AMA: HUD-sight is 20/20

There’s an opening for a high school biology teacher. Hundreds of applications come in for the job, equally split between male and female candidates. Then, the school decides to combine the teaching role with coaching the high school varsity football squad. Suddenly, there’s a huge shift in gender availability and interest in what was originally a teaching position. This is something called disparate impact. It’s the direct or intentional act of discrimination. Though it’s easier to assess in the employment example that attorney Judy Drickey-Prohow remembers taking to court in Tucson, disparate impact has been in the limelight for its role in the Fair Housing Act, also known as Title Seven of the Civil Rights Act signed into law in 1964.

Imagine if renting an apartment or applying for a mortgage were like applying for a teaching position with fine print of having to also be a football coach. With a recent Supreme Court ruling in June, people or communities who can prove they are intentionally discriminated against have a stronger argument for civil rights to a home that is not discriminatory in nature.

The Supreme Court case challenged the Texas Department of Housing and Community Affairs for “reinforcing residential segregation by consistently approving affordable housing in African American neighborhoods.” The state agency was challenged by The Inclusive Communities Project, Inc.

Litigating a claim of disparate effect is complicated, says Drickey-Prohow of Scott M. Clark law offices, who handled two such cases while serving as senior litigation counsel in the attorney general’s office.

“People in our industry convinced themselves the court wasn’t going to extend it to housing,” she says. “I’ve sat in on a lot of meetings and everyone was positive that HUD was overreaching and that when the issue finally got to the supreme court, they were going to say, ‘HUD, you’re off your rocker.’”

When the Supreme Court didn’t say that, it changed the game for bankers, lenders and zoning attorneys who were planning on the 2013 rulings to be overturned.

“The whole disparate effect is intended to knock down barriers that allow people to get housing or employment,” Drickey-Prohow reiterates.

Though the court’s decision took the commercial real estate industry by surprise, it didn’t veer far from public opinion. In a recent national survey conducted by The Opportunity Agenda, only 10 percent of Americans believe the Fair Housing Act laws are too strong. In fact, a majority think they’re “just right” or “too weak,” according to the survey.

Multifamily apartment applicants without full-time employment or those who plan on sharing a one-bedroom may either not be accepted as tenants or charged more money for the same number of bedrooms as a single tenant, respectively.

“Disparate impact complaints are problematic for the industry in that they ignore discriminatory intent as part of their analysis,” says Michael J. Thorell, chairman of the Arizona Bankers Association. “Broad application of liability under this theory has the potential to chill lending in entire markets like housing, which would seem contrary to the laudable public policy goal of making home ownership widely available irrespective of race, gender or economic status.”

The U.S. Department of Housing and Urban Development (HUD) estimates more than 3 million cases of housing discrimination are reported annually. According to information compiled by National Fair Housing organization, based on U.S. Census reports, 75 percent of African American families reside in 16 percent of the Census tracts. That makes this group of individuals among the highest residentially segregated. According to the same report by NFH, segregation of Latinos and Asian Americans’ housing has remained consistent for the last three decades.

MEB Management Services, which oversees 20,000 units in four states, has worked with an attorney to screen its rental policies.

“With this new ruling, there is the possibility of policies incorporated by the majority of property management companies to be challenged,” says Senior Vice President Mark Schilling. “An example of this would be a criminal background policy. We do a criminal background check on every prospect 18 or over. If a person has a felony for a sex crime, our policy is that the person could not live at one of our communities. We have the responsibility of protecting our current residents the best we can. We cannot guarantee the residents​‘​ safety, but we can take steps to limit potential criminal activity on our property.”

Schilling says that in the future, MEB may consult an attorney about changes in rental policies.

“For example, we may increase the income requirement for a property,” he says. “Before we make that change, we will need to ensure that we will not have a disparate impact on a protected class, even though we would never intentionally discriminate against a person or a group of people. … The new ruling is very murky and as I said before we are still researching the impact of the ruling.  We have read several articles and have gotten legal advice from our attorneys​,​ and there is no clear answer on the ruling and the how, or if, it will change housing practices.”

ABA is also in a holding pattern.

“The banking industry in this state is committed to lending without racial discrimination in all economic sectors,” says Thorell. “It is our hope that the banking regulatory agencies will codify these limitations and defenses in their regulations so as to provide more certainty for lending institutions engaged in the housing market. Relegating the evolution of the legal landscape in this area of the law to the courts creates uncertainty in the lending community, and thus artificially limits the amount of capital available to qualified borrowers who would otherwise grow this vital sector of our economy.”