Today, HUD issued an advanced notice of proposed rulemaking requesting public comments to its 2013 Final Rule which implemented the Fair Housing Act’s disparate impact standard. HUD indicates this rulemaking is in light of the Supreme Court’s  2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which held that disparate impact claims are cognizable under the Fair Housing Act. HUD is reexamining its rule to determine if any changes may be necessary.

HUD is specifically requesting public comments to the following six questions:

  1. Does the Disparate Impact Rule’s burden of proof standard for each of the three steps of its burden-shifting framework clearly assign burdens of production and burdens of persuasion, and are such burdens appropriately assigned?
  2. Are the second and third steps of the Disparate Impact Rule’s burden-shifting framework sufficient to ensure that only challenged practices that are artificial, arbitrary, and unnecessary barriers result in disparate impact liability?
  3. Does the Disparate Impacts Rule’s definition of “discriminatory effect” in 24 CFR 100.500(a) in conjunction with the burden of proof for stating a prima facie case in 24 CFR 100.500(c) strike the proper balance in encouraging legal action for legitimate disparate impact cases while avoiding unmeritorious claims?
  4. Should the Disparate Impact Rule be amended to clarify the causality standard for stating a prima facie case under Inclusive Communities and other Supreme Court rulings?
  5. Should the Disparate Impact Rule provide defenses or safe harbors to claims of disparate impact liability (such as, for example, when another federal statute substantially limits a defendant’s discretion or another federal statute requires adherence to state statutes)?
  6. Are there revisions to the Disparate Impact Rule that could add to the clarity, reduce uncertainty, decrease regulatory burden, or otherwise assist the regulated entities and other members of the public in determining what is lawful?

The 60 day comment period ends on August 20, 2018. Interested persons can submit comments to HUD electronically through http://www.regulations.gov or by mail.

 Ballard has been closely monitoring potential changes to the Rule and will continue to do so. We will also continue to work with clients on issues pertaining to the Rule.

On Thursday, November 9, 2017 HUD hosted a live webinar to provide an overview and discussion of the recently developed Completion Certification and the RAD Minority Concentration Analysis Tool. A video of the webinar can be found here along with slides from the presentation.

Construction Completion Certification. Once construction or rehabilitiation is complete, Section 1.13(B)(6) of the RAD Notice requires that Owners submit a completion certification including a cost certification and other information about compliance with requirements of the RCC.  The Office of Recapitalization recently created a module on the RAD Resource Desk entitled the “Rehab/Construction Completion Milestone” and also posted instructions on completing the certification.   Submitting the Completion of the Rehab/Construction Milestone information should be done no later than 45 days after completion of the work. The new module requires owners to provide information related to the completion of work, residents’ right of return, and Section 3 hiring achieved.  Owners should become familiar with the requested information regardless of where they are in the RAD conversion process to understand what data will be needed to complete the certification, including some information that dates back to the issuance of the CHAP.

RAD Minority Concentration Analysis Mapping Tool. HUD has released the RAD Minority Concentration Analysis Tool (the “Tool”) in order to help housing authorities assess whether a proposed site for new construction under RAD may be in an area of minority concentration.  The Tool will create a report of data required by the RAD Fair Housing and Civil Rights Notice (H/PIH 2016-17), including minority data from the Census for: 1) the Housing Market Area; 2) the census tract; 3) the area comprised of the census tract of the site together with all adjacent census tracts; and 4) an alternative geography if proposed by the housing authority. The Tool is available at https://www.huduser.gov/portal/maps/rad/home.html and requires creating a user account.

This week, HUD issued a final rule that creates liability under the Fair Housing Act (FHA) for housing providers for occurrences of “quid pro quo harassment” or “hostile environment harassment.” The new rule takes effect on October 14, 2016.

The rule prohibits both quid pro quo and hostile environment harassment because of a resident’s protected class which, under the Fair Housing Act (FHA) includes race, color, religion, sex, familial status, national origin, or disability.

The most concerning section of the rule for housing providers relates to direct liability exposure for any type of discriminatory housing practice. The rule creates three categories of direct liability for housing providers—liability for the housing provider’s own conduct; liability for failing to take prompt corrective action relating to the conduct of its employees or agents; and liability for failing to take prompt corrective action for the conduct of a third party (such as another resident). As a result, providers could be liable for behavior among tenants if the housing provider “knew or should have known of the discriminatory conduct and had the power to correct it.” This potentially interjects housing providers into disputes among tenants related to harassing behavior.  See Ballard Spahr’s e-alert on the rule for more discussion of the new rule and it’s implications.

 

According to a recent Department of Justice (DOJ) settlement, some pets are allowed in the house. HUD filed and settled a civil rights lawsuit against RiverBay Corporation, a New York City-based affordable housing cooperative manager that owns and operates 15,372 residential units – the largest housing cooperative in the country, claiming the company maintained no-pets policies violating Fair Housing Act and Americans with Disabilities Act (ADA) guidelines for accommodating individuals with disabilities.

In light of the settlement’s complexities, the DOJ issued new guidance on ADA distinctions of service animals and their purpose, and clarified requirements for accommodating individuals who need them. The guidance restates that government agencies, public-serving businesses, and nonprofit organizations must comply with ADA service animal requirements, but also emphasizes that institutions of higher education should consider all efforts to remain compliant with ADA standards while balancing to the equal access needs of students with allergies on campus and in dormitories. The DOJ provides additional information that clarifies questions businesses and property managers may have regarding public health and safety concerns for service animals accessing pool grounds, open food areas, and hospital facilities.

While there are likely to be future concerns and developments regarding ADA requirements for service animals, it is important to remain mindful of the way private policies relate to the access and compliance standards set forth for those with service animals. Please see our legal alert for additional considerations and discussion points.

Housing Plus blogger Sharon Wilson Géno will moderate a panel – Disparate Impact: How the Supreme Court is Reshaping Affordable Housing Policy in TDHCA v. The Inclusive Communities Project, Inc. – on July 16 at the National Housing & Rehabilitation Association’s Summer Institute conference. She previews the panel discussion below.

It’s hard to disagree with the ideals that lead to the passage of the Fair Housing Act in 1968 – that it should be illegal for housing providers to discriminate based on race, color, religion, national origin, sex, familial status or handicap. This principle seems fundamental to our Constitution and American society.

So why some almost 50 years later are housers and courts still grappling with what is and what is not unlawful discrimination under the Fair Housing Act?  Interpreting the legal language of the Fair Housing Act has, in fact, proved challenging in practice. Intentional discrimination against members of the protected classes is clearly prohibited without a doubt, courts have struggled for years with whether a housing policy or decision that is not intentional but has a disparate impact on a protected class is also illegal and, if so, what constitute appropriate standards of proof.  In addition, recipients of HUD funds and the Department itself have struggled with what they need to do to “affirmatively further fair housing” as the Fair Housing Act also requires.

Fair Housing has been a hot topic over the last few weeks as the Supreme Court issued its 5-4 decision in in TDHCA v. ICP, Inc. ‎

The U.S. Supreme Court held that disparate impact claims are viable and HUD issued a rule interpreting the Fair Housing Act provisions regarding affirmatively furthering fair housing providing interpretive guidance for the first time.

Tomorrow, I will be moderating a panel at the National Association of Housing and Redevelopment Associations Summer conference that will explore the implications of these recent event for affordable housing lenders, investors, and developers.  Joining me in this discussion are representatives from HUD, investors and developers to discuss how the legal interpretation of the Fair Housing Act will change moving forward.

The panel will explore how the Supreme Court decision will impact the perspectives and policies used to evaluate housing opportunities in our diverse community landscapes. It will also discuss the interplay between the Supreme Court decision and the AFFH rule and what risks they pose to housers. We will be sure to provide the key take aways of the discussion.

Justice BuildingIn a 5-4 decision today, the U.S. Supreme Court recognized that disparate-impact claims maintain adjudication viability under the Fair Housing Act (FHA). Justices Kennedy, Ginsberg, Breyer, Sotomayor, and Kagan provided the majority opinions, while Chief Justice Roberts and Justices Alito, Scalia, and Thomas wrote dissenting opinions. The majority opinion is available here.

The Court acknowledges that the Fair Housing Act contributes significantly to the removal of “artificial, arbitrary, and unnecessary barriers” that may arise in the management and distribution policies that affect equal access to affordable housing. Disparate-impact claims, the Court majority notes, should be scrutinized under measurable criteria and data. Specifically, the party bringing the claim must establish “robust” causation in the form of evidence – statistical or otherwise – that a policy directly causes disparate impact. Such a provision is meant to protect defendants from being held liable for racial disparities they did not create, to maintain that race alone cannot be a pervasive or determining factor for claims, and to encourage the use of workable community information, including costs, traffic patterns, quality of life, and preservation of historic architecture, to establish that housing decisions did not construct “artificial, arbitrary, or unnecessary” barriers. There is currently a framework under the FHA for evaluating and litigating disparate impact claims, but the applicability of various factors and data will ultimately fall under judicial interpretation. A more detailed overview of the decision can be found within this alert.

In light of this impactful decision, Ballard Spahr will be hosting an informational webinar in the next few weeks. Topics will explore the practical impacts, implications, and developing issues of this ruling. We will be sure to keep you apprised of the program information and registration.

From May 20-22, a handful of our bloggers will speak at the ABA Forum on Affordable Housing and Community Development Law in Washington, D.C. – an annual meeting that brings together pertinent developments, resources, strategies, and insights within the affordable housing and community development law community.

Molly R. Bryson, one of the Conference Planning Chairs, will moderate the Washington Update on Housing and Tax Related Issues — a panel of industry leaders discussing the latest developments in housing and tax credit reform.

Amy M. McClain will moderate the Rental Assistance Demonstration (RAD) session, which explores the need-to-know financial and legal considerations for the RAD conversion process. The panel of HUD and other industry leaders will review relevant HUD guidance impacting RAD implementation, and add key perspectives to RAD as means to enhance the long-term financial stability of a housing authority’s affordable housing stock.

Scott W. Cockerham will participate in Numbers for Lawyers: Analyzing and Understanding Financial Projections and the Concepts Behind Them, a workshop that discusses financial projections for tax credit transactions as they relate to both investors and developers.

Amy M. Glassman will speak on an array of Fair Housing laws as part of the panel “What Does the Lawyer Representing HUD/FHA Multifamily Developers, Owners and Managers Need to Know About Fair Housing?”. The discussion will cover how Fair Housing laws apply to the design, construction, and demolition/disposition of multifamily housing properties, as well as how the laws affect housing for the elderly and other supportive services.

The full program of the ABA Forum is available, and we look forward to further sharing our insights.

BuildingsOn November 5, 2014, the Philadelphia office of Ballard Spahr LLP hosted a lively and informative discussion of Tax Credit Hot Topics.  The panel, moderated by Ballard Spahr partner Monique DeLapenha, included representatives of all aspects of a tax credit transaction, providing each unique perspective on a variety of important areas in the tax credit arena.

Attendees were provided with a timely review of the impact that the midterm 2014 election will have on tax credits.  The Senate has passed the “tax credit extender” legislation, which would extend the life of approximately 100 tax credit provisions that have expired or are near expiration, including the 9% floor for Low Income Housing Tax Credits (LIHTCs) and the New Markets Tax Credit (NMTC) program.  The House has been working on individual bills, which are not likely to all get passed in the next two weeks before the end of the congressional session.  With the GOP controlling both the Senate and House in 2015, comprehensive tax reform is likely to take place, as it is a top priority of Republicans, which would impact all forms of tax credits. There is also the potential for legislative action on the Rental Assistance Demonstration (RAD) program.  Currently, HUD has been authorized to convert 60,000 units from public housing to Section 8 housing, in order to bring capital investment to address the physical needs of the aging public housing stock.  The program’s demand is exceeding the authorization, however, because there are over 100,000 units on a waitlist for RAD conversion.  Public housing authorities and developers are advocating for the cap to be lifted or extended, however some in Congress waiting to see how the current demonstration plays out before authorizing additional units and HUD and the affordable housing industry are working to provide data from the demonstration.

Another “hot topic” in tax credits is the subject of fair housing, and specifically those in the industry are watching the outcome of a case which the U.S. Supreme Court is slated to hear in the next term.  The outcome of the case could cement the standard that courts must use when fair housing claims are brought.  Under the Fair Housing Act, a claim may be brought by showing that there was intentional discrimination in a housing practice or policy, or by showing that a housing practice or policy has a disparate impact on a protected class.  In a recent case in Texas, Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, a trial court held that the Department of Housing and Community Affairs in Texas violated the Fair Housing Act when it awarded LIHTCs to projects that would be developed in low-income neighborhoods, because it had a disparate impact on a protected class.  The Supreme Court will review whether the disparate impact theory is a viable basis for fair housing claims.  It is a case being watched carefully by every participant in the housing tax credit world, from the state agencies that award LIHTCs to the equity investors to the affordable housing developers. The panel also provided detailed insights into how developers can make strong presentations to certified development entities for a NMTC allocation, how an affordable housing developers structure a RAD deal, and how the Historic Broadway Hall case provided more certainty for equity investors in structuring partnerships to be certain they do not have issues with the IRS in the event of an audit.

ScaleHUD’s Office of Public and Indian Housing (PIH) recently issued PIH 2014-20 (PIH Notice) providing guidance to public housing authorities (PHAs), PHA affiliates and instrumentalities, mixed-finance owners and owners of Section 8-assisted properties regarding the implementation of the final rule entitled Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity (the Equal Access Rule). The PIH Notice confirms the Equal Access Rule also applies to PHAs who are Moving to Work agencies or participating in the Rental Assistance Demonstration program.

Most PHAs and owners are already likely complying with the Equal Access Rule, however, the PIH Notice describes steps PHAs must take to implement the Equal Access Rule, including updating its Annual Plan, Section 8 Administrative Plan and Public Housing Tenant Selection Policies. Definitions used in those materials  – specifically the definition of “family” – must be consistent with the Equal Access Rule.  In particular, a PHA or owner cannot refuse to consider an unmarried and/or same-sex couple as a family for purposes of admissions or modifications to household composition, nor can gender identity be considered in connection with the determination of what constitutes a family.

Given that the Equal Access Rule requires that housing be made available without regard to actual or perceived sexual orientation, gender identity or marital status, PIH advises that PHAs or owners of PHA-assisted properties may not inquire about an applicant’s or participant’s sexual orientation or gender identity when making housing available, although individuals may voluntarily self-identify their gender identity or sexual orientation. PHAs and owners are prohibited from making decisions, taking actions, or refusing to take actions based on an applicant’s or resident’s actual or perceived sexual orientation or gender identity.  Also, a PHA may inquire about an applicant’s or participant’s sex in certain circumstances (e.g., to determine the number of bedrooms for which the household is eligible).

PIH explains that violations of the Equal Access Rule can result in sanctions or corrective actions. The PIH Notice also describes certain scenarios in which a violation of the Equal Access Rule may occur as well as ways in which the Fair Housing Act may be implicated in violations of the Equal Access Rule.  Keep in mind that many local or state fair housing law already directly prohibit discrimination based on sexual orientation or gender identity, thus violations of the Equal Access Rule may also violate those laws as well.

ScaleOn March 24, 2014, the Fifth Circuit was the first Circuit to directly adopt HUD’s new disparate impact rule.  Inclusive Communities Project v. Texas Dep’t of Hous., 2014 WL 1257127 (5th Cir. Mar. 24, 2014).  Now, a challenge to HUD’s new rule may be headed to the Supreme Court.  HUD’s new rule recognizes that liability can attach even in the absence of discriminatory intent with a showing that a practice has a discriminatory effect (disparate impact).  While many Circuits have explicitly or implicitly acknowledged that liability may be established by a showing of disparate impact after an analysis of the Fair Housing Act itself, the Fifth Circuit expressly adopted the legal standard promulgated by the HUD regulation regarding HUD’s recognition of a cause of action and burden of proof in housing discrimination cases, specifically addressing low-income and racial disparate impact.

Inclusive Communities Project involved a Fair Housing Act challenge to the allocation of low income housing tax credits. The plaintiff, a group that assists low-income families eligible for Section 8 vouchers, argued that the Texas Department of Housing and Community Affairs (“Texas DHCA”) disproportionately approved tax credits for non-elderly affordable housing developments in predominantly minority neighborhoods while it disproportionately denied tax credits for the similar affordable housing developments in predominately white neighborhoods.  After a bench trial, the district court, finding a disparate impact existed from plaintiff’s statistics and concluded that the Texas DHCA had a legitimate bona fide interest in its review process, but it had not produced any evidence that there were no less discriminatory alternatives.  The trial court adopted a remedial plan that included alterations to the process in which tax credits were awarded and implemented an annual review for at least five years.  Defendants appealed.  On appeal, the Fifth Circuit adopted the burden-shifting approach found in HUD’s new disparate impact rule. In so doing, the Fifth Circuit reversed and remanded the case to the trial court to apply the new burden-shifting approach.  Specifically, the Fifth Circuit reversed and remanded the case to the trial court, instructing it to apply the three-step burden-shifting approach found in HUD regulation—namely, that plaintiff must first prove discrimination by showing that a challenged practice causes a discriminatory effect (typically done through statistics); second, the defendant must prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests; and third, the plaintiff must then show that the defendant’s interests could be served by another practice that has a less discriminatory effect.

While the Fifth Circuit case did not challenge the validity of HUD’s regulation (as the currently pending American Insurance Association v. HUD, Case No. 13-cv-966, in the US District Court for the District of Columbia does), its significance is twofold.  First, the Fifth Circuit expressly adopted the HUD regulation and instructed a trial court to use the framework in reassessing the merits of the case.  Because of the relative novelty of HUD’s rule, this appears to be the first instance in which a Circuit Court has adopted the framework from the regulation itself, rather than relying on prior precedent.  Second, in May, the Texas DHCA filed a petition for certiorari with the Supreme Court, requesting that the Court hear the case and whether disparate impact claims are recognized under the Fair Housing Act.  Should the Supreme Court grant certiorari and agree to hear the case, it would be the third Fair Housing Act disparate impact case before the Supreme Court since 2012.  The prior two cases, Twp. Of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. and Magner v. Gallagher, were both settled before the Court could answer the question.  In its petition, the Texas DHCA argues that the Supreme Court should grant the petition because the issues before the Court are “indistinguishable from the questions on which this Court granted certiorari in Gallagher and Mount Holly,” that the scope of potential disparate impact liability makes the matter of “exceptional importance,” and that the statutory language of the Fair Housing Act does not expressly provide for disparate impact, as does Title VII and the ADEA.  Briefs in opposition are due to the Supreme Court by Monday June 16, 2014.  It is also likely that the United States, through the Solicitor General’s office, will file an amicus curie brief, as was done in both Gallagher and Mount Holly.  Once the briefs have been submitted, the Supreme Court will decide whether to hear the case.