HUD Issues Guidance on Screening Tenants under the Fair Housing Act

By Kimberly Rau, MassLandlords, Inc.

The Department of Housing and Urban Development (HUD) has issued new guidelines on tenant screening under the Fair Housing Act (FHA), with a heavy emphasis on taking a nuanced approach to approving or rejecting potential renters.

The new HUD FHA guidance isn’t legally binding, but it might as well be, as judges will refer to it when hearing cases. (Image: 123rf)

The guidance from HUD is not legally binding, however, according to attorneys we spoke with, it might as well be. These “guidelines” will almost certainly be referred and adhered to by judges when hearing cases, which means you need to understand them as well. You don’t want to have to explain to a judge why you opted to ignore HUD’s suggestions for avoiding discrimination under the FHA.

The guidance is problematic for its sweeping generalizations, many of which are patently false. For instance, the guidance states, “Records without a negative outcome are not relevant. For example, the record of an eviction proceeding has no relevance if the tenant prevailed.” That is not true. Consider, for example, the case of Gwendolyn Property Management v. Goodwin, in which landlords and other renters united but failed to evict a smoker from a no-smoking property. That failed for-cause case is highly relevant because the judge made the wrong decision. Rather than appeal, as a practical matter, the landlord decided to file a "no cause stated" eviction. That prevailed. The two together paint a picture of a renter wholly unsuitable for no-smoking housing, something HUD would rather not admit to.

That said, the purpose of the present article is not to rebut the HUD guidance but rather to pull out threads that do seem accurate and noteworthy.

Clarified Guidelines Appear to be in Response to AI

We provide forms to our members who wish to conduct their own tenant screening. But we’re also aware that plenty of landlords prefer to use tenant screening services to vet applicants.

Tenant screening services often rely on artificial intelligence (AI) to screen candidates’ applications, which can be problematic. AI networks have been known to produce racially biased outcomes, such as the time Rona Wang, a student at MIT, asked AI to make her casual head shot “more professional.” The result removed her Asian features, lightened her skin and made her eyes blue. Clearly, whatever the neural network was using to inform its opinion of “professional” skewed away from minorities.

HUD notes that while screening tenant backgrounds, AI-type programs could return data that is not germane to housing decisions, but may sway landlords away from approving an otherwise good rental candidate. This information could include no-cause-stated evictions, irrelevant criminal history or a low credit score that has a reasonable explanation. More concerning, HUD states, is that we don’t know how or to what extent AI is used in determining a company’s recommendation to a landlord.

“Generally, automated software is used to generate these screening reports, and companies tend not to disclose how this software works, including the extent to which it uses advanced technologies, such as AI,” the HUD document states.

The running theme throughout the HUD document is to avoid taking an “overbroad” approach to gathering data on your applicants. Too much data that’s irrelevant to the screening process can potentially disqualify good renters.

Credit scores can be one indicator of a tenant’s financial responsibility, but HUD urges landlords to carefully examine negative credit marks for relevance. (Image: 123rf)

Consider the Context of the Credit and Criminal Data You Receive

Whether you run your own background check or rely on a tenant screening service to vet your potential tenants, HUD notes that you should be following up on the information you receive.

For example, we recommend you consider credit scores when conducting tenant screening, and HUD notes that the “vast majority” of housing providers and tenant screening companies run credit checks on applicants. However, HUD notes, “overbroad screenings for credit history may have an unjustified discriminatory effect based on race or other protected characteristics.” This includes people of races statistically more likely to have inaccurate credit reports, or low to nonexistent credit scores; recent immigrants who have not had time to build a credit history; or survivors of domestic violence, who are “disproportionately women.”

HUD recommends that if you decide to screen your applicants’ credit reports, that you “avoid denials…based on an applicant’s credit score in circumstances when the applicant’s financial background has very little relevance.” This could include applicants with housing vouchers, where the majority of the rent will be paid by a third party.

HUD further suggests, as do we, that if an applicant’s credit score is too low to rent the apartment, you see if the applicant may have someone who can co-sign the lease.

“Screening criteria should be waived if they are not relevant for an applicant’s individual circumstances, even if the criteria might be relevant in general (e.g., minimum income for an applicant whose rent will be paid by someone else),” the document states.

Similarly, information about arrests and convictions should be carefully contextualized. HUD has long made clear that arrests that do not result in convictions may not be used to deny a rental applicant. But convictions also need consideration.

A background check can return a host of past convictions, but is a 20-year-old shoplifting misdemeanor really going to determine whether someone is going to pay the rent? Relevant crimes could include illegal drug manufacturing or distribution, arson, violent crimes, or recent high-level sex offenses. But again, make sure you are applying your standards fairly to every applicant.

And of course, make sure that the court records you receive actually belong to the person who’s applying for your rental. Is John Q. Smith, convicted arsonist and meth manufacturer, really the person you’re vetting, or is it John R. Smith, mild-mannered accountant without so much as a parking ticket? Getting it wrong often disproportionately affects minority candidates.

“Often records of people bearing the same or similar names are erroneously attributed to the wrong person, a problem that is more common for last names more prevalent among Hispanic, Asian, or Black individuals,” HUD writes.

Court Data is the Beginning of the Conversation, Not the Last Word

Court data is an important part of the tenant screening process, but HUD cautions landlords to make sure they are interpreting court records correctly, particularly when it comes to evictions.

Eviction sealing is a hot-button issue right now, with a chance that it could make it back into the Senate’s version of the 2024 Housing Bond Bill. Proponents for eviction sealing believe that no-cause-stated evictions being part of the public record hurt individuals’ chances to find housing. We argue that eviction sealing is bad policy that does not allow landlords to make informed decisions (or allow tenants to vet housing providers to see if they’re about to sign a lease with a sue-happy slumlord).

HUD urges housing providers to examine the relevance of someone’s eviction record, suggesting that evictions due to job loss are not relevant if the person is now employed, and stating that evictions as a result of domestic violence should also not be held against an applicant. It also suggests no-cause (sometimes called no-fault) evictions be properly contextualized and disregarded if they are not relevant to the current housing situation.

We have always recommended discussing negative results with your applicants, and we continue to. Data from masscourts.org is not the end of the discussion, it’s the start of your dialogue.

Our Applicant Qualifier Meets HUD’s Recommendations

If you are already using our MassLandlords applicant qualifier, good news. You are already doing what HUD recommends for screening standards.

“Housing providers should adopt screening policies that are clear, detailed, and publicly available, and only use tenant screening services that will help them implement these policies,” the HUD document states. “Customizing the criteria, standards, and weights being used, rather than purchasing an ‘off the shelf’ product, can help ensure screenings conform to stated policies.”

Our applicant qualifier is clearly worded, can be evenly applied for all applicants, and gives you room to work with your applicants to set both of you up for success.

Further, HUD suggests not asking about credit, criminal or housing history that “falls outside the scope of their screening policies.” In other words, don’t ask for irrelevant information. Our form makes it clear that not all criminal history is detrimental to an applicant’s chance at approval, and asks for honesty in the disclosure process.

Conclusion

In the end, most of HUD’s guidance matches what we’ve been saying all along. Carefully review background check results and make sure you have the right person. Don’t get hung up on irrelevant details. Discuss negative results with your applicants and see if there’s a way you can make things work. Don’t discriminate, and keep your standards fair across the board.

And, as always, the buck stops with you. If a tenant screening service or AI gives you poor information, and you act on it without consideration, you could be held liable for discriminatory practices.

Landlording is a business, and it’s up to you to run yours properly. Read our articles; come to our events. Utilize our members-only forms and, of course, consult with your attorney whenever you’re in doubt.