Legal/Legislative Update – May 1, 2016

Published on: April 29, 2016

BACKGROUND CHECKS

hud_logoThe Department of Housing and Urban Development has issued guidance for rental housing providers on the use of criminal background checks to vet prospective tenants. The guidance details a three-step analysis courts should use to determine if the screening violates Fair Housing laws:

  • Does it have a “disparate” discriminatory impact on protected classes? If so, the guidance says —
  • “The burden shifts to the housing provider to prove that the challenged policy is justified – that is, that it is necessary to achieve a substantial, legitimate, nondiscriminatory interest of the housing provider.” If the provider meets this test —
  • The burden shifts back to the plaintiff to demonstrate that the legitimate goals could be satisfied through other, less discriminatory means.

The guidance makes it clear that HUD is concerned that criminal background checks may have a discriminatory impact on some groups. The guidance notes, for example, that a “policy or practice” of rejecting renters with prior arrests but no convictions, will not rebut a discrimination charge. The guidance also specifies that housing providers must consider the circumstances surrounding convictions, the nature of the crimes, when they occurred, and the risk the criminal behavior poses to other residents.

An “individualized assessment of relevant mitigating information beyond that contained in an individual’s criminal record is likely to have a less discriminatory effect than categorical exclusions that do not take such additional information into account,” the guidance states.

quadcopter-619128_640DRONE WARS ARE COMING

The proliferation of drones is triggering growing concerns about the threat they may pose to commercial airlines and to personal privacy. The anticipated demand for anti-drone devices has already spawned some interesting ideas, according to a Business Insider report, which listed among them:

  • An anti-drone squad. Fighting fire with fire, so to speak, the Japan Police Force has developed a squadron of drones that can capture unwanted devices in a net.
  • The net gun. A British engineering firm developed this device, which fires a projectile containing a net to knock flying drones out of the sky.
  • Remote control. This Airbus system can either jam a drone’s controls or take control of the device electronically.

There are many less high-tech strategies available. Dutch police, for example, are training hawks and eagles to intercept flying drones. And, of course, there are the shotguns wielded by people who are unhappy about the drones flying over their property.

AFFORDABILITY GAP

logo-nlihcThe rental housing affordability gap is widening. A newly released report from the National Low Income Housing Coalition calculates a shortfall of 7.2 million affordable and available rental units required to meet the needs of 10.4 million “extremely low income” (ELI) renter households – defined as those with incomes at or below 30 percent of the median for the area in which they live.

There are currently only 31 affordable rental units for every 100 households needing them, according to the report, which found that no state or metropolitan area has an adequate supply of affordable rental housing.

“Millions of ELI renters live in housing that is unaffordable to them.” the NLIHC notes in a press release. “Expanding the affordable rental supply to which these cost-burdened ELI households could move would free up their current units for other households further up the income ladder. Federal housing policy that targets extremely low income renters,” the advocacy group suggests, “will expand housing choices for very low and low income renters.”

HOUSING SEE-SAW

Lawrence Yun

Lawrence Yun

Up-and-down existing home sales were up again in March, rebounding somewhat from a February swoon. A 5.5 percent gain for the month made up much but not all of the ground lost in February’s 7.1 percent decline, but left sales up only 1.5 percent year over year. Most of the strength was in the middle of the market, with scant inventories creating affordability pressures at the bottom and limiting choices at the top.

Pending sales increased more than predicted, however, suggesting at least a measure of relief from the inventory pains. The National Association of Realtors’ (NAR’s) pending sales index reached its highest level since last May (110.5) on a 1.4 percent gain that more than doubled analysts’ expectations. “Surprisingly” low mortgage rates helped offset affordability concerns, NAR Chief Economist Lawrence Yun said in a press statement. But the inventory shortage will continue to push prices higher, he noted, creating challenges for buyers – especially at the entry level.

While the existing home market seemed to regain its footing in March, new home sales stumbled, declining for the third consecutive month. The 1.5 percent dip (to an annualized pace of 511,000 units) disappointed analysts, who had predicted a small gain. Although sales were up year-over- year by about 6 percent, construction starts and permits (an indicator of future activity) both declined.

DATA SECURITY

The Consume Financial Protection Bureau has initiated its first enforcement action for data security violations. The unfortunate target was on-line payment processor Dwolla, which, the CFPB charged, failed to provide the robust security precautions it promised. Specifically, the agency said, Dwolla failed to:

  • Use appropriate measures to identify reasonably foreseeable security risks;
  • Ensure that employees who have access to or handle consumer information received adequate training and guidance about security risks;
  • Use encryption technologies to properly safeguard sensitive consumer information; and
  • Practice secure software development, particularly with regard to consumer facing applications developed at an affiliated website.

In a press release announcing the action, CFPB Director Richard Cordray said:

“With data breaches becoming commonplace and more consumers using these online payment systems, the risk to consumers is growing. It is crucial that companies put systems in place to protect this information and accurately inform consumers about their data security practices.”

Underscoring Cordray’s message, Beazley, which specializes in data breach coverage, reports that it handled 60 percent more data breaches last year than in 2014 most of them concentrated in the health care, financial services and higher education sectors. Hacking or malware accounted for 27 percent of the breaches in the financial services sector, Beazley reported, up from 23 percent in 2014. Trojan programs continue to be the preferred tool for hackers in this sector, the company said.

IN CASE YOU MISSED THIS

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LEGAL BRIEFS

DEVLISH DETAILS

We often talk about the devils residing in the details of association rules and contracts – here’s a good example. The Virginia Supreme Court ruled (in Tvardek v. Powhatan Village Homeowners Association, Inc.) that a condo association couldn’t enforce a duly-approved declaration amendment, because the board had neglected to properly certify and record the action.

The board of this association proposed an amendment limiting the percentage of units that could be rented, and two-thirds of the owners approved it, as required by the state condominium statute. When unit owners (the Tvardeks) challenged the amendment five years later, the board argued that the suit was barred because the statute of limitations – one year from the date the amendment was enacted – had passed. The trial court agreed and Tvardeks appealed.

calendar-660670_460The appeals court found two problems with the amendment. Although the certification correctly reported the owners’ vote, the statute requires owners also to sign the amendment they are approving, which the owners had not done. Because the certification failed to meet that statutory requirement, the court concluded, the amendment had not become effective, and the statute of limitations that might have barred the Tvardeks’ suit had not expired.

Rejecting the association’s argument (that while certifying that evidence of the owners’ vote adopting the amendment was on file didn’t meet the statute’s technical requirements, it was close enough), the court pointed out that the statute is “conspicuously precise.” There is a difference, the court noted “between adopting ad amendment and signing it…,” and the statute “demands the extra precaution of requiring that the members voting in favor of an amendment verify that vote with their signatures.”

Timing was also an issue in a dispute over whether an insurance company properly rejected a claim because an association failed to provide “immediate” notice of the damage it had incurred. There was no question that the association in this case (Longleaf In Vinings Homeowners Association Inc. v. QBE Insurance Corp).had suffered damage in a hail storm. But the insurer died the claim, because it was submitted nine months after the event, and the association had not provided the “prompt notice” of a loss its policy required.

A three-member panel of the 11th Circuit Court of Appeals upheld the lower court’s ruling that the association had neither given the notice nor provided a legitimate reason for its failure to do so. The association contended that it did not become aware of the damage until six months after the storm. But the only evidence supporting that argument, the court noted, was an affidavit from the board president, who was not president when the loss was incurred nor when it was finally reported to the insurer.

Because the affidavit wasn’t based on “personal knowledge,” the court said, it could not establish a “triable issue” as to whether the reporting delay was justified.

WORTH QUOTING

“Economic activity appears to have slowed.” ─ An understatement (to say the least) from the Federal Reserve, noting that the economy grew at a 0.5 percent rate in the first quarter of this year.