The Paletz Law Blog

Source of Income or Source of Concern?

July 25th, 2019 | By: Matthew I. Paletz, Esq.

Matthew I. Paletz, CEO, was published in this month’s edition of MH Insider Magazine. In the article, he details the rapid growth of “source of income” fair housing protection. See the original article on pages 88-90 in MH insider here.

The world of manufactured housing continues to reinvent itself. Over the years, the traditional tenant-owned home community model has been supplemented by path-to-ownership programs and exclusive rentals of the homes themselves.

Like all housing providers, companies have to make sure applicants are financially equipped to fulfill their payment obligations, while simultaneously avoiding activities that could be construed as discriminatory. Now more than ever, fair housing claims are being made and the individuals making them are being granted more protections under the law.

In 1968, the Fair Housing Act was passed to outlaw discriminatory real estate practices.[1] It set forth that if an individual falls under the category of a protected class of persons, they cannot be discriminated against. It has been codified in many states through an equivalent law, such as in Michigan within the Elliott-Larsen Civil Rights Act.[2]

The seven protected classes under the Federal Fair Housing Act are: Race, Religion, Color, National Origin, Sex, Familial Status and Disability. States also may have additional protected classes, such as Michigan, which also protects marital status and age, and Ohio, which protects military status and ancestry.

Not to be outdone, local municipalities have enacted more protected classes too, such as source of income. This means that anyone who provides housing must now take into consideration income from, for example, governmental assistance programs. Most commonly these are in the form of Section 8 vouchers.

Section 8 of the Housing Act of 1937 is a housing voucher program that assists very low-income families, the elderly, and other at-risk persons in affording housing in the private market.[3] These vouchers, although mandated by the federal government, are administered locally by public housing agencies known as PHAs. The PHAs receive federal funds from the US Department of Housing and Urban Development (HUD) to administer the voucher program. The housing subsidy is then paid directly to the landlord.[4]

Source of income protection is rapidly becoming common as more and more municipalities are adopting it. These types of laws are intended to prohibit discrimination based on requiring employment as a condition of renting or refusing to rent to an individual who is receiving Section 8 or other public assistance. Further, a landlord cannot refuse to consider all regular and verifiable income. Nor can they set income requirements artificially high in order to constructively exclude applicants who receive public assistance. Additionally, more scrutiny is now being given when requiring co-signers or a larger security deposit based on a perceived risk due to an applicant’s source of income.

Although accepting Section 8 vouchers is standard practice for subsidized or “affordable housing” providers, this is a relatively new concept for those who have exclusive market rate portfolios. Thus, a typical response is: “how can this be applicable since there is practically no contact with HUD?” Well, this inquiry is predicated on the common misconception that these portfolios are not scrutinized by HUD. Regardless of one’s political affiliation, the simple truth is that due to the ubiquitous nature of the federal government, any one engaging in commerce and availing themselves of the public in the housing arena is ultimately under HUD’s jurisdiction.

Another relatively new development for the MH world as it relates to Section 8 vouchers is being able to use this subsidy towards the purchase of a manufactured home. On July 29, 2016, the Housing Opportunity through Modernization Act of 2016 (H.R. 3700) was signed into law which opened the door for this.[5] The viability remains to be seen, but it is another example of this alternative stream of money finding its way into various housing markets.

Regardless, whether these new forms of funding are being used towards renting or purchasing, if a community is operating in a jurisdiction that protects source of income, it must not be ignored. Granted, the practical logistics become challenging. After all, with these funds come additional requirements such as consenting to augment lease terms. This can prove problematic not only from an administrative standpoint, but within the overall software integration process as it can become an operational exception that needs to be dealt with.

A protocol should therefore be adopted to address these issues and should be incorporated into an overall fair housing policy. Training of field personnel should be prioritized and partnering with a skilled attorney in these matters is paramount.

A chain of command should also be established and decision making centralized to ensure uniformity so as to safeguard against multiplicity of outcomes when dealing with these types of requests. Identifying the local laws in the cities a company’s communities operate in should be done right away to see if source of income has been added as a protected class. Finally, a prepared response should be adopted, as this inquiry is ripe for testers posing as potential applicants.

The Bottom Line: The proliferation of fair housing claims cannot be understated. With local governments taking their cues from federal and state, additional protections like source of income are becoming more prevalent. Property owners need to make sure their personnel are aware and procedures are in place to create a source of value rather than a source of concern.

[1] https://www.justice.gov/crt/fair-housing-act-2

[2] http://legislature.mi.gov/doc.aspx?mcl-37-2102

[3] https://www.law.cornell.edu/uscode/text/42/1437f

[4] https://www.hud.gov/topics/housing_choice_voucher_program_section_8

[5] https://www.congress.gov/bill/114th-congress/house-bill/3700