this complaint,” SSHC Executive Director John Petruszak said.

WHAT DOES THE LAW SAY?

Section 804(c) of the federal Fair Housing Act (FHA) makes it illegal “[t]o make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, or national origin.” Notice that the rule covers not just landlords who make discriminatory statements in ads but also those who publish them.

The U.S. Department of Housing and Urban Development (HUD) interprets the prohibition very broadly as applying to all kinds of ads, not just newspaper ads. Moreover, the offense isn’t discriminatory advertising but making discriminatory statements, which includes communications that you may not normally think of as advertising, such as:

• Spoken, written, and online statements—including words, phrases, pictures, symbols, and other graphic images—that send the message that housing isn’t available to particular groups because of race, color, religion, sex, handicap, familial status, or national origin (which we’ll refer to collectively as “protected characteristics”);
• Expressing to leasing agents, employees, prospects, or any other person a preference for or against any renter because of the renter’s protected characteristic; and/or
• Selecting media or locations for advertising that deny particular segments of the housing market information about housing opportunities based on a protected characteristic.

Example: “Loft Apartments. . . . For Adults 21 & Over.” A family with a young child sued the owner of a Pennsylvania luxury community that placed ads including this language in local newspapers. HUD joined the lawsuit. The federal court found the owner liable for discriminatory advertising and ordered it to pay $35,000 in damages [U.S. v. Joyce, 2010].

It’s Not What You Mean But What You Say

Unlike with most other forms of fair housing violations, liability for making discriminatory statements doesn’t require proof of discriminatory intent. What matters is not what you meant but whether the statement you actually made would suggest a preference to an “ordinary reader or listener.” Thus, innocent intentions are no defense to a violation.

Example: The Massachusetts landlord probably acted with the best of intentions in running a Craigslist ad stating that an apartment was “not deleaded, therefore it cannot be rented to families with children under six years old.” But whatever the landlord’s intentions were, the ad clearly communicated the message that the apartment was off limits to families with children. Result: The landlord had to shell out over $38,000 in damages [Massachusetts Attorney General’s Office, May 2013].

You also need to recognize that exclusion can take the form of not only discouraging but also encouraging groups of people. Thus, phrases like “ideal for singles” imply that married couples with children are unwelcome.

Beware of State Fair Housing Laws

Finally, keep in mind that federal requirements are just the baseline for compliance and that most states have adopted their own fair housing laws covering groups or characteristics that the FHA doesn’t list as protected, such as sexual orientation, gender identity, marital status, ancestry, age, military status, and source of income. Thus, for example, an ad that includes the phrase “No Section 8 vouchers” would violate the laws of states that ban discrimination on the basis of a person’s source of income.

7 RULES FOR AVOIDING DISCRIMINATORY ADVERTISING

The ban on making discriminatory statements applies to a broad range of advertising and marketing practices, but the basic rules don’t vary by medium. Stated differently, the formula for avoiding discrimination in traditional advertising is pretty much the same as it is for avoiding discrimination in internet advertising. Thus, HUD, fair housing groups, and victims continue to bring cases against landlords and publishers for discriminatory statements made in newspapers and other traditional media outlets.

Rule #1: Avoid Discriminatory Buzzwords

Landlords that use phrases like “Whites Only” or “No Wheelchairs” in their ads richly deserve the liability they incur. But unlike obscenity, people don’t intuitively recognize discriminatory advertising when they see it. If they did, the vast majority of landlords who do believe in fair housing principles and want to comply wouldn’t get into trouble because of their ads. Inadvertent liability is often the result of using certain buzzwords and phrases that send subtle messages of exclusion. They may include not only references to protected classes and characteristics but seemingly neutral words like “restricted,” “exclusive,” or “private.”

Descriptions of the neighborhood can also raise a red flag. In describing the community, stick to neutral terms, such as “desirable neighborhood” or “quiet streets,” and avoid words indicating which groups live in it.

Standard descriptions of a unit’s features that include otherwise taboo words, such as “walk-in closets” and “family room,” don’t violate fair housing law, as long as the advertisement doesn’t otherwise suggest a discriminatory preference, according to HUD. (See this table based on government guidelines from the State of Oklahoma.)

Rule #2: Market Property, Not People

The rule of thumb for avoiding discriminatory advertising is to market the property and its amenities, not the people you think should live in it. Vet every ad, slogan, and marketing piece you create with one question in mind: Will the prospects who look at this item feel welcome? In making this determination, set aside your own personal opinions and consider the view of the “ordinary reader or listener,” since this is the standard by which you’ll be judged if somebody files a fair housing complaint.

Compliance strategy: Because litigation is so expensive—even when you win—the primary goal should be to avoid it at all costs. Thus, if there’s even a question about whether ad language will cross the line, err on the side of caution by not including it.

Example: If it could have done things differently, an Ohio community would have probably chosen not to run an online ad suggesting that, “Our one bedroom apartments are a great bachelor pad for any single man looking to hook up.” The good news is that the community eventually won the lawsuit claiming that the ad discriminated on the basis of familial status and sex; the bad news is that it took the community over five years of litigation and tens if not hundreds of thousands in legal fees to ultimately prevail [Miami Valley Fair Housing Center, Inc. v. The Connor Group, December 2015].

DEEP DIVE

Exceptions Where Ads May Express Preferences

While the law generally bans statements that express a preference based on a protected characteristic, there are a few exceptions, including:

• Roommates: Ads stating a preference for members of a particular sex as a roommate in a shared-living arrangement;
• Senior housing: Ads excluding children in communities that qualify under the “housing for older persons” exception, which applies if:
  • HUD has determined the housing is specifically designed for and occupied by elderly persons under a federal, state, or local government program; or
  • The housing is occupied solely by persons 62 or older; or
  • It houses at least one person 55 or older in at least 80 percent of the occupied units, and adheres to a policy that demonstrates an intent to house persons who are 55 or older; and
• Accessible housing: Ads with information about the availability of accessible housing; and
• Affirmative advertising: Ads designed to attract persons to dwellings who would not ordinarily be expected to apply, when such efforts are part of an affirmative marketing program or undertaken to remedy the effects of prior discriminatory housing advertising or marketing.

Rule #3: Beware of Discriminatory Use of Human Models

Pay close attention to not just the words but the images contained in your ads and marketing materials. Be especially careful about using human models, whether via video, photograph, drawing, or other graphic techniques, to express preferences for or against different groups. The classic example is a picture or video that uses all white models to portray your residents. Whether you realize it or not, such an ad sends the message that people of color aren’t welcome in your community. Similarly, ads showing nothing but able-bodied people running, playing tennis, or engaging in other physical activities may send subtle exclusionary messages to persons with disabilities; failing to display kids may have the same effect on families with children.

Accordingly, HUD cautions that models used in display advertising campaigns “should be clearly definable as reasonably representing majority and minority groups in the metropolitan area, both sexes, and, when appropriate, families with children.” If used, models should also portray persons in an equal social setting and indicate to the general public that the housing is open to all without regard to race, color, religion, etc., HUD adds.

Landlords and their employees need to keep these principles in mind for not just professional shoots but handheld videos shot with a smartphone for posting to Facebook, Instagram, Zillow, or any other online site. There should be guidelines in place for vetting videos for potential fair housing risks before hitting the “send” button.   

Rule #4: Put the HUD EHO Logo in All Ads

There is one thing you should include in all of your advertising: the HUD equal housing opportunity (EHO) logotype, statement, or slogan. While not technically required under the FHA, these materials send the very opposite message conveyed by discriminatory ads, namely, that the property is available to all persons regardless of race, color, religion, sex, handicap, familial status, or national origin.

In addition to enhancing your reputation as an equal housing opportunity provider, including the logo may also serve to contradict any discriminatory messages your ads inadvertently send. One example is advertising for communities that have a religious name (such as “Roselawn Catholic Home”) or use of a religious symbol in an ad. According to HUD, these practices may indicate an illegal religious preference. But HUD also says that use of the religious name or symbol will be deemed acceptable if it’s paired with a disclaimer stating that the community doesn’t discriminate based on race, color, or any other characteristic protected under federal, state, or local law.

The logo examples here come from HUD’s fair housing advertising regulations that were officially rescinded as part of a large effort to eliminate advisory materials from official regulations, but which HUD still unofficially follows in implementing the law. The choice of logotype, statement, or slogan will vary depending on the type of media used (visual or auditory) and, in space advertising, the size of the advertisement. The rescinded regulations include a table for determining logo size in newspapers and other traditional print media:

For other ads, the EHO logo should be at least equal in size to the largest of the other logotypes; if no other logotypes are used, the type should be bold display face which is clearly visible.

Rule #5: Avoid Discriminatory Ad Placement  

Consider not just the content of your ads but where you place them. Explanation: Historically, landlords have been able to perpetuate segregation by deliberately advertising only in certain publications or outlets that minorities targeted for exclusion are known not to use. Examples include strategically placing billboard ads in predominately white neighborhoods and running newspaper ads in local publications read mostly by a white audience. The digital age and rise of websites that use sophisticated algorithms to target highly specific audiences have significantly increased the potential for landlords to engage in selective and manipulative ad placement strategies.

Of course, HUD and fair housing organizations are aware of these practices and scrutinize landlords’ marketing practices for evidence of discrimination.

HUD has also warned against relying exclusively on English-language media or media catering to the majority population in an area where non-English language or other minority media is also available.

Example: A group of 15 Latino residents sued the owners and operators of seven rental properties in Los Angeles for deliberately excluding Latinos by marketing newly vacated units primarily through websites directed at young, English-speaking, single, nondisabled people (such as Radpad, Hotpads, and Walk Score). The defendants denied the accusations and asked the federal court to toss the case without a trial. The court ruled that the residents had a legally valid claim and could take their case to trial [Martinez v. Optimus Props., LLC, March 2017].

Your best defense is a proactive strategy relying on the creation and implementation of a written marketing plan to ensure that your marketing campaign is as broad and inclusive as possible. Retain copies of the ads you place, along with detailed records of when and where you placed them. Documenting your efforts to reach a wide, diverse audience will help you defend yourself against claims of selective advertising; better yet, it may prevent such claims altogether.  

Coach’s Tip: One exception to the ban on selective ad placement allows for targeting a particular group as part of a broad, inclusive marketing campaign, provided that the landlord has a valid, nondiscriminatory reason for doing so. For example, it may be permissible to run ads in a Vietnamese language newspaper if large numbers of Vietnamese people settle into your community and surrounding area.

DEEP DIVE

Fair Housing & Facebook

In 2018, the National Fair Housing Alliance and other fair housing groups sued Facebook for “virtual redlining” by allowing housing advertisers to use its platform and lists of “excluded” groups to customize ads that families with children, women, and other protected classes wouldn’t be able to receive. The complaint also accused Facebook of giving housing advertisers the ability to exclude certain “interest” categories from receiving ads that are disability-based (such as people who are interested in disabled veterans or disabled parking permits) or national origin-based (such as people who are interested in English as a second language).

Facebook settled the suit in 2019 by agreeing to change its advertising platform. However, HUD wasn’t impressed with the solution and has filed its own lawsuit challenging Facebook’s advertising practices in federal court.

Meanwhile, a group of Facebook users have brought a class action against the social media giant contending that they were on the receiving end of housing advertisers’ discriminatory practices enabled by the use of the Facebook platform. In January 2021, a federal court rejected the claim for lack of specificity; however, the dismissal was “without prejudice.” Translation: The plaintiffs can still file an amended complaint.    

Rule #6: Keep Your Advertising Methods Consistent

Expansive campaigns targeting multiple markets can expose you to liability if your advertising methods are selective. So try to keep your campaigns consistent from market to market. For example, when using human models primarily in media that cater to one racial or national origin segment of the population, consider a complementary advertising campaign using models targeting other groups. Another example of selective marketing is using racially mixed models to advertise one property and not others. You also need to be careful when advertising in publications or other media directed at one particular sex or persons without children.

Rule #7: Beware of Discriminatory Advertising on Your Community Website

As a matter of fair housing compliance, your website is an extension of your advertising to the extent you use it to show the benefits of living in the community. Result: You need to be careful that the content you post—including words, photos, video, and other graphic images—don’t express preferences for or against any groups based on race, religion, sex, or other characteristics protected under federal, state, or local fair housing laws.

In general, the website should describe the community, its units, and amenities, but not the kind of people who should want to live there. Providing maps and directions can also express preferences if they include references to institutions or landmarks associated with certain racial, religious, ethnic, or other groups. Examples: Saying your community is within walking distance of:

• A church (signal to Christians)
• A black development (signal to blacks);
• A development known for its history of excluding minorities (signal to whites); or
• A community center dedicated to a particular nationality.