As we enter the summer months, we want to remind you that laws and policies created by various governmental agencies can impact the management of residential rentals in Arizona. Staying on top of those changes is an absolutely necessary part of being an effective property manager, regardless of whether you manage a multifamily housing portfolio, are part of the onsite team of a multifamily community, manage single family homes/mobile home parks/Long Term RV parks, or simply manage your own rental.
While the Arizona Governor has not signed any laws this legislative session that impact our industry in a major way, the U.S. Department of Housing and Urban Development (HUD) did release two guidance documents that focus on the use of artificial intelligence in screening applicants and in the use of targeted advertising programs, one of which needs to be reviewed by all housing providers immediately to ensure compliance with federal and state Fair Housing acts.
The Fair Housing acts apply to all housing decisions made by housing providers. As a reminder, this federal law prohibits discrimination in the rental of dwellings and in other housing related services because of that person’s race, color, religion, sex (including sexual orientation and gender identity), national origin, disability or familial status (including children under eighteen being present, pregnancy, and seeking legal custody or minor children such as through adoption or foster care). Both of the guidance documents issued by HUD address the housing providers’ responsibility and liability when using technology in a discriminatory manner and reminds us that this industry plays a crucial role in ensuring that all prospective residents are screened in a transparent, accurate and fair manner.
The document is entitled “Guidance on Application of the Fair Housing Act to the Screening of Applicants for Rental Housing.” The guidance explains how housing providers and companies that utilize tenant screening services need to ensure that they are doing so in a nondiscriminatory way and recommends best practices for complying with the Fair Housing Act. This 24-page document needs to be reviewed and analyzed by every broker and corporate office compliance team member because housing providers are liable for ensuring their rental decisions comply with the Fair Housing Act even if they outsource all screening to a third-party company.
The following are some of the key take-aways when
choosing a tenant screening company or software:
1) Not all tenant screening companies utilize accurate or reliable information and may include inaccurate information or unreliable information. The housing provider should inquire into the ways in which the vendor ensures that their screenings are accurate and nondiscriminatory. One way to do this is to require that the screening vendor’s program has specific policies in place that offers customization of the rental criteria, provides verification that they frequently update their data base and monitor their policies for unjustified discriminatory effects, provides clear and specific reasons for a denial, allows individuals to correct inaccuracies with that vendor directly, publicly discloses key details about their screening systems, and verifies that their product complies with all federal, state, and local laws. That screening company should provide a list of all resources used and include specific relevant data (dates, locations, case numbers, and dispositions) instead of simply providing a summary and conclusory recommendations.
2) Each housing provider needs to remember that they are responsible for avoiding discriminatory housings decisions and that they remain liable for the any unintended or inadvertent discriminatory acts by a third-party screening company.
3) Housing providers should adopt screening policies that are clear, detailed, and publicly disclosed and only use screening companies that will help them implement those policies.
4) Purchasing “off the shelf” products is a potentially dangerous decision, and the housing provider should consider only using systems that permit the provider to customize their own criteria, standards, and weights being used.
5) When the housing provider receives a screening report that recommends denial of that applicant, the housing provider should conduct their own independent assessment to verify that the information that was the basis for the denial was accurate and is in fact disqualifying. This review should be done at the highest level within your organization.
6) The applicant should always be given the opportunity to dispute the accuracy and relevance of any negative information. Once again, this secondary review should be done at the highest level within your organization.
Now that you have some tools to help you choose a reliable tenant screening provider, selecting the appropriate rental criteria is also crucial. The following are some of the key take-aways on setting appropriate rental criteria:
1. Start with the clear understanding:
... that the screening needs to include only accurate and relevant information that will help the housing provider determine the likelihood that the applicant will comply with their obligations under the lease.
2. Only use Datasets that are complete:
... contain key personal identifiers, and are updated frequently. Records should match multiple pieces of identifying information and “wildcard” or “name-only” matches should not be used.
3. Transparency throughout the application process is important:
... so that the applicant knows before they submit their application the specific rental criteria you use, how they will be screened, the expecting timing of that process, and the process to contest any denial. Prior to applying, potential applicants should be given a copy of the screening policies or told where they can find them (i.e. a link to the website). Those policies should contain enough detail for the applicant to tell whether they are likely to qualify, how they can submit additional information to contest the denial or provide documents that may mitigate the reason for the denial, and how to request a reasonable accommodation for a disability.
4. Newer records are usually more relevant:
... than older records. As such, the re-screening of existing tenants that have lived there without incident is discouraged because their behavior at the property is more relevant than a records-based screening.
5. When reviewing income information:
... less commons sources of income (SSDI, housing choice vouchers, spousal maintenance and child support etc.) should be considered when assessing an applicant’s ability to afford the rent. Setting unit-based income standards vs requiring each applicant to meet that level can be appropriate policy. Additionally, when an applicant’s rent is paid or guaranteed by someone else, such as a housing choice voucher or when there is a guarantor, the landlord should consider reducing or waiving the minimum income requirement for the household.
6. When reviewing criminal records:
... arrests should not be considered unless there is an open case. The differentiation between offenses based upon their nature, severity, how long ago they occurred, and evidence of rehabilitation or other mitigating factors needs to be considered.
7. Relying solely on the applicant’s credit score is discouraged:
... Reviewing information that likely contributed to a “one time” negative credit event is encouraged (such as a serious medical issue, domestic violence, etc.). Waiving or adjusting credit screening may be required as a reasonable accommodation if the data is related to their disability.
8. When reviewing eviction or rental history:
... make sure that you have accurate, reliable, complete, and valid information. Current rental history is one of the best indicators of likely performance of your lease terms.
In summary, housing providers need to be cognizant of this new guidance by HUD, especially when using third party screening that may apply algorithms and artificial intelligence and data bases that may not be accurate or updated and standards that lead to discriminatory standards and practices. The immediate internal review of your rental criteria to ensure compliance with this new guidance is critical. As always, if you need additional guidance, please contact our office directly.
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