Source of Income Qualifications – Confusion and Complications for Owners and Managers
August 18, 2009
Christopher B. "Chris" Hanback- Washington
Allegations of discrimination by owners and managers of conventionally-financed multifamily properties against prospective residents, based on the source of their income, are not new. They relate to the landlord’s evaluation of the origin and certainty of funds from which the tenant’s rent can be paid, including government vouchers; public assistance; disability, illness or injury payments; veterans or military benefits; court orders; and any lawful tenant business activities. While discrimination claims have been accelerating for at least the past 10 years, requirements to accept government rent vouchers are now becoming of greater concern to even those managers who pride themselves on their fair housing practices and employee training.
The reasons for the growth of claims are both social and financial. Many advocates believe that equal housing opportunities can only be achieved by facilitating the movement of low-income and minority families from poor neighborhoods to suburban and more affluent communities. Others see residents as “commodities” and, as such, do not accept the legitimacy of building diverse communities based on screening potential residents for their personal responsibility and financial stability. Requiring acceptance of rent from third-party government agencies is also seen, by some, as advantageous, if it leads to a decrease in the level of screening by landlords of prospective voucher residents, who might have other qualification problems based on their history and experience with prior landlords. Regardless, tenants must meet other requirements for tenancy and have the financial resources to pay any rental amounts not covered by a voucher.
By mandating that owners and managers participate in housing voucher programs, additional training and compliance work is created. This provides the opportunity for advocacy groups to exploit not only source of income disputes, but also mistakes and ambiguity in order to gain publicity for their organization’s activities and raise revenue through damage awards and attorneys’ fees.
In the absence of specific state or local laws, managers have identified a number of legitimate reasons why they have not accepted vouchers. These include the following:
- requirement of government inspection of the apartment unit
- delays in rental necessitated by holding units available for voucher participants to obtain approvals
- addition of certain special terms to the standard lease for voucher holders relating to use of the premises, payment of rent and eviction
- execution of a special written agreement with the voucher provider
Where state or local law requires that such vouchers be accepted, owners and managers often struggle with compliance because prospects make vague telephone inquiries, applicants do not articulate that they have a housing choice voucher and units have to be held off of the market for voucher recipients while they qualify with government agencies.
Federal Requirements
The federal Fair Housing Act (FHA) prohibits discrimination in the terms and conditions of renting housing to identified “protected classes” of individuals based on race, color, religion, sex, familial status, national origin and certain disabilities. No provision of the FHA explicitly prevents an owner or manager from refusing to rent to a potential resident because the source of that resident’s income is government rental subsidies in the form of “Section 8 Vouchers” or “Housing Choice Vouchers.” Nevertheless, when residents are rejected because of the source of their income, claims under the FHA may be brought alleging that such rejections are, in fact, based on intentional discrimination against a protected class, such as minorities, or when such rejection, while facially neutral, has a disparate impact on members of a protected class.
State Requirements
Because of the difficulty in bringing such claims under federal law, a number of states (and some localities) have enacted statutes providing that it is unlawful to reject prospective tenants because the source of their income is housing vouchers. The law can be confusing as some states protect “source of income” but may not consider the refusal to accept housing vouchers to be a violation of this provision. For example, in California Government Code Section 12955(p) (1): “’Source of income’ is defined as ‘lawful, verifiable income paid directly to a tenant or paid to a representative of a tenant. For purposes of this section, a landlord is not considered a representative of a tenant.’” Government Code Section 12955(p) (1). California’s Fair Employment and Housing Department has held, therefore, that landlords are not required to accept Section 8 housing choice vouchers under the “source of income” discrimination prohibitions.
States prohibiting discrimination based on source of income include: California, Connecticut, District of Columbia, Maine, Massachusetts, Minnesota, New Jersey, North Dakota, Oklahoma, Oregon, Utah, Vermont and Wisconsin.
Local Requirements
Perhaps, the most significant developments requiring landlords to accept residents without regard to the source of their income to pay rent have occurred at the local level. Such ordinances are usually similar to that of New York City, which provides that it is unlawful:
“To refuse to sell, rent, lease, approve the sale, rental or lease or otherwise deny to or withhold from any person or group of persons such a housing accommodation or an interest therein because of the actual or perceived race, creed, color, national origin, gender, age, disability, sexual orientation, marital status, partnership status, or alienage or citizenship status of such person or persons, or because of any lawful source of income of such person or persons, or because children are, may be or would be residing with such person or persons.” New York City Administrative Code, Title 8 Civil Rights § 8-107 5 (a) (1).
Other jurisdictions which have enacted some form of source of income fair housing requirement include: Los Angeles, San Francisco, Chicago, Montgomery County (Maryland), New York City and various local governments in Pennsylvania, Washington state and Missouri.
Recent Developments
A regional fair housing advocacy group is bringing complaints against owners and managers of rental housing properties in the District of Columbia and suburban Maryland. The claims have been brought both in court and in complaints to the local county fair housing agency. It appears that the claims are part of an orchestrated “testing” program and are not limited to owners thought to exclude low income or minority residents. Indeed, in at least some of the complaints, the named defendants were actively participating in government voucher programs and already accepting subsidies of lower income residents. The advocacy group is seeking to exploit the confusion resulting from multiple programs that provide rent subsidies for tenants. In all instances significant damages and attorneys fees’ are being sought by the advocacy group.
Avoiding Problems
In order to reduce their risk of discrimination claims, owners and managers of multifamily housing should revisit their fair housing policies and procedures and take the following steps:
- Determine if your state or local jurisdiction includes “source of income” or “housing vouchers” as protected.
- If applicable under state or local law, make sure your written fair housing policies and procedures address “source of income.”
- Include “source of income” training in your fair housing training of employees in such jurisdictions.
- When the rent on a unit exceeds the amount provided by a housing voucher and the tenant is to pay the difference, be sure to have clear standards for assessing other tenant income from which the remainder of the rent will be paid.
- Make sure your leasing employees understand the different applicable subsidy programs that may apply to communities in their jurisdiction – for example, the difference between local programs whereby certain units are set aside for residents, and selected and paid for by a local housing agency and housing choice vouchers held by individuals.
- Consider whether to accept housing choice vouchers even in those jurisdictions where it is not required by state or local law. If not, why not? What is the business reason for not accepting such vouchers?
- Assume that your properties will be “tested” on the source of income/housing choice voucher issue.
Related Practices