Compliance Corner: Evaluating and selecting tenants

The U.S. Supreme Court has been in the news lately with a justice’s unexpected death and the nomination for his replacement. While the U.S. Supreme Court may not be on your radar screen, a court ruling from 2015 has implications for managers of affordable rental housing, including in Indian Country.

The Supreme Court’s ruling that is causing ripples in our industry was last summer’s Texas Department of Housing and Community Affairs vs. Inclusive Community Project Inc. See Novogradac & Company’s blog for more background information.

In response, the U.S. Department of Housing and Urban Development (HUD) recently released new guidance related to fair housing. The guidance is called “Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions” and was dated April 4, 2016. Read it here.

Please take the time to read it carefully and consider how it applies to your affordable housing projects. I will summarize the guidance and suggest important points for rental housing managers to consider.

Background on the Fair Housing Act

The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) introduced meaningful federal enforcement mechanisms. It outlawed: Refusal to sell or rent a dwelling to any person because of race, color, religion, sex, or national origin.

As the guidance states, “The Fair Housing Act prohibits both intentional housing discrimination and housing practices that have an unjustified discriminatory effect because of race, national origin or other protected characteristics.”

The guidance says that an overbroad ban that denies housing to anyone with a prior arrest or any kind of criminal conviction would violate the Fair Housing Act.

We encourage property managers in Indian Country to take a look at your policies and procedures for evaluating potential tenants to ensure that they do NOT violate federal law. You are also encouraged to consult with your compliance consultant and an attorney to ensure your tenant selection plan is legal and nondiscriminatory.

Guidance for policies and procedures

The HUD guidance says that when evaluating a potential tenant, you may NOT:

1. Exclude housing applicants because of a prior arrest (without a conviction)

As the guidance states, “Because arrest records do not constitute proof of past unlawful conduct and are often incomplete … the fact of an arrest is not a reliable basis upon which to assess the potential risk to resident safety or property posed by a particular individual.”

2. Exclude housing applicants because of a prior conviction without ALSO distinguishing between “criminal conduct that indicates a demonstrable risk to resident safety and/or property and criminal conduct that does not.”

In order to distinguish between these, HUD suggests property managers examine:

a. The nature and severity of the conviction; and
b. The amount of time that has passed since the criminal conduct occurred.

To further analyze the potential tenant, HUD suggests project managers also take a close look at more information about the conviction:

a. The facts or circumstances surrounding the criminal conduct;
b. The age of the individual at the time of the conduct;
c. Evidence that the individual has maintained a good tenant history before and/or after the conviction or conduct; and
d. Evidence of rehabilitation efforts.

One exclusion exists

HUD says there is one exclusion to all of the information we have presented so far. A potential tenant CAN BE denied housing based on the person’s conviction for drug manufacturing or distribution if the conviction occurred within 10 years of application.

This is NOT the case for a person’s conviction for drug possession. A potential tenant should not be denied housing solely for a conviction for drug possession or conviction involving the sale or manufacture of a controlled substance more than 10 years before application.

Best practices

The Minnesota Housing Finance Agency, the state agency that manages the Low Income Housing Tax Credit (LIHTC) program and other funding programs in Minnesota, has created a very helpful guide on Tenant Selection Plans. “The document contains a summary of the HUD guidance on criminal background screening and reflects the agency’s consideration of best practices, along with special factors affecting supportive housing programs,” according to MHFA.

While your project may be located in a different state, this Tenant Selection Plan provides good tips for property managers in Indian Country. Download it here.

We’re here to help

As always if you have questions about this information or need further assistance, please feel free to call us at 816-994-8970 or email us at

Read past Compliance Corner updates:

Adding household members to an already-qualified LIHTC unit
Changes to household income after move-in
Child support income verification methods
Compliance questions 24-hour hotline
Community rooms and public use buildings