Just A Landlord

The Wisconsin Landlord Tenant Law Omnibus bill was signed into law by Governor Scott Walker around 4 PM March 21st, 2012.  You must be in compliance with the provisions for tenancies  entered into beginning April 1st.

One thing the bill does is add a new prohibited lease provision:

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The Landlord Omnibus bill was fast tracked, being introduced on 2/13/12,  passed by the Senate on March 14th, adopted by the Assembly on March 15th and will be signed into law on Mar 21st (tomorrow).  While the bill addresses many issues in a positive manner for landlords, it also is going to require revisions to your future rental agreements.

The changes required that I see so far are:

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File under “Buying Single Family Rentals Has a Downside”

Our crew shows up to work on a vacant property this morning and finds the siding and storm windows gone. It was an okay looking place yesterday. Now it needs to be resided.

At least this time they did not steal the plumbing and electric wiring.

A year ago a similar thing happened.  A tenant that lived in another of our homes a couple doors away saw the neighbor stripping our property and called 911.  The police said ‘have your landlord file a report so he can file an insurance claim’ and did not send out a squad.  By the end of the weekend the neighbor had stripped all the plumbing, heating and electric wiring from the house.

I sent the police and the DA photos my tenant took showing the neighbor loading the siding on to his car.    We ended up razing the property as the damage was so extensive.

No one was ever prosecuted, even though the damage exceeded ten grand.

Pepsi recently paid millions to settle complaints on their use of criminal background checks in pre employment screening.

http://www.eeoc.gov/eeoc/newsroom/release/1-11-12a.cfm

“Based on the investigation, the EEOC found reasonable cause to believe that the criminal background check policy formerly used by Pepsi discriminated against African Americans in violation of Title VII of the Civil Rights Act of 1964.”

The issue is based on the use of arrest records, rather than convictions, as well as convictions for crimes unrelated to the job they were seeking.  There are also studies that show racial minorities are more likely than majorities to be arrested under the same circumstances.

When you read this in conjunction with HUD’s proposed Fair Housing Act’s Discriminatory Effects Standard rule , it becomes pretty clear that arrest record based screening may cause trouble in the future.  It also would appear that arrest and convictions for crimes unrelated to housing will cause trouble.

What criteria may you legally use to exclude applicants that will disrupt the property and the neighborhood?  Is simple possession of pot enough to legally deny a tenant?  What about crimes of violence that the victims were strictly family?  (You can not discriminate against victims of domestic violence, and that is the way is should be.) What about a serial shoplifter, should they be denied housing?  A car thief?  The guy who gets in fights at the bar , but never at home?  What about the person who is out on bail pending trial on the hatchet murder of his neighbor? No conviction yet, so would you have to accept their application?

And in the course of staying out of trouble with the feds will you fall into problems with local nuisance and housing laws?

The answers?  Unfortunately most governmental agencies fail to create bright line rules so people affected by the rule can stay out of trouble.  Additionally few rules address the problem caused by conflicting regulations such as this proposal and nuisance laws.

The comment period for the proposed  Federal Rule ends on Tuesday January 17th, 2012. The only people who appeared have commented on this en masse were Fair Housing advocates and to a lesser extent, the Bankers. One would have thought that municipalities would oppose as this clearly will disrupt nuisance type ordinances and other rental housing regulations, but it does not appear they did.

None of us would intentionally discriminate, so opposing the rule is probably not the answer, but we need to know what is permitted and what are prohibited screening practices as they relate to criminal backgrounds.  Comments seeking better clarification of the rule may be helpful.

So let’s take a look at HUD’s proposed Fair Housing Discriminatory Effects Standard rule.

2. Discriminatory Effect Defined (Sec.  100.500(a))    Under the Fair Housing Act and this proposed rule, a “discriminatory effect” occurs where a facially neutral housing practice actually or predictably results in a discriminatory effect on a group of persons (that is, a disparate impact), or on the community as a whole (perpetuation of segregation).\41\ Any facially neutral action, e.g. laws, rules, decisions, standards, policies, practices, or procedures, including those that allow for discretion or the use of subjective criteria, may result in a discriminatory effect actionable under the Fair Housing Act and this rule.

This is moderated a bit in Section 3, but you really need a close relationship between the screening purpose and the crime.  I wonder if a sex offender who “only” attached family members would pass this test if they were not proposing to live with family members.

3. Legally Sufficient Justification (Sec.  100.500(b))     A housing practice or policy found to have a discriminatory effect may still be lawful if it has a “legally sufficient justification.” A “legally sufficient justification” exists where the housing practice or policy: (1) Has a necessary and manifest relationship to the defendant’s or respondent’s legitimate, nondiscriminatory interests; \42\ and (2) those interests cannot be served by another practice that has a less discriminatory effect.\43\ A legally sufficient justification may not be hypothetical or speculative. In addition, a legally sufficient justification does not defeat liability for a discriminatory intent claim once the intent to discriminate has been established.

In section 4 they refer to the person alleging a ”legally sufficient Justification”  as “defendant”.  That is a term we all wish to avoid to have following our name on any document.

The last paragraph is particularly disturbing.  If you satisfy the burden under #3 you can still be in hot water if the complainant can suggest a method to achieve your legitimate goal with a way that is less discriminatory.

4. Burdens of Proof (Sec.  100.500(c))    The burden-shifting framework set forth in the proposed rule for discriminatory effect claims finds support in judicial interpretations of the Act, and is also consistent with the burdens of proof Congress assigned in disparate impact employment discrimination cases. See 42 U.S.C. Sec.  2000e-2(k). In the proposed rule, the complainant or plaintiff first bears the burden of proving its prima facie case, that is, that a housing practice caused, causes, or will cause a discriminatory effect on a group of persons or a community on the basis of race, color, religion, sex, disability, familial status, or national origin.

    Once the complainant or plaintiff has made its prima facie case, the burden of proof shifts to the respondent or defendant to prove that the challenged practice has a necessary and manifest relationship to one or more of the housing provider’s legitimate, nondiscriminatory interests.

    If the respondent or defendant satisfies its burden, the complainant or plaintiff may still establish liability by  demonstrating that these legitimate, nondiscriminatory interests could be served by a policy or decision that produces a less discriminatory effect.

Note the second paragraph uses the word “necessary”  There is a good reason  ”necessary” rhymes with “scary”:

Graoch, supra, 508 F.3d at 387 (Nelson, J., concurring) (concluding that “a consensus exists that business necessity is the appropriate test” and that this “business necessity” standard holds defendants to a higher standard than the more lenient “business justifications” test set forth in Wards Cove).

So the question is once this becomes law, and it will as all but one Federal Court of Appeals have held that the current Fair Housing Act prohibits housing practices with a discriminatory effect even absent an intent to discriminate, can we still use criminal background checks as a legitimate means of screening out tenants that will cause harm to other occupants, the neighborhoods and our properties.

There is this online company, Airbnb, that lets you rent your house to complete strangers for hundreds of  dollars a week.  The company has a $1.3 billion dollar valuation.  Well at least they did until last week. I think the name stands for air (as in online) bed and breakfast.

The company became big news when, surprise, surprise, news breaks that some tenants trash homes.

It seems Airbnb’s business model was based on the idea that most people respect the place they are renting

The vast majority of our community members genuinely respect and protect each other 

I guess they should have had a few actual landlords in their focus groups as they set up the business model.  Every landlord would have foreseen this.