You have a lot of leeway when it comes to screening potential tenants for your property. You can deny tenancy to an applicant based on their credit score, financial ability, renting history, and criminal history. However, it’s not an anything-goes affair. The U.S. federal government does impose some limitations. There are some personal characteristics of the applicant that must not be a consideration during the screening process. Failure to follow the guidelines stipulated by the federal government can get you into trouble.
The Fair Housing Act (FHA) is the primary law that protects the rights of tenants across the U.S. Since it’s a federal law, it applies in all 50 states, Puerto Rico, and the District of Columbia. Under the FHA jurisdiction, the law applies to almost all housing situations. You should pay attention to the FHA because there is a high chance it applies to your rentals.
Below we go over some of the areas where the FHA applies. This will help determine whether it applies to any of your properties. Or better yet, talk to one of our qualified attorneys to help you along.
Small Buildings Occupied by Owner
If a building has less than five apartments and the owner occupies one of them, then it’s unlikely that the FHA is applicable to your property.
If you have a single-family home rented out or sold without a broker, then the FHA is unlikely to apply to your property.
If you’re operating under a religious organization and have rental property that you’re operating for non-commercial purposes, then you can limit occupancy or give preference to people of your religion without any legal ramifications. However, this is only limited to religion according to the FHA. The religious organization is still not allowed to discriminate based on color, race, or national origin.
Do you run a private club that owns apartments? If the apartments are not meant for commercial purposes, then the FHA allows you to limit occupancy and give club members preference over other people.
FHA (42 U.S. Code § § 3601-3619 and 3631) helps protect tenants from being discriminated against based on several protected classes that include familial status. This means that you cannot decide to reject applicants who have kids. “Familial status” refers to a household with at least one child under the age of eighteen. However, this provision may not apply to you if your property is classified as senior housing. Exempt properties fall under the FHA rules of 55 and older or 62 and older communities. Properties that participate in local, state, or federal housing programs are also exempt from the provisions.
Whether or not your property is subject to the provisions of the FHA, you still need to go a step further and find out if there are any state, city, county, and town fair housing laws. You may be surprised to discover that there are other local laws you might need to adhere to. These laws may cover more situations and stipulate rules for a wider array of properties than the FHA does.
For example, the FHA usually does not apply when the property is owner-occupied and has less than five apartments. However, the fair housing laws in Massachusetts provide for owner-occupied properties with less than three apartments (Mass. Gen. Laws ch. 151B, § 11).
Adopting fair housing laws could have economic benefits to landlords. Even if your property is exempt from fair housing discrimination provisions, you could still opt to comply with the rules. Apart from the fact that you’ll be fair to the tenants, FHA advocates argue that there is an economic benefit to following the provisions of this law. By being an inclusive landlord, you stand a better chance of growing your bottom line.
As a landlord, you should always try to be fair to your tenants as it could affect your reputation. FHA rules ensure that your tenant screening policies and any other rules you might have are fair and legal.
The bottom line is that you can be sued for plenty of reasons. While you can always play safe and treat your tenants fairly, there’s a chance you might still end up in court for alleged discrimination by a tenant. Should a judgment be made against you, then you will be in for it. You could easily lose your property and livelihood. You don’t want to be caught unaware by a discrimination suit. We’ll help you comply with the FHA and structure your business the right way to protect your assets.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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