Rejecting Prospective Residents Based on Criminal History May Violate Fair Housing Laws

Throughout the United States, individuals with criminal records, regardless of whether they pose little or no threat, face significant barriers when seeking to buy or rent a home.

Amazingly, between 70 million and 100 million Americans, or as many as one in three American adults, have some type of criminal record. And while many have been convicted of only minor offenses, having a criminal record carries a lifetime of consequences. This often includes an inability to secure housing.

The Federal Fair Housing Act prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin. Ex-convicts and individuals with a criminal history are not explicitly identified by the Act as a protected class. Nonetheless, the United States Department of Housing and Urban Development (HUD) recently opined that housing providers rejecting tenants or buyers based on their criminal records may violate the Fair Housing Act.

At its core, the issue is whether exclusionary polices based on criminal background checks have an unfair or disparate impact on certain racial minorities who are protected under federal laws governing housing.

On April 4, 2016, HUD’s Office of General Counsel issued guidance concerning how the Fair Housing Act applies to prospective buyers and tenants with criminal records. According to the opinion, landlords and sellers must differentiate between arrests and convictions, and must steer clear of blanket policies that restrict access to housing solely on the basis of criminal history.

HUD’s opinion does not mean that housing providers are entirely prohibited from considering criminal records. However, they must now ensure that their screening policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest.

As HUD notes, “A housing provider must, however, be able to prove through reliable evidence that its policy or practice of making housing decisions based on criminal history actually assists in protecting resident safety and/or property.” To meet this burden, housing providers must consider factors like the nature and severity of the crime, as well as the length of time since the conviction. By conducting this analysis, housing providers can establish that their policy “accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property, and criminal conduct that does not.”

At the heart of HUD’s opinion lies the doctrine of disparate impact, sometime referred to as unintentional discrimination. Pursuant to this doctrine, a policy may be considered discriminatory if it has a disproportionate adverse impact against a protected class. For example, a policy that applies to everyone may still prove discriminatory if it tends to affect a protected group or minority more than others.

As applied to its position on criminal history based restrictions, HUD notes that across the United States, certain minorities are arrested, convicted and incarcerated at rates “disproportionate to their share of the general population.” As a result, restricting access to housing on the basis of criminal history is likely to have a disproportionate adverse impact on racial minorities which constitute a protected class.

HUD’s April 4th guidance also outlines the three steps considered when analyzing claims that housing was denied on the basis of criminal history:

  1. Whether the policy or practice has a discriminatory effect;
  2. Whether the policy or practice is necessary to achieve a legitimate, nondiscriminatory interest; and
  3. Whether there is a less discriminatory alternative.

If nothing else, landlords and property managers should take the time to update and revise their screening policies to ensure that their use of criminal background checks does not act as an arbitrary and overbroad ban on those with criminal records. All criminal records are not alike, and not all ex-convicts pose a risk to safety or property. And now, housing providers who do not take this into account may find themselves on the wrong side of the law.

Scott M. Drucker, Esq., a licensed Arizona attorney, is General Counsel for the Arizona Association of REALTORS® serving as the primary legal advisor to the association. This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

Related article: Fair Housing Act: Criminal History-Based Practices and Policies

Compliance with Fair Housing and Assistive Animals

The Fair Housing Act (FHA) is applicable to nearly all types of housing. Under the FHA, housing providers are obligated to permit, as a reasonable accommodation, the use of animals that work, provide assistance, or perform tasks that benefit persons with disabilities, or provide emotional support to alleviate a symptom or effect of a disability.

In June of this year, the Department of Justice (DOJ) settled a civil rights lawsuit alleging that RiverBay Corporation (RiverBay), which manages a housing cooperative in New York called Co-op City, maintained and employed an overly burdensome and intrusive policy governing waivers to its “no pets” rule. Specifically, the DOJ asserted that the policy instituted by RiverBay deterred and prevented persons with disabilities from obtaining reasonable accommodations and that RiverBay used the policy to unlawfully deny accommodation requests.

RiverBay’s policy seemingly failed to provide reasonable accommodations to people who require service or assistance animals. More specifically, until December 2011, RiverBay’s application for requesting a reasonable accommodation to its no-pets rule consisted of the following: (1) five forms (including one required to be completed only in blue ink and another required to be typewritten); (2) certain breeds of dogs were prohibited; (3) animals were required to be neutered or spayed; (4) annual renewal requirements; and (5) the applicant was required to provide his or her medical records.

Since December 2011, RiverBay has amended its reasonable accommodation policy on two separate occasions. However, many of the provisions in the first policy were left in place. And, throughout the years, many requests for reasonable accommodations to the no-pets rule were denied.

In settling the lawsuit, RiverBay and the DOJ entered into a mutual agreement called a Consent Decree. The Consent Decree provided that RiverBay adopt a reasonable accommodation policy regarding assistance animals, pay a civil penalty of up to $50,000, and dedicate as much as $600,000 to compensate people who have been harmed by inadequate accessibility at Co-op City.

Because of the potential legal ramifications, business entities are advised to review existing policies and requirements related to assistive animals to ensure continued compliance with the FHA.

To read the DOJ’s report on the RiverBay lawsuit, click here and to read the Consent Decree, click here.

Tenants Are No Longer Protected From Foreclosure

In 2009, the Protecting Tenants at Foreclosure Act (the “Act”) was enacted to protect tenants facing foreclosure by the landlord’s lender. Specifically, if the tenant was occupying residential property pursuant to a bona fide written lease, the tenant was generally entitled to continue residing in the property for the duration of the lease term. However, an exemption provided that where the property was sold to an individual intending to reside in the property as a primary residence, the new owner could evict the tenant following 90-days notice to vacate.

While the Act was originally scheduled to expire on December 31, 2012, the Dodd-Frank Wall Street Reform and Consumer Protection Act extended the expiration date of the Act to December 31, 2014. Unfortunately, Congress did not extend the Act beyond 2014, meaning that it is no longer in effect. As a result, in the event of foreclosure, foreclosing lenders are no longer required to honor bona fide written leases, and new owners are no longer required to provide the tenant with 90-days notice to vacate.

Although the Act no longer furnishes tenants with a safeguard, Arizona law provides that “[i]f a rental agreement is entered into after the foreclosure action was initiated, the owner shall include written notice of possible foreclosure with the rental agreement with the tenant.” A.R.S. §33-1331. Moreover, “[i]f the owner receives a notice of trustee’s sale or other notice of foreclosure on the property after a tenant has entered a rental agreement on the property, the owner shall provide the tenant with written notice of the notice of trustee’s sale.” Id. Accordingly, in the event of foreclosure, Arizona tenants are afforded advance notice so that the tenant may take the necessary steps to make other arrangements.

About the author: Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

Prepossession and Post Possession Risks

Prepossession and Post Possession agreements carry inherent risks and raise a variety of issues. However, there are times that a buyer would like to move into the property before close of escrow (prepossession) or the seller would like to stay in the property following close of escrow (post possession). For instance, the buyer’s lease may be terminating before close of escrow, or the seller may not be able move into their new home until after close of escrow. While these are situations that seemingly warrant prepossession or post possession of a property, both parties should be aware of the many issues that can arise in a prepossession or post possession. For that reason, Commissioner’s Rule R4-28-1101(K) provides that “A salesperson or broker shall recommend to a client that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post possession of a property.”

Because of the issues involved with prepossession or post possession of a property, a buyer and seller should enter into a written agreement so as to ensure the parties’ rights and obligations are documented. Numerous times in the past, the Arizona Association of REALTORS® Risk Management Committee has considered requests to develop a “standard” prepossession and post possession agreement. However the committee has never approved the development of such a form due to the inherent risk and liability. Consequently, some brokers have developed prepossession or post possession agreement forms but many advise against the agreements altogether.


Typically, the seller is responsible for any damage to the property prior to close of escrow.  However, in the event a buyer prepossesses the property, the buyer is now responsible. More specifically, the Purchase Contract at the “Seller Warranties” and “Risk of Loss” provisions provides that the seller is responsible only until close of escrow or possession, whichever is earlier. Accordingly, once the buyer prepossesses the property, the seller is no longer responsible for seller warranties or damage to the property because those obligations are terminated under the terms of the Purchase Contract.

If the buyer and seller opt to enter into a lease agreement for the prepossession, the parties’ rights and obligations during the tenancy are now governed by the Arizona Residential Landlord and Tenant Act (“ARLTA”). This can be problematic as ARLTA provides that the landlord is responsible for maintaining fit premises. A.R.S. §33-1324. In other words, under ARLTA, the landlord/seller is responsible to ensure that the electrical, plumbing, and heating/cooling are in good and safe working condition during the tenant’s tenancy. Thus, if the parties enter into a lease agreement, the seller is again responsible for the property despite the fact the seller has moved out and the home is now exclusively occupied by the buyer.

Due to the inherent conflict between ARLTA and the Purchase Contract, the buyer and seller should probably opt to enter into a prepossession agreement by way of an addendum rather than a lease. Significantly, if the parties make the prepossession agreement an addendum to the parties’ Purchase Contract, ARLTA should not apply. See A.R.S. § 33-1308.

Items the buyer and seller may want to address in a prepossession agreement are:

  • Insurance: Who is responsible in the case of damage to the property? What damage is insured? The seller of the home should review their homeowners policy and confirm with their insurer whether a tenant in the property changes any of the terms of their policy. Additionally, the buyer may want to purchase renter’s insurance until the buyer legally owns the home.
  • Walkthrough: Did the parties agree on the condition of the premises prior to the buyer’s prepossession (e.g. walk through inspection)? What if the buyer claims the property is not in substantially the same condition and requests additional items for the seller to correct?
  • Repairs and Maintenance: Who is responsible for repairs? The parties should address who is responsible for any repairs and maintenance of the property during the prepossession. The parties may want to consider purchasing a home warranty that will cover the property prior to close of escrow.
  • Occupancy Rights: Who will occupy the property? Are animals allowed? Is smoking allowed?
  • Rental Payments: How much rent will be charged for the prepossession? Who pays the utility bills during the prepossession?
  • Security Deposit: Will there be an additional security deposit in case the sale falls through and the property is damaged?
  • Buyer Contingencies: What if there are contingencies that have not been met prior to the buyer’s prepossession? Have the parties decided to waive the contingencies or are they still in place therefore allowing the buyer to cancel the Purchase Contract if a contingency is not met?
  • Alterations: What if the buyer moves in and begins to alter the property and later finds out they cannot purchase the property?
  • Buyer’s Remorse/Failed Transaction: What happens if the sale is not completed? When does the buyer/tenant have to move out? What happens if the buyer/tenant refuses to move out?

Post possession

Because the obligations in the Purchase Contract are fulfilled following close of escrow, the parties can choose to either enter into a lease agreement (which would be governed by ARLTA) or a post possession agreement. The decision of which type of agreement is appropriate may include a discussion of whether the post possession is for 3 days or 30 days. Regardless of which avenue the parties decide, the parties should be aware that the obligations to repair and maintain the property are no longer the seller’s responsibility; they are the buyer’s responsibility. Accordingly, at a minimum, the parties should address the following:

  • Insurance – homeowners and renters: The buyer will most likely have a homeowners policy. The seller should purchase a renters policy.
  • Property Condition: The condition of the property prior to tenancy should be well documented and agreed on by both parties (e.g. move in/move out inspection). The parties may further want to consider purchasing a home warranty.
  • Term: The tenancy period should be determined. The parties should further discuss what happens if the seller needs to stay in the property for a longer or shorter period of time than the agreement states.
  • Security Deposit: Will there be a security deposit in case the seller damages anything in the property during seller’s tenancy? If using a lease agreement, ARLTA provides that a landlord cannot charge more than 1.5 times the amount of one month’s rent. SeeR.S. §33-1321.
  • Rental Payments: How much is rent? Will rent be prorated?
  • Occupancy Rights: Who will occupy the property? Are there any animals? Is smoking permitted?
  • Utilities: Who pays the utility bills?

Due to the risk and liability involved with prepossession and post possession of a property, the best practice is for the parties to not enter into a prepossession or post possession agreement. However, if the parties insist on entering into such an agreement, the real estate agent should consult with their broker and advise their client to seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks.


About the Authors: Arizona Association of REALTORS® (“AAR”) Chief Executive Officer K. Michelle Lind is an attorney, a State Bar of Arizona board certified real estate specialist, and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice. AAR is the largest professional trade association in the state comprised of 40,000 members involved in the real estate industry, allied industries and firms.

Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®. This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.


To Rent or Not to Rent

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AAR Introduces New and Revised Property Management Forms

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New Property Management/Leasing Forms

The Arizona Residential Landlord and Tenant Act (ARLTA) regulates the rights of tenants and obligations of landlords in the rental of dwelling units. Many protections are provided to tenants in the ARLTA. Especially critical are those statutes that ensure property managers are in compliance when it comes to delivering the proper notices to tenants. Continuing to provide essential tools in risk management, the Arizona Association of REALTORS® (AAR) introduces five new property management forms that better enable property managers to comply with their statutory obligations.

The Notice of Abandonment informs the tenant that the landlord considers the premises to be abandoned. This form outlines the differences between abandonment “with personal property” and abandonment “without personal property”. In addition, the form provides a specific timeline and step-by-step instructions a landlord may follow to regain possession of the premises, including changing door locks, taking inventory and disposing of personal property. A.R.S. § 33-1370 requires the landlord to send this notice via certified mail, as well as post the notice on the door or other conspicuous place on the property for a period of five days.

The Notice of Nonrenewal of Lease Agreement provides the tenant proper notice that the lease will not renew and the tenant must vacate the premises. If the AAR Residential Lease Agreement is used, it is essential for the landlord to provide notice of their desire not to renew on, or prior to, the last rental due date of the original lease term. The form may also be used to provide proper 30-day notice to terminate a month-to-month tenancy. In addition, this form includes a helpful provision explaining that the tenant may not use the security deposit as last month’s rent, but must pay rent through the term of the lease agreement.

The Notice of 2-Day Access provides notice to the tenant of the landlord’s intent to enter the rental unit for the purpose of inspecting the premises, making necessary or agreed repairs, improvements or services, or showing the property to prospective purchasers, mortgagees, tenants, workmen or contractors. In case of an emergency, the landlord may enter the property without the prior consent of the tenant.

The Notice to Tenant of Management Termination is useful in providing the tenant with proper notice that the property management company will no longer manage the property the tenant is leasing. The form allows the management company to provide instructions on where to direct future rents, notices, payments of any kind and repair requests. The transfer, or return, of the security deposit may also be noted in this form. This includes details on how the security deposit will be handled if the leased premises are subject to a foreclosure.

The Statement of Disposition of Deposits and Accounting allows the landlord the opportunity to provide to the tenant a detailed accounting of the charges or deductions attributable to the tenant’s security deposit, whether refundable or non-refundable, and whether a judgment has been obtained.  Line one stipulates the date of “termination of tenancy” and “delivery of possession”, which are critical.  Within 14 days of that date, excluding Saturdays, Sundays or other legal holidays, the landlord shall provide the tenant an itemized list of all deductions together with the amount due and payable to the tenant.  In the event the tenant owes a balance to the landlord, the form contains a demand for payment and provides notice that this is an attempt to collect a debt.

The AAR Property Management Ancillary Forms committee did an excellent job in the creation of these forms. Each form is user-friendly and easy to read and implement. We hope you find the forms helpful in applying the applicable landlord/­tenant statutes set forth in the ARLTA.

NOTE: Along with the author of this article, Lisa Suarez, who served as the chair of this forms workgroup, AAR would like to thank the other workgroup members: Sue Flucke, Jeff Hockett, Jacquie Kellogg, Mike Mumford, Alberta Shantz and Brad Snyder, along with AAR staff Scott Drucker, Christina Smalls and Jan Steward.

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Leasing and Property Management

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Congress Enacts Unprecedented Federal Tenant Protections

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Legal Hotline Q&A: A Residential Tenant May Continue To Occupy The Home For A Limited Time After Foreclosure

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