On February 15, 2013, HUD published a final rule in the Federal Register (78 Fed. Reg. 11460) regarding disparate impact liability under federal fair housing law.
Disparate impact is the theory of fair housing law that asserts that certain policies of housing providers, while seemingly neutral, in fact have a harsher impact on members of a protected class. A finding of disparate impact could result in liability under fair housing law even when there was no “intent” to discriminate.
In this final rule, HUD is attempting to formalize in code the approach that has been used for courts and agencies for a number of years. This has been a three-tiered approach to disparate impact cases:
- 1. Plaintiffs have the initial burden to show that a challenged practice has a disproportionately adverse impact on persons in a protected class. If they are able to do that;
- 2. Burden shifts to the defendant to show a legitimate reason for the challenged practice (“legally sufficient justification”). The defendant must show that there is no less discriminatory way to meet a nondiscriminatory goal. If the defendant is successful;
- 3. The burden shifts back to the plaintiff to show that there is a less discriminatory alternative.
Disparate impact is a very controversial aspect of fair housing law. It has long been a subject of contention – unsettled in the courts – as to whether well-intentioned acts that have a disparate impact on a certain group should be considered a violation of fair housing law. There is now a case pending before the Supreme Court challenging whether the fair housing act allows for disparate impact liability. With the publication of this rule, HUD is clearly hoping that the courts will defer to the Agency’s interpretation of the theory of disparate impact, and if the Supreme Court takes the case, it will be interesting to see how much deference the court gives to HUD’s interpretation.
This new rule will have far-ranging impact in the housing industry, not just with developers and managers of multifamily housing, but with lenders, insurance companies and other participants in the nation’s housing. For example, lenders who have adopted more stringent requirements since the 2008 real estate crisis may be liable if those new policies inhibit the ability of certain groups to qualify for mortgages. In the final rule, HUD expresses the belief that this will not be an issue, stating that courts and agencies will be able to distinguish legitimate business rules from actual discriminatory conduct.
All persons involved in housing that is subject to fair housing law should become familiar with the new HUD rule. I will be including a discussion of the new rules and their consequences in all fair housing training that I conduct going forward.