It’s The Law – Fair housing and resident screening after COVID-19.

WELCOME TO FAIR HOUSING MONTH!

By HOWARD BOOKSTAFF, Hoover Slovacek LLP , HAA General Counsel

PICTURE THIS: You are reviewing your rental criteria. You realize things have gotten out of hand the past two years. Closed businesses, millions unemployed, mass layoffs, substantial rent delinquencies, evictions, eviction abatements. You begin to think it will be hard to determine whether prospects can meet your future rent obligations given the last two years.

You would like to get back to the good old days when you required six months of stable employment, no prior delinquencies, no evictions, a good credit score and verifiable income of at least three times the monthly rent. The problem is, you feel that you may lose some good residents by applying your pre-pandemic criteria. You may come across a number of potential good prospects who have had problems over the past two years. You would like to make exceptions to the rental, employment and income requirements of old, however, you have always been taught that making exceptions to standard criteria may raise fair housing issues.

From a fair housing standpoint, we are taught to treat everyone the same under the same or similar circumstances. So, you might ask, can I make exceptions? How should the exceptions work? Is this a fair housing issue at all?

Potential Limitations On Using Pandemic Eviction History

Before addressing how fair housing might apply, any screening criteria must be evaluated in light of some limitations you might encounter with access to information. Over the past two years, there have been efforts made to assist those that have been adversely impacted by the financial effects of COVID-19.

• Supreme Court of Texas Emergency Order

The 48th Emergency Order promulgated by the Supreme Court of Texas (which expires May 1, 2022) follows a number of previous orders that have addressed a justice court’s role in rental assistance during the eviction process. In the 48th order, the court reiterates previous orders, which state that if an owner has a pending application for rental assistance or the owner and resident both express an interest in participating in an available rental assistance program: (i) the case must be immediately abated for 60 days; (ii) the court is required to immediately make all court records, files, and information relating to the eviction action confidential to prohibit disclosure to the public; and (iii) if the case is not reinstated within 60 days, the judge is required to dismiss the case with prejudice.

The court’s order will limit your ability to know whether an eviction case was filed and whether it was disposed of because the delinquent resident received rental assistance or if the case was dismissed with prejudice. Further, the availability of rental assistance has assisted many residents in avoiding evictions all together despite significant delinquencies.

• 2021 Proposed Legislation

The Texas legislature also proposed a bill that would affect eviction case information related to COVID-19. House Bill 4039, which did not pass, proposed a new section in the Texas Property Code that would have prohibited an owner from refusing to rent, negotiating for the rental of, or in any other manner, making unavailable or denying a dwelling to a person because of an eviction case brought against the person during the pandemic. This would have substantially restricted an owner’s ability to find out about an eviction history during the pandemic. Although this did not pass, this gives us an idea of what some of our state leaders were thinking.

Fair Housing Considerations

The Fair Housing Act prohibits discrimination in housing and housing-related services because of race, color, religion, national origin, sex, familial status and disability. Fair housing laws would prohibit a screening policy that treats applicants differently because of their protected class.

Additionally, fair housing laws would prohibit screening policies that, although neutral on their face, have the effect of discriminating against someone in a protected class. The discriminatory effects (also referred to as disparate impact) doctrine is a tool for addressing policies that caused systematic inequalities in housing. It can be used to challenge practices that unnecessarily exclude people from housing opportunities, including zoning requirements, lending and property insurance policies and criminal records policies.

HUD’s discriminatory effects rule has come under some recent scrutiny. In 2013, HUD adopted a rule which codified court decisions addressing disparate impact concepts. According to HUD, the 2013 rule was straightforward. A policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial or legitimate nondiscriminatory interest or if a less discriminatory alternative could also serve that interest.

In 2020, HUD adopted a revised rule that, according to HUD in 2021, complicated the 2013 analysis by adding certain pleading and proof requirements and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. In August 2021, HUD proposed to return to the 2013 rule.

The 2013 rule codified a three-part burden-shifting framework. We can use this framework to evaluate whether a pandemicrelated screening policy would be subject to scrutiny under a disparate impact analysis:

1. Does your policy cause or would it predictably cause a discriminatory effect on a protected class (i.e., have the effect of treating persons in a protected class different than other persons)?

2. Even if the policy may have a discriminatory effect, is your policy necessary to achieve one or more substantial, legitimate, nondiscriminatory interests (i.e., is there a businessrelated interest you are trying to achieve with the policy, such as making sure residents will have the appropriate rental history, employment history, and income to be good, rent paying residents at your property)?

3. Could the interest you are trying to achieve with your policy be served with a policy that may have a less discriminatory effect? (This last issue would only be considered if the policy may have a discriminatory effect).

Preparing Your Post-Pandemic Screening Policy

Now that we know there may be legally imposed limitations on your ability to find out certain things about a rental history (as indicated above) and how fair housing issues might play a part in any screening policy, let’s discuss what you might consider in preparation of your post-pandemic screening policy:

• Be sure your screening policy is in writing.

Section 92.3515 of the Texas Property Code provides that at the time an applicant is provided with a rental application, the landlord shall make available to the applicant a printed notice of the landlord’s tenant selection criteria and the grounds for which the rental application may be denied, including the applicant’s: (i) criminal history; (ii) previous rental history; (iii) current income; (iv) credit history; or (v) failure to provide accurate or complete information on the application form. Consequently, no matter what your screening policy will be, Texas law continues to require that your policy be in writing and made available to applicants and, at a minimum, advise applicants that an application may be denied due to issues that may have been affected by the pandemic, such as previous rental history, current income and credit history.

• Determine how you will deal with situations that may have affected an applicant’s rental and payment history during the pandemic, such as:

o An applicant who was substantially delinquent under their previous lease, but then had the delinquency cured by rental assistance. o An applicant who may have had a previous delinquency waived in exchange for leaving their prior residency.

o An applicant who was being evicted due to a delinquency, but the court case is confidential or the eviction was eventually dismissed (because rental assistance was received, the resident moved out or the owner failed to reinstate in time). • Be prepared to deal with different situations regarding employment history and income, such as: o An applicant who lost their job during the pandemic and had to take an alternative job with a lesser income. o An applicant who lost their job and has a new job, but has not had the job for very long and cannot show a stable history of receiving a paycheck. • Be prepared to deal with what you might see regarding credit history, such as: o An applicant who owes a number of debts due to having to pay living expenses without having the income they were used to. • Be sure to develop a practice where you can be consistent in evaluating applicant histories. o You want to avoid a policy that results in similarly situated applicants being treated differently. o You want to avoid having a policy that would result in persons of a protected class being treated less favorably. o If you are inclined to make exceptions due to pandemic-related situations, you want those exceptions to be made as consistently as possible, with good reason, and based on a legitimate business justification. o To ensure consistency, you may want to have any special situations reviewed centrally (by one or only a few persons) to avoid making decisions with different results. We are in the “new normal.” A screening policy that worked in 2019 may not necessarily work in 2022. Limitations on the availability of important screening information, fair housing issues and pandemic-related situations are among the items that should be considered when adopting a post-pandemic screening policy. Hopefully this discussion helps you prepare your screening policies as we embark on this new era. The new lease is here! Knowing the provisions and where they are placed in the new lease will help you and the resident understand your rights and responsibilities.