What Is the Discriminatory Effects Rule Under the Fair Housing Act?

What Is the Discriminatory Effects Rule Under the Fair Housing Act?

The Fair Housing Act (the “FHA”) prohibits housing discrimination because of an individual’s race, color, religion, sex (which includes both gender identity and sexual orientation), disability, familial status, or national origin. The most obvious form of housing discrimination is an action, omission, or policy that is intended to discriminate on the basis of one of these protected classes; however, after the FHA was enacted, federal courts also held that housing discrimination could occur through indirect, and sometimes unintentional, “discriminatory effects.” In 2013, the United States Department of Housing and Urban Development (“HUD”) codified this form of housing discrimination under the FHA as the “Implementation of the Fair Housing Act’s Discriminatory Effects Standard,” which we will refer to as the “Discriminatory Effects Rule.”

Below we discuss what the Discriminatory Effects Rule is, how the Rule impacts condos and HOAs, and the possible future of the Rule in the upcoming years.

What is the Discriminatory Effects Rule?

The Discriminatory Effects Rule provides an alternative route for an individual to establish that housing discrimination has occurred when there may not be a direct or overt act of housing discrimination or evidence of discriminatory intent. The Rule allows an individual to show that a certain practice or policy, even if it appears to be neutral or non-discriminatory, has a discriminatory effect under the following 3-step process:

1. 1. The individual/plaintiff first must prove that the challenged practice or policy has caused or will cause a discriminatory effect. In doing so, the effect must be on the protected class as a whole, not just one individual. If they prove this, then:
   2. The defendant must prove that the challenged practice or policy is necessary to achieve at least one substantial, legitimate, nondiscriminatory interest. If they prove this, then:
   3. The plaintiff must prove that the substantial, legitimate, nondiscriminatory interest(s) could be achieved by another practice or policy that has a less discriminatory effect.

How the Discriminatory Effects Rule Impacts Condos and HOAs

Condos and HOAs should be particularly concerned about the Discriminatory Effects Rule when drafting and enforcing their community policies. While many condos and HOAs focus on drafting their policies so that they apply uniformly to everyone and do not single out any one group of individuals, condos and HOAs also must consider the natural consequences that will flow from the enforcement of the policies that they are drafting. The Discriminatory Effects Rule is not designed to remediate explicitly discriminatorily policies but instead neutral policies that, once enforced, have a discriminatory impact on a protected class of people, even if they were not intended to do so.

Examples of condo and HOA rules and policies that appear to be neutral on their face but have been determined to have a discriminatory effect include policies with unreasonable occupancy limits and rules that require children to be supervised by adults or prohibit children from being in certain areas without their parents or legal guardians (Gashi v Grubb & Ellis Prop Man Servs, Inc, 886 F Supp 2d 12 (D Conn, 2011); (Iniestra v Cliff Warren Investments, Inc, 886 F Supp 2d 1161 (2012)). All of these were determined to have a negative, discriminatory impact on families and, therefore, violate the FHA. Condos and HOAs, therefore, should take care when drafting rules and policies to not only ensure that they are facially neutral and non-discriminatory but that they also are non-discriminatory when enforced.

The Possible Future of the Discriminatory Effects Rule

The Discriminatory Effects Rule has been both rescinded and reinstated within the last several years. In 2020, HUD rescinded the Discriminatory Effects Rule as it had existed since 2013 and codified a new rule, primarily increasing the burdens a plaintiff was required to establish to survive the first step of the discriminatory effects analysis and increasing the arguments and defenses that a defendant could present in the second step. In 2023, though, HUD rescinded the 2020 version of the Rule and restored the 2013 version, which went back into effect on May 1, 2023. With the recent presidential election and upcoming change in leadership at HUD, it is possible that the 2013 Rule, just recently restored, will be rescinded again and the 2020 Rule reinstated.

Even if the 2013 Discriminatory Effects Rule is rescinded and the 2020 Rule is restored, or no rule is adopted in its place, condos and HOAs likely still will face potential liability under the FHA for housing policies and practices that have discriminatory effects on a class protected under the FHA. Long before the adoption of the Discriminatory Effects Rule by HUD, the federal courts recognized that a plaintiff could bring a discriminatory effects claim under the FHA, which the United States Supreme Court reaffirmed in Texas Department of Housing and Community Affairs v Inclusive Communities Project, Inc, 576 US 519 (2015), and plaintiffs likely will still be able to bring these claims in the federal courts under the FHA even if HUD rescinds the Rule in the near future. Condos and HOAs, then, should continue to be cognizant of the Discriminatory Effects Rule and consult with attorneys knowledgeable in community association and fair housing laws when drafting and enforcing their community rules and policies.

 

Kayleigh B. Long is a Member at Hirzel Law, PLC and focuses her practice in the areas of community association law and appellate litigation. Ms. Long obtained her Juris Doctor degree from Indiana University Robert H. McKinney School of Law, where she graduated in the top 5 of her class and served as the Senior Executive Editor on the Indiana Law Review. Ms. Long has been recognized as a Michigan Rising Star in Real Estate Law by Super Lawyers since 2020, an award given to no more than 2.5% of the attorneys in the State of Michigan. Ms. Long has also made numerous presentations on community association law, along with having articles published in the Michigan Real Property Review.  She can be reached at (248) 478-1800 or klong@hirzellaw.com.