The FHA prohibits discrimination in housing based on disability, race, color, religion, national origin, sex and familial status. HUD and DOJ share responsibility for enforcing the FHA.

One type of discrimination prohibited by the FHA is the refusal by housing providers or homeowner associations to permit a reasonable modification – i.e., a structural alteration – of existing premises, occupied or to be occupied by a person with a disability, when the modification may be necessary to afford the person full enjoyment of the premises.

Although the housing provider or homeowner association must permit the modification, the tenant (or prospective tenant) is responsible for paying the cost of the modification. Examples of reasonable modifications include widening doorways to make rooms more accessible to persons who use wheelchairs or installing a ramp to provide access to a public or common use area, such as a clubhouse.

The new guidelines, issued in the form of questions and answers, cover such topics as:

• What is a reasonable modification?
• Who must comply with the reasonable modification requirement?
• Who is responsible for expenses associated with the upkeep or maintenance of a reasonable modification?
• When and how should an individual request permission to make a modification?
• What types of documents and assurances may a housing provider require regarding the modification before granting the modification?
• What procedures are available to a person wishing to challenge a denial of a requested modification?
  

The guidelines are available on the web sites of both HUD and the Department of Justice.

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We provide detailed discussion of Fair Housing issues including Reasonable Modification and Reasonable Accommodation for Members in our Landlord Resource articles, Mini Training Guides and eCourses

Weekly Update:  June 13, 2008

The Sub-Prime Lending Melt-Down: Where we are today

The jump in home foreclosures, tightening of lending standards, and, in many areas, a shortage of rental units affect both operation of residential rentals and those wishing to buy or sell rental housing.  The manner in which and the degree to which landlords, buyers, and sellers are affected depends on a variety of factors.

Increasing Default/Foreclosure Rates
Already, many sub-prime borrowers have lost their homes or have been forced to sell their homes under threat of foreclosure because of large increases in payments under terms of their ARM loans.  As of June, it can be expected that many more will be in the same position during the coming year as more loans reach their reset points. 

This is certainly bad news for those homeowners who are already in default and those who are having or will have serious problems making the significantly higher monthly loan payments, including those speculators who thought they’d be flipping homes for large easy profits.
The importance of the matter to operating landlords is considerably less than to speculators who thought they'd make lots of money within a few months, that is, flippers.  Landlords who are managing properties purchased before the credit crunch, including even those who bought single-family homes for long-term investment under such conservative terms as made sense, are not, in general, directly affected by the sub-prime loan debacle.

Investors, as opposed to speculators, may be secondarily affected regarding purchasing additional properties or refinancing existing ones due to the increased underwriting requirements, but not to the degree as are want-to-be owner-occupant homeowners because (1) financing of income properties by those who are not claiming to be owner-occupants has always required larger down payments and (2) those purchasing properties as long-term rentals are much more likely to be concerned about cash flow than are speculators.

Many of those investors have backed out of purchase contracts since the market turned down many months ago, others have already put tenants into their properties, and still others have already lost their properties.

Many of the speculators who entered the game within the past year or so, have walked away from their contracts, often with loss of earnest money deposits.  Speculators who closed escrows before the market correction became evident are basically in three classes. 

First, there are those who bought with a large enough down-payment so that the property when rented provides a break-even or a manageable negative cash flow.Second are those who are highly leveraged, but have deep enough pockets to cover the negative cash flow and can ride out the downturn, eventually realizing a profit down the road a few years. 

Third, there are those who must either (1) sell at a loss, walking away from their down payment and/or closing costs or (2) lose the property in foreclosure because they can’t carry the negative cash flow long enough and can’t put in the cash necessary to close an escrow. 

Those homes bought by speculators, whether foreclosed or sold at low prices to avoid foreclosure, only further depress the market.

However, the problem is actually benefiting existing landlords, at least those who have not themselves financed or refinanced utilizing sub-prime loans that have or will soon reset. Those landlords who have reasonable loan-to-value financing will benefit because the vast majority of those losing their homes through foreclosure or selling through necessity have no choice except to become tenants.

The chances of buying a replacement home for foreclosed homeowners or even those who were able to avoid loss of their home by selling are slim for several reasons.  Most obvious is the damage to credit ratings of foreclosed homeowners.  Many of those who were able to sell prior to the actual foreclosure sale will also have their credit ratings damaged due to months of late payments and/or no payments prior to closing escrow.  Both those foreclosed and those who were able to avoid foreclosure by selling will be prevented from buying replacement homes in the near future for two other reasons.

First, lending standards have increased and those who qualified marginally under the loose standards of the previous sub-prime market can no longer qualify under the tighter standards now in effect.  The same factor also affects many existing tenants who had hoped to buy a home and might otherwise have been grabbing the deals available currently available in many markets but who must now remain tenants.

Second, many of those who went through foreclosure or sold to avoid foreclosure now have reduced ability to close a loan even if they can qualify under the new standards for reasons beyond a damaged credit rating.  Even those who obtained zero-down-payment financing likely spent a significant portion of assets in closing costs, moving expenses, furnishing their new homes, and/or holding on before foreclosure or sale and are now even more cash-poor than they were before buying the property that they no longer own. 

Some sellers even had to put some cash into the deal in order to close escrow because of the sale price being less than the loan balance.

Supply
Those landlords who are benefiting from the meltdown are also benefiting from a shortage of rental housing in many major markets, including Southern California.  For example, according to a recently (October) released survey by the RealFacts research firm, San Diego region apartment rental rates were about 1-1/4 percent higher in the third quarter 2007 compared to the second quarter and rates were 5 percent higher compared to a year earlier.  Correspondingly, San Diego vacancy rates decreased from about 5.9 percent to 4.3 percent from the first quarter to the third quarter of 2007. 

A survey released in September by MarketPointe showed that the average rent in San Diego County rose by 2.43 percent over the past 6 months.  The difference in survey results is probably due to the fact that MarketPointe surveys complexes of 25 or more units whereas RealFacts surveys complexes of 100 or more units.

Furthermore, construction of rental housing will be reduced in many areas because of decreasing feasibility of development in those areas.  Feasibility of constructing new units is sometimes dealt a double whammy.  First, the decline in property values makes it more difficult to justify construction and obtain financing for rental housing in many areas.  Second, construction costs have continued to increase in many areas due to increases in labor and/or material costs and/or due to increased governmental fees and construction requirements.

Demand
Landlords of single-family homes and larger condo/townhouses units will likely benefit the most because those moving from homes will want large rentals.  Those moving from a 5 or 4-bedroom, 3 or 2.5 bath home with a garage will try to rent homes of the same or nearly the same type and size if for no other reason than they have a lot of relatively new furniture.  Increased demand for larger units will soon result in increased competition and higher rents for those units forcing some tenants to settle for smaller units than they’d like.  Accordingly, owners of even the smallest units will soon benefit from the sub-prime debacle as the demand trickles down to them.

Most experts predict that there will be continuing waves of foreclosures over the next year or so before things stabilize, providing continuing upward pressure on rents.  This should significantly benefit rental property owners, particularly those who have been dealing with expenses increasing faster than rents.
Those landlords who have fixed rate loans will benefit the most and many of them will be realizing significant increases in cash flow.  Those who themselves have variable rate loans, perhaps even sub-prime financing, will not all be so lucky unless they obtained their financing a decade or more ago and are now in a reasonable loan-to-value position.

Effect on Buying & Selling
The changing market also impacts both (1) those landlords who wish to acquire additional properties and (2) those who want to invest in rental properties for the first time.  There are opportunities for those with sufficient cash and credit rating to take advantage of the current market values.  However, higher rents translate into increased value, so investors who are in a market where rents are increasing may want to consider making their purchases soon.

On the other side of the coin, those considering selling may want to wait until market rents have leveled off at a new plateau before selling.

Rental Applicant Issues
Landlords must also consider how they will handle applicants who have credit ratings that were affected by having a property foreclosed or having a record of late or non-payments prior to a necessary sale.  As is often necessary when an applicant has been through a divorce or had significant medial expenses, derogatory credit report items related to a specific event should be considered on an individual basis.  Of course, landlords must be concerned whether the applicant has sufficient cash available to cover the security deposit and a month of rent and sufficient income to pay future rents.  It can be of interest to know the amount of loan payment plus property tax plus insurance the applicant was unable to pay that resulted in foreclosure or necessary sale of his home.  For example, an applicant who bought his house with a PITI payment of $1,200 and could not make a reset PITI payment of $1,700 may not be a good risk for a rent of $1,500.  As for any below desired credit rating, a guarantor should be considered.

Many of these previously homeowner applicants will also have acquired cats and dogs while a homeowner and will not want to give them up when moving to rentals.  It can be expected that the percentage of those with pets in this class of applicants will be significantly higher than for those coming from a previous rental.  While this can benefit those landlords who allow pets, all landlords should consider fine-tuning their pet policies in general and their lease agreements in particular.

We provide detailed discussion of Fair Housing issues including Reasonable Modification and Reasonable Accommodation for Members in our Landlord Resource articles, Mini Training Guides and eCourses

Weekly Update:  June 6, 2008

Tenant Discrimination Liability Insurance

Tenant Discrimination Insurance (TDI) is a relatively new insurance product that protects rental property owners and managers against the rising number of tenant discrimination lawsuits.

Property owners and managers can be sued for discrimination even when they have done nothing wrong. The rising number of housing discrimination complaints and a more aggressive pursuit of violations of the Fair Housing Act by HUD and The Department of Justice means greater liability exposure for income property owners and managers.

TDI is a claims-made policy that provides first dollar defense against lawsuits alleging discrimination of fair housing on the basis of protected classes, non-compliance with occupancy standards, harassment or wrongful eviction.

A TDI policy also protects the property owner and manager from legal action initiated through regulatory agencies charged with the administration of fair housing laws.

Tenant Discrimination insurance can provide coverage against claims based on the Fair Housing Act, Fair Credit Reporting Act, ADA, class action lawsuits, and claims brought by HUD or other regulatory agencies, Additional coverages may be available through additional endorsements.

Paid-on-behalf coverage for commercial and residential property owners includes full prior acts for most risks and punitive damages where insurable by law. Costs of attorney fees, associated expenses, losses and settlements in defense of lawsuits or administrative claims by prospective, current, and past tenants, applicants or other non-employee claimants are paid according to policy limits.

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Read more discussion of Landlord Insurance issues, Risk Management planning, and Fair Housing in various of our Mini Training Guides.

Weekly Update:  May 29, 2008

Adverse Action Notice Required

Section 615(a) of the FCRA requires landlords, when they take an "adverse action" against a rental applicant based in any way on a "consumer report" from a "consumer reporting agency," to provide an adverse action notice to that consumer.

A "consumer report" from a "consumer reporting agency" is not only a credit report provided by a credit bureau but also any report of the applicant's rental history procured from prior landlords or housing court records as provided by a tenant screening service.

In particular, the law requires landlords to provide rental  applicants with a notice that (1) informs them about the adverse action, (2) identifies the consumer reporting agency (CRA) that provided the report that contributed to the landlord's action, (3) states that the CRA did not make the rejecting decision and cannot explain the reason for rejection, and (4) specifies the consumer’s rights under the FCRA.

Adverse action includes not only a landlord's denial of a rental application, but also any action by the  landlord that imposes a burden not required of all tenants -- such as requiring a co-signer on the lease, requiring a larger deposit, or increasing the tenant's rent or deposit to a higher amount.

The adverse action notice is required even if the information in the consumer report was not the primary reason for the adverse action.

There can be situations where the landlord is not required to send an adverse action notice. When verifying personal, employment, or previous housing references, if the landlord or the landlord’s employee directly performs the verifications, the verification is not covered by the Act. If the landlord employs a tenant screening service to provide such verifications, the Act would apply. Landlords should also check to make sure of their state’s requirements.

No adverse action occurs in a transaction when the landlord makes a counteroffer that is accepted by the applicant. As an example, the landlord offers to rent the unit to the applicant if the applicant will provide a co-signor and the applicant agrees to do so.

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Weekly Update:  May 21, 2008

Crime Free Housing Programs

The Crime Free Multi-Housing Program and Crime Free Residential Housing Program are crime prevention programs designed to reduce crime, drugs, and gangs on apartment properties and small rental properties.

The Crime Free Multi-Housing Program was successfully developed at the Mesa Arizona Police Department in 1992 and has since been implemented in approximately 2000 cities in the United States.

The three phases in the program, Management Training, Property Inspection and Compliance, and Community Awareness Training, must be completed under the supervision of the local police department. Property managers can become individually certified after completing training in each phase and the property becomes certified upon successful completion of all three phases.

Fully certified properties have reported reductions in police calls for service as much as 70% over previous years. The critical element of the program is the correct implementation and use of the Crime Free Lease Addendum.

Benefits of the program include a more stable and satisfied tenant base, reduced police service calls, lower maintenance and repair costs, reduced exposure to civil liabilities, and improved personal safety for all tenants, landlords, and property managers.

Crime problems often migrate from apartment communities to condominium and single family home rentals. For organized crime, marijuana growers, methamphetamine labs, and gang activity, migration to private rental housing provides criminals with privacy, extra storage, and the absence of daily on-site property management.

The Crime Free Rental Housing Program was established for homeowners and property managers to work with law enforcement to combat criminal activities in small property rentals.

Homeowner training and property certification is similar to the Multi-Housing program requirements.

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