Dealing with Drug Use Without Violating Fair Housing Law

person A.J. Johnson today 01/22/2023

Drug users are not a protected class under either federal or state fair housing laws. Drug abuse may result in criminal activity, violence, and property destruction. However, drug and alcohol dependency are also considered diseases and may be considered "disabilities" under fair housing laws. While all properties should have anti-drug policies, it is important that those policies be developed and administered in a way that does not violate fair housing law.

This article is intended to assist housing operators in walking the line between the protection of residents and property from illegal drug use and violating the rights of the disabled.

Background

Fair housing law prohibits discrimination based on disability, which is defined as "a physical or mental impairment that substantially limits one or more major life activities." The law also protects persons with a record of having such an impairment, or who are ‘regarded’ as having such an impairment.

Individuals who sue housing operators for disability discrimination have the burden of proving that they are disabled under the law. However, both HUD and the courts have made it clear that drug and alcohol use and addiction are "physical or mental impairments" under the law. There are two caveats to this determination: (1) Fair Housing Act (FHA) protection extends only to former users of controlled substances and illegal drugs. Current use of drugs is legitimate grounds for rejection of a rental applicant or eviction of a current resident. The Americans with Disabilities Act (ADA) defines "current" illegal drug use as "illegal use of drugs that occurred recently enough to justify a reasonable person’s belief that a person’s drug use is current, or that continuing use is a real and ongoing problem" (28 CFR 36.104). According to HUD Handbook 4350.3, former drug users protected by the FHA ban on disability discrimination include an individual who (i) has successfully completed a supervised drug rehabilitation program or has otherwise been successfully rehabilitated and is no longer engaging in illegal drug use; (ii) is currently participating in a supervised drug rehabilitation program and is no longer engaging in such use; or (iii) is erroneously regarded as engaging current illegal drug use.

Note regarding alcohol use: FH law does not distinguish between former and current alcohol use the way it does with drug use. This is because, under federal law, alcohol use is legal. Alcoholism is just like any other disability that is protected by fair housing law and applies to applicants or residents who are currently addicted to alcohol and have no desire to stop drinking.

(2) The second caveat is "the Direct Threat Exception." The FHA provides no protection to individuals with or without disabilities who present a direct threat to the persons or property of others.

Thoughts on Pre-Admission Drug Testing

A requirement that all applicants submit to drug testing prior to admission is probably legal since it detects current, rather than past drug use. With that being said, I do not recommend such a requirement.

The costs of drug testing will almost certainly outweigh the benefits. You will also have to be consistent in requiring that all provisionally accepted applicants pass a drug test as a condition of occupancy - not just applicants you suspect may be using illegal drugs. Also, while usually accurate, drug testing is not foolproof. Finally, rejecting an applicant on the basis of a drug test may result in lawsuits over privacy issues and how the tests were administered. Keep in mind that it is likely that your competitors will not be doing drug testing, putting you at a competitive disadvantage. It’s just not worth it!

Reasonable Anti-Drug & Alcohol Policies are Acceptable

Rules relating to drug and alcohol use that are generally acceptable include banning residents from:

  • Dealing, manufacturing, or distributing drugs or engaging in illegal drug-related activity;
  • Keeping large quantities of illegal drugs in their apartment;
  • Using drugs or being intoxicated in common areas; and/or
  • Allowing their families, visitors, or guests to commit any such violations.

Don’t Ask About Past Drug Use

Former drug use is a disability, and you are generally not permitted to ask applicants if they are disabled (the exception to this is housing specifically for the disabled).

The FHA regulations (24 CFR §§100-202) permit the asking of questions to determine whether an applicant:

  • Is a current illegal abuser or addict of a controlled substance; and/or
  • Has ever been convicted of the illegal manufacture or distribution of a controlled substance.

While these questions are permitted, they must be asked of all applicants.

What About Current Use of Legally Prescribed Medical Marijuana?

37 states and the District of Columbia allow for the use of medically prescribed marijuana. Owners can certainly ban the use of recreational marijuana on a property, but what about marijuana that is legally prescribed by a physician? While not specifically addressed in the FHA, the legislative history that HUD, courts, and tribunals rely on to interpret the Act makes it clear that the exclusion of current illegal drug users does not apply to individuals who use otherwise controlled substances that are legally prescribed by a doctor. In the report of the House of Representatives, it states, "the exclusion does not eliminate protection for individuals who take drugs defined in the Controlled Substances Act for a medical condition under the care of, or by prescription from a physician." The Report goes on to say, "use of a medically prescribed drug clearly does not constitute illegal use of a controlled substance."

However, for a tenant’s medical marijuana use to be protected:

  • The marijuana must be legally prescribed by a physician for a medical condition authorized by the law;
  • The tenant must use the marijuana only for the prescribed condition;
  • The tenant must use the marijuana only in his or her own apartment and not in common areas;
  • The tenant may not possess (or cultivate) more than the maximum amount the law permits; and
  • The tenant must not sell or distribute the marijuana to anybody else.

So, how can marijuana be legal in some states and illegal under federal law? The fact is, there is no such thing as "legal marijuana." The use of marijuana, both medical and recreational, is illegal under federal law, and federal law supersedes state law. Many states have passed laws legalizing marijuana within their own boundaries, but people who use, manufacture, and distribute marijuana in those states are breaking federal law.

The reason these folks are not being prosecuted is that the federal government has an enforcement policy that has instructed U.S. attorneys not to enforce marijuana prohibitions against states with legalization statutes as long as the state program follows certain criteria designed to prevent the financing of terrorism and organized crime, diversion of marijuana to minors and states where the use is not legal, and other activities harmful to national health and security.

In 2014, a Michigan federal court ruled that a state law legalizing medical marijuana did not bar a federally assisted housing community from evicting a tenant for use of medical marijuana. The marijuana was prescribed by the resident’s doctor for multiple sclerosis. The court indicated that while the use may have been legal under state law, it was still illegal under federal law. The court did say that whether the resident should actually be evicted was for state courts to determine [Forest City Residential Management, Inc. v. Beasley, December 3, 2014].

Current Alcohol Use is not an Issue

Management should never ask applicants or residents about current alcohol use. Both former and current alcohol dependency are considered disabilities under the FHA. While questions about current drug use are permitted, questions about current alcohol use are not.

Verification of No Current Drug Use

You may be entitled to ask applicants or tenants who claim they have recovered from drug use to provide evidence from a third party that they are not current users of illegal drugs. Such evidence could include verification from a:

  • Reliable drug treatment counselor or program administrator; and/or
  • A probation or parole officer.

There are four questions that should never be asked of applicants:

  1. Have you ever used illegal drugs?
  2. Have you ever been arrested for manufacturing or distributing illegal drugs?
  3. Ever you ever had a drinking problem?
  4. Do you currently have a drinking problem?

However, you may ask if someone is a current user of illegal drugs or if they have been convicted of manufacturing or distributing illegal drugs.

Applicants Should Not be Rejected Because They are Alcoholics or Former Drug Users

Assuming that an alcoholic or former drug user will be bad for your property is a generalized stereotype based on a disability - and, is illegal.

Each applicant is entitled to an individual assessment relating to eligibility, and assumptions based on preconceived notions should be avoided. In other words, simply being a current or former alcoholic and/or former drug user is not grounds to exclude or evict.

A Direct Threat Allows for the Exclusion of Substance Abusers

Persons who are a direct threat to the property or other people are not protected by the FHA. But, how do you know if a person poses a direct threat? Subjective beliefs, generalized stereotypes, and speculation about substance abusers are not enough. According to a HUD/DOJ statement on the subject, the assessment must be based on "reliable objective evidence," such as current conduct or a recent history of overt acts.

In Wirtz Realty Corporation v. Freund, 721 N.E. 2d 589 (ILL. App. 1999), an Illinois court found that a landlord was justified in evicting a tenant under the "direct threat" defense. The landlord evicted the tenant for engaging in erratic and dangerous behavior. The tenant urinated in the elevator, threatened to kill a neighbor, and threw a lit cigarette and coke can at the doorman, as well as other incidents. He said it was due to mental disorders and sued the landlord under the FHA.

Guidance from HUD and DOJ indicates that landlords should perform a direct threat assessment, and consider:

  • The nature, duration, and severity of the risk of injury; and
  • The probability that injury will actually occur.

When looking at a recent history of overt acts (such as those outlined in the Wirtz case above), the landlord must take into account whether the individual has received intervening treatment or medication that has eliminated the direct threat. The landlord may ask the individual to document how the circumstances have changed and why he or she no longer poses a direct threat.

Based on court cases, it is clear that the mere potential or threat of harm may be enough to constitute a direct threat, even if no actual harm is done. As long as the threat to other people is objective, severe, and real, landlords don’t have to wait until the tenant actually hurts someone to use the "direct threat" exception. This point is well made in Foster v. Tinnea, So.2d 782. In this case, a Louisiana court ruled that a tenant with severe brain damage due to an auto accident was a direct threat to other tenants based on his potential for harm rather than any harm he had actually inflicted. He had had altercations with other tenants, chased kids with a knife, listened to loud and vulgar music, and made inappropriate sexual comments to tenants.

The "Direct Threat" Defense Does not Eliminate the Possibility of a Reasonable Accommodation

Individuals who pose direct threats are still entitled to reasonable accommodations to the point of undue hardship. So, before deciding to reject an applicant or evict a resident, management must consider whether there are any reasonable accommodations that may be made to eliminate the direct threat. Of course, this assumes that a request for such accommodation has been made, either by the resident/applicant or someone acting on their behalf.

If such requests are made, landlords are entitled to request verification from a healthcare provider, social worker, or other reliable third parties that the treatment plan will be effective in eliminating the direct threat, as well as assurances that the tenant will comply with its terms.

Bottom Line - while current drug users are not protected under fair housing laws, former drug users who have successfully completed or are currently in a rehab program and are no longer engaging in the illegal use of drugs are protected. Requests for reasonable accommodations from former drug users should always be considered and except in the case of a demonstrable direct threat, reasonable accommodations that will allow former drug users to live at a property should generally be granted.

Latest Articles

HUD HOTMA Rules Clarify and Change the Treatment of Assets

Introduction HUD Notice H 2013-10 expands upon the Final Rule for implementing the Housing Opportunity Through Modernization Act (HOTMA). This final rule makes some changes to the way managers of HUD-assisted housing will deal with assets on HUD-assisted properties. Since LIHTC properties are required to follow HUD rules relative to the determination of income, these changes also apply to tax credit properties. Net family assets are defined as the net cash value of all assets owned by the family, after deducting reasonable costs that would be incurred in disposing of real property, savings, stocks, bonds, and other forms of investment, except as excluded by regulation. Assets with Negative Equity While assets with negative equity are still considered assets, the cash value of real property or other assets with negative equity are considered to have zero value for purposes of calculating net family assets. Negative numbers are never used in the calculation of asset value. Assets Owned by a Business Entity If a business entity (e.g., LLC or LP) owns an asset, then the family s asset is their ownership stake in the business. The actual assets of the business are not counted as family assets. However, if the family holds the assets in their name (e.g., they own 1/3 of a restaurant) rather than in the name of the business entity, then the percentage value of the asset owned by the family is what is counted toward the net family assets (e.g., one-third of the value of the restaurant). Jointly Owned Assets For assets jointly owned by the family and one or more individuals outside of the assisted family, owners must include the total value of the asset in the determination of net family assets, unless the asset is otherwise excluded, or unless the assisted family can demonstrate that the asset is inaccessible to them, or that they cannot dispose of any portion of the asset without the consent of another owner who refuses to comply. If the family demonstrates that they can only access a portion of an asset, then only that portion s value shall be included in the calculation of net family assets. Exclusions from Assets Required exclusions from net family assets include the following: The value of necessary items of personal property; The value of all non-necessary items of personal property with a total combined value of $50,000 or less, annually adjusted for inflation; The value of any retirement plan recognized by the IRS, including IRAs, employer retirement plans, and retirement plans for self-employed individuals; The value of real property that the family does not have the effective legal authority to sell. Examples of this include (1) co-ownership situations {including situations where one owner is a victim of domestic violence} where one party cannot unilaterally sell the property, (2) property that is tied up in litigation, and (3) inherited property in dispute; The value of any education savings account under Section 530 of the IRC 1986, the value of any qualified tuition program under Section 529 of the IRC, and the contributions to and distributions from any Achieving a Better Life Experience (ABLE) account authorized under Section 529A of the IRC; The value of any "baby bond account created, authorized, or funded by the federal, state, or local government (money held in trust by the government for children until they are adults); Interests in Indian trust land; Equity in a manufactured home where the family receives assistance under the Housing Choice Voucher Program; Equity in a property under the Homeownership Option where the family receives assistance under the Housing Choice Voucher Program; Family Self-Sufficiency accounts; Federal or state tax refunds or refundable tax credits for 12 months after receipt by the family; The full amount of assets held in an irrevocable trust; and The full amount of assets held in a revocable trust where a member of the family is the beneficiary, but the grantor and trustee of the trust is not a member of the family. Necessary & Non-Necessary Personal Property Necessary personal property is excluded from assets. Non-necessary personal property with a combined value of more than $50,000 (adjusted by inflation) is an asset. When the combined value of non-necessary personal property does not exceed $50,000, it is excluded from assets. All assets are categorized as either real property (e.g., land, a home) or personal property. Personal property includes tangible items, like boats, as well as intangible items, like bank accounts. For example, a family could have non-necessary personal property with a combined value that does not exceed $50,000 but also own real property such as a parcel of land. While the non-necessary personal property would be excluded from assets, the real property would be included - regardless of its value, unless it meets a specific exclusion. Necessary personal property are items essential to the family for the maintenance, use, and occupancy of the premises as a home; or they are necessary for employment, education, or health and wellness. Necessary personal property includes more than mere items that are indispensable to the bare existence of the family. It may include personal effects (such as items that are ordinarily worn or used by the individual), items that are convenient or useful to a reasonable existence, and items that support and facilitate daily life within the family s home. Necessary personal property does not include bank accounts, other financial investments, or luxury items. Determining what is a necessary item of personal property is very fact-specific and will require a case-by-case analysis. Following are examples of necessary and non-necessary personal property (not an exhaustive list). Necessary Personal Property Vehicles used for personal or business transportation; Furniture and appliances; Common electronics such as TV, radio, DVD players, gaming systems; Clothing; Personal effects that are not luxury items (e.g., toys and books); Wedding & Engagement rings; Jewelry used in religious or cultural celebrations or ceremonies; Medical equipment & supplies; Musical instruments used by the family; Personal computers, tablets, phones, and related equipment; Educational materials; and Exercise Equipment Non-Necessary Personal Property RVs not needed for day-to-day transportation, including motor homes, campers, and all-terrain vehicles; Bank accounts or other financial investments (e.g., checking/savings account, stocks/bonds); Recreational boats or watercraft; Expensive jewelry without cultural or religious significance or which has no family significance; Collectibles, such as coins or stamps; Equipment/machinery that is not part of an active business; and Items such as gems, precious metals, antique cars, artwork, etc. Trusts Any trust (both revocable and non-revocable) that is not under the control of the family is excluded from assets. For a revocable trust to be excluded from net family assets, no family or household member may be the account s trustee. A revocable trust that is under the control of the family or household (e.g., the grantor is a member of the assisted family or household) is included in net family assets, and, therefore, income earned on the trust is included in the family s income from assets. This also means that PHAs/MFH Owners will calculate imputed income on the revocable trust if net family assets are more than $50,000, as adjusted by inflation, and actual income from the trust cannot be calculated (e.g. if the trust is comprised of farmland that is not in use). Actual Income from a Trust If the Owner determines that a revocable trust is included in the calculation of net family assets, then the actual income earned by the revocable trust is also included in the family s income. Where an irrevocable trust is excluded from net family assets, the Owner must not consider actual income earned by the trust (e.g., interest earned, rental income if the property is held in the trust) for so long as the income from the trust is not distributed. Trust Distributions & Annual Income A revocable trust is considered part of net family assets: If the value of the trust is considered part of the family s net assets, then distributions from the trust are not considered income to the family. Revocable or irrevocable trust not considered part of net family assets: If the value of the trust is not considered part of the family s net assets, then distributions from the trust are treated as follows: (1) All distributions from the trust s principal are excluded from income. (2) Distributions of income earned by the trust (i.e., interest, dividends, realized gains, or other earnings on the trust s principal), are included as income unless the distribution is used to pay for the health and medical expenses for a minor. Actual & Imputed Income from Assets The actual income from assets is always included in a family s annual income, regardless of the total value of net family assets or whether the asset itself is included or excluded from net family assets unless that income is specifically excluded. Income or returns from assets are generally considered to be interest, dividend payments, and other actual income earned on the asset, and not the increase in market value of the asset. Imputed income from assets is no longer determined based on the greater of actual or imputed income from the assets. Instead, imputed asset income must be calculated for specific assets when three conditions are met: (1) The value of net family assets exceeds $50,000 (as adjusted for inflation); (2) The specific asset is included in net family assets; and (3) Actual asset income cannot be calculated for the specific asset. Imputed asset income is calculated by multiplying the net cash value of the asset, after deducting reasonable costs that would be incurred in disposing of the asset, by the HUD-published passbook rate. If the actual income from assets can be computed for some assets but not all assets, then PHAs/MFH Owners must add up the actual income from the assets, where actual income can be calculated, then calculate the imputed income for the assets where actual income could not be calculated. After the PHA/MFH owner has calculated both the actual income and imputed income, the housing provider must combine both amounts to account for income on net family assets with a combined value of over $50,000. When the family s net family assets do not exceed $50,000 (as adjusted for inflation), imputed income is not calculated. Imputed asset income is never calculated on assets that are excluded from net family assets. When actual income for an asset which can equal $0 can be calculated, imputed income is not calculated for that asset. Owners should not conflate an asset with an actual return of $0 with an asset for which an actual return cannot be computed, such as could be the case for some non-financial assets that are items of nonnecessary personal property. If the asset is a financial asset and there is no income generated (for example, a bank account with a 0 percent interest rate or a stock that does not issue cash dividends), then the asset generates zero actual asset income, and imputed income is not calculated. When a stock issues dividends in some years but not others (e.g., due to market performance), the dividend is counted as the actual return when it is issued, and when no dividend is issued, the actual return is $0. When the stock never issues dividends, the actual return is consistently $0. Self-Certification of Net Family Assets Equal to or Less Than $50,000 Owners may determine net family assets based on a self-certification by the family that the family s total assets are equal to or less than $50,000, adjusted annually for inflation, without taking additional steps to verify the accuracy of the declaration at admission and/or reexamination. Owners are not required to obtain third-party verification of assets if they accept the family s self-certification of net family assets. When Owners accept self-certification of net family assets at reexamination, the Owner must fully verify the family s assets every three years. Owners may follow a pattern of relying on self-certification for two years in a row and fully verifying assets in the third year. The family s self-certification must state the amount of income the family anticipates receiving from such assets. The actual income declared by the family must be included in the family s income unless specifically excluded from income under HUD regulations. Owners must clarify, during the self-certification process, which assets are included/excluded from net family assets. Owners may combine the self-certification of net family assets and questions inquiring about a family s present ownership interest in any real property into one form. Bottom Line Owners and managers of properties that are subject to HOTMA should familiarize themselves with these new asset rules and ensure they are in place. HUD properties will be required to implement the rules when they put the HOTMA changes into effect in 2024. LIHTC properties should consult the appropriate HFA to determine when the new rules must be followed.

A. J. Johnson Partnering with Mid-Atlantic AHMA for March 2024 Affordable Housing Training

During March 2024, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for five live webinar training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. The following sessions will be presented: March 12: Intermediate LIHTC Compliance - Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues is included as well as a discussion of minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, and use of common areas. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements relating to setting rents at a tax-credit property. This course includes the recent HOTMA changes and contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. March 19: Two separate webinars will be offered on this date. An Overview of the HOME Program with HOTMA Changes will be offered in the morning. This three-hour course outlines the basic requirements of the HOME Investment Partnership Program, with particular emphasis on combining HOME funds with the federal Low-Income Housing Tax Credit. The training provides an overview of HOME Program regulations, including rent rules, unit designations, income restrictions, and recertification requirements. The course also includes the recent HOTMA changes that impact the HOME program.  The course concludes with a detailed discussion of combining HOME and tax credits, focusing on occupancy requirements and rents, tenant eligibility differences, handling over-income residents, and monitoring requirements. March 19: The afternoon session will be Management of Rural Development Section 515 Layered Deals. The development of affordable rental housing is a complex undertaking that often requires a combination of programs to succeed. While the foundation of most affordable rental housing today is the Low-Income Housing Tax Credit Program, the tax credits alone are often not enough to ensure project feasibility. Successful properties often must "layer programs to work. One such program is the Rural Development Section 515 program. When combining other programs with a Section 515 project, management must understand the rules of all, and be able to implement them at the project level. This three-hour session will cover some of the most common pitfalls when managing Section 515 layered properties and guide the knowledge required to be successful. Questions and discussions will be encouraged, and attendees will be able to ask specific questions about the issues facing their properties. March 20: Advanced LIHTC Compliance - This full-day training is intended for senior management staff, developers, corporate finance officers, and others involved in decision-making concerning how LIHTC deals are structured. This training covers complex issues such as eligible and qualified basis, applicable fraction, credit calculation (including first-year calculation), placed-in-service issues, rehab projects, tax-exempt bonds, projects with HOME funds, Next Available Unit Rule, employee units, mixed-income properties, the Average Income Minimum Set-Aside, vacant unit rule, and dealing effectively with State Agencies. March 21: Preparing Affordable Housing Properties for Agency Required Physical Inspections - Agency inspections of affordable housing properties are required for all affordable housing programs, and failure to meet the required inspection standards can result in significant financial and administrative penalties for property owners. This three-hour training focuses on how owners and managers may prepare for such inspections, with a concentration on State Housing Finance Agency inspections for the LIHTC program. Specific training areas include (1) a complete discussion of the most serious violations, including health & safety; (2) how vacant units are addressed during inspections; (3) when violations will be reported to the IRS; (4) the 20 most common deficiencies; (5) how to prepare a property for an inspection; (6) strategies for successful inspections; and (7) a review of the most important NSPIRE inspection requirements. As part of the training, attendees will have a blueprint they can use to prepare their properties for agency-required physical inspections - regardless of the program under which they operate. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) of these training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

HUD Issues Clarifying HOTMA Guidance

Last week, the U.S. Department of Housing and Urban Development issued more detailed guidelines to assist in the enactment of the Housing Opportunity Through Modernization Act (HOTMA) of 2016. This Act aims to simplify procedures and lessen the responsibilities of public housing authorities (PHAs), private affordable housing owners, and residents. The recent Notice H 2023-10 introduces a range of technical adjustments and clarifications, sets the commencement date as January 1, 2024, and outlines the compliance timeline and necessary measures for owners of affordable multifamily rental properties, which include those financed by the low-income housing tax credit (LIHTC) equity. Key clarifications from the Notice include: Public housing authorities are required to revise their Annual Plan and Moving to Work (MTW) Plans. For Annual Recertification of income, owners may rely on verification from an interim reexamination, provided there have been no changes to the annual income since that interim assessment. The new deduction for elderly/disabled families, effective January 1, 2024, will be applied by PHAs and Multifamily Housing (MFH) Owners at the upcoming annual or interim reexamination, whichever occurs first, after the new deduction has been adopted by the PHA/MFH Owner. The phased-in relief will commence concurrently. Any tax refund or credit must be deducted from the total net assets of a family, irrespective of the deposit location. Owners are not required to apply the new passbook rate until they have updated their software systems. It has been clarified that workers compensation should always be excluded from annual income calculations, no matter the duration or frequency of the payments. Owners and managers of properties governed by the HOTMA regulations are advised to examine the revised notice to determine its relevance to their properties.

Want news delivered to your inbox?

Subscribe to our news articles to stay up to date.

We care about the protection of your data. Read our Privacy Policy.