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November Newsletter: Discriminatory Housing Practices by Third Parties

Many of our clients have asked us to provide guidance with regard to 24 CRF 100.700, a new rule promulgated by the United States Department of Housing and Urban Development ("HUD") pursuant to its authority under the Fair Housing Act (the "Act").  As set forth more fully below, 24 CRF 100.700 arguably imposes additional obligations on the community associations.  To limit liability as a result of said obligations, we recommend that each client carefully examine each complaint involving race, color, religion, sex, familial status, national origin or handicap with heightened scrutiny, and turn over any cases of alleged discrimination to our office promptly for further evaluation and possible enforcement.

Pursuant to 24 CFR 100.700, a community association is liable for:

(i) The person's own conduct that results in a discriminatory housing practice; (ii) Failing to take prompt action to correct and end a discriminatory housing practice by that person's employee or agent, where the person knew or should have known of the discriminatory conduct; and (iii) Failing to take prompt action to correct and end a discriminatory housing practice by a third-party, where the person knew or should have known of the discriminatory conduct and had the power to correct it. The power to take prompt action to correct and end a discriminatory housing practice by a third-party depends upon the extent of the person's control or any other legal responsibility the person may have with respect to the conduct of such third-party.  [Emphasis added].

            It is well-settled that community associations may be liable for the discriminatory actions of its board of directors or its agents; however, the new rule imposes liability for the actions of third parties under control of the association.  Pursuant to 24 CRF 100.600, the FHA prohibits quid pro quo and hostile environment harassment of a member of a protected class (race, color, religion, sex, familial status, national origin or handicap). 

Quid pro quo harassment is defined as:

An unwelcome request or demand to engage in conduct where submission to the request or demand, either explicitly or implicitly, is made a condition related to: The sale, rental or availability of a dwelling; the terms, conditions, or privileges of the sale or rental, or the provision of services or facilities in connection therewith; or the availability, terms, or conditions of a residential real estate-related transaction. An unwelcome request or demand may constitute quid pro quo harassment even if a person acquiesces in the unwelcome request or demand.

Hostile environment harassment is defined as:

Unwelcome conduct that is sufficiently severe or pervasive as to interfere with: The availability, sale, rental, or use or enjoyment of a dwelling; the terms, conditions, or privileges of the sale or rental, or the provision or enjoyment of services or facilities in connection therewith; or the availability, terms, or conditions of a residential real estate-related transaction. Hostile environment harassment does not require a change in the economic benefits, terms, or conditions of the dwelling or housing-related services or facilities, or of the residential real-estate transaction.

            Accordingly, it is our opinion that the FHA imposes the obligation to end a discriminatory housing practice, such as quid pro quo and hostile environment harassment, even if the harassment is conducted by a third party under the control of the community1.  Moreover, the new rule states that the community associations must take prompt action to end a discriminatory housing practice, which in our opinion, likely creates the obligation to use all means available to end the discrimination, such as sending demand letters, holding hearings, imposing fines, and, if necessary, filing injunctions.

            The rule promulgated by HUD is new and has not been litigated.  As a result, a tribunal has not interpreted the precise meaning of the new language to determine the exact obligations of community associations.  However, to limit potential liability under the FHA, we recommend the use of the following decision checklist as a guideline when the Board receives a complaint or otherwise learns of possible discriminatory conduct within their community.

  1. Analyze the violation to determine whether it involves a discriminatory housing practice, such as quid pro quo and hostile environment harassment, related to race, color, religion, sex, familial status, national origin or handicap.
  2. Determine whether the violation is prohibited by the community's governing documents by examining the nature of the allegations.
  3. Determine whether the violation is being caused by someone who is bound by the terms of the governing documents.
  4. Promptly turn the matter over to legal counsel for further evaluation and to initiate enforcement proceedings, if necessary.  If enforcement is necessary, continue pursuing the matter by all means necessary until the discriminatory conduct has ended.  If a complaint of alleged discrimination is turned over to legal counsel for further evaluation, we will assist the Board in determining the strengths and weaknesses of their case, and help evaluate whether the Board should begin enforcement proceedings based upon the claims made and the evidence presented. 

            Decisions of the Board are generally protected by the "business judgment rule".  The business judgment rule is a presumption that, in making its decision, the Board acted on an informed basis, in good faith, and in the best interest of the community.  As result, courts and other tribunals generally do not second-guess a Board's decision absent fraud, bad faith, or self-dealing.  Though the FHA does not explicitly state whether the business judgment rule applies to decisions related to discrimination matters, it is our opinion at this time that the Board's considered decision with regard to alleged discrimination matters would be protected.  Indeed, the prosecution of a violation necessarily requires the Board to make a judgment call as to the degree to which the activity allegedly prohibited actually constitutes a violation of the governing documents.  The determination of what is and what is a violation is almost always a subjective one.  Therefore, if the Board were to determine to take or not take any action to prosecute alleged discrimination, we would argue that its decision would be protected by the business judgment rule, and no court or tribunal should be permitted to go behind the Board and second-guess that decision.  Of course, if the Board's decision is challenged, it would need adequate record keeping of it's the factors substantiating its decision in order to have the decision be protected by the business judgment rule.  Therefore, any decision of the Board should be carefully considered, documented, and preserved.

            The Board may also wish to develop and publish anti-discriminatory policies for the community or pass a resolution clarifying that discriminatory housing practices could violate the governing documents.  Depending on your particular community, there can be many pros and cons associated with the enactment of such a policy and we recommend contacting our office to discuss the possible pros and cons.  If the Board chooses to publish anti-discrimination policies, we stand ready to assist with that as well.

Please note that all alleged violations are highly fact-specific and each one should be reviewed on a case-by-cases basis.  As such, the above framework is provided as general guidance, and may not necessarily be applicable to every case.   FHA cases are one of the more difficult and fact-specific issues affecting community associations.  As such, if you have any questions regarding a specific complaint or allegation of violation, please contact us promptly to discuss.  As always, if you have any questions about this or any other questions, do not hesitate to contact us.            


1 In its public comments, HUD asserts that community associations have no new or enhanced liability under the new rules; but rather, HUD intended merely to formalize established liability standards. While this may be true, it is typical among our community association clients to often treat harassment claims between owners within the association as a "neighbor-to-neighbor dispute" and not within the purview of the Board.

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Columbia, MD 21046

Phone: 443-535-6940
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