The Department of Housing and Urban Development’s Final Rule: Is Your Association Liable?

In October 2016, the Department of Housing and Urban Development (“HUD”) adopted a final federal rule which guides how community associations should respond to certain types of discrimination claims in order to comply with the Federal Fair Housing Act. According to HUD this final rule does not create new liability for community associations; rather, it clarifies the standards that will be applied for claims of discrimination under the Federal Fair Housing Act. The rule also clarifies when a community association could become directly or vicariously liable for violations of the Federal Fair Housing Act.

The rule clarifies that “quid pro quo harassment” and “hostile environment harassment” are violations of the Federal Fair Housing Act. Quid pro quo harassment occurs when an occupant, resident or prospective occupant or resident is caused to believe that occupancy, privileges or services will only be provided if the person submits to an unwelcomed request or demand. In the employment context, the most common unwanted request or demand is in the nature of sexual favors. Hostile environment harassment, on the other hand, occurs when a person is subjected to sufficiently prevalent or severe unwelcomed conduct which interferes with their right to use and enjoy the property or services. A hostile environment can be created by a board member, another resident or an association contractor.

Many associations have never faced any fair housing issues, and the ones that have generally faced claims related to reasonable accommodations, reasonable modifications, or facially discriminatory rules or policies. Although HUD has insisted that the final rule does not create any additional liability for associations, associations may experience new types of claims due to these lesser known causes of action being publicized. Under the final rule, associations could also be held liable for: (1) failing to take prompt action to correct and end discriminatory housing practice by its employee or agent, where the association knew or should have known of the discriminatory conduct; (2) failing to take prompt action to correct and end a discriminatory housing practice by a third party, where it knew or should have known of the conduct and had the power to correct it; and (3) vicarious liability for a discriminatory housing practice by its agent or employee, regardless of whether the association knew or should have known of the discriminatory housing practice.

This rule should be of particular concern to associations because it can create liability based upon the unknown discriminatory actions of residents against other residents if the association should have known about the discriminatory conduct. Although in some instances, an association will be made aware of discriminatory actions between owners (a complaint is received or a board member witnesses the discriminatory actions), it is not practical to expect that an association will be aware of every interaction between owners. There is also concern that this potential liability may be leveraged by a disgruntled resident that does not agree with or is unhappy about an unrelated decision, rule or enforcement action.

Prompt action under the final rule requires more than taking some action, it requires taking every action that is necessary and available to end the discriminatory practice. Most condominium and homeowner association governing documents provide a spectrum of enforcement options from violation notices to filing a Complaint for injunctive relief. Michigan condominium and homeowner associations are generally afforded the right to seek injunctive relief in their governing documents. Further, most associations are formed as nonprofit corporations under the Michigan Nonprofit Corporation Act. Section 261 of the Nonprofit Corporation Act (MCL 450.2261) provides that a nonprofit corporation may “sue and be sued in all courts and participate in actions and proceedings judicial, administrative, arbitrative, or otherwise…” Condominium associations are also able to utilize the remedies provided in Section 112 of the Michigan Condominium Act (MCL 559.212) to evict a tenant or nonco-owner occupant who is discriminating against others in the community.

Associations may initially seek resolution of discriminatory situations through informal means; however, if the discriminatory practice continues, the association must promptly take all actions which it has the right to take to end the discrimination. Although each factual scenario will call for different response, associations must be aware of their rights and be willing to take all actions that are necessary and available.

To help limit an association’s potential liability and to ensure the association properly addresses issues that could lead to fair housing claims, enforcement policies and procedures should be adopted and followed. The policies and procedures should provide clear means of reporting as well as the steps that the association will take to address alleged discrimination. Having clear policies and procedures in place may also be used as a defense if the association was named in a fair housing claim.

As with other fair housing claims, the association cannot charge the complaining owner for any of the costs incurred in responding to and defending this type of claim – doing so can be considered retaliatory discrimination even when the initial claim is frivolous. The best course of action for an association is to be proactive and adopt appropriate policies and procedures before actually facing a fair housing claim.

Each association is unique and should consult with appropriate legal counsel to fully understand its rights and responsibilities under this rule and to draft a thorough policy to help prevent discrimination and outline how the association will respond to discrimination complaints.

Evan M. Alexander is a Michigan Condominium Attorney and an associate at Makower Abbate Guerra Wegner Vollmer PLLC. Mr. Alexander focuses his practice primarily in the areas of Michigan Condominium Association and Michigan Homeowner Association law. Mr. Alexander is a member of the Real Property Law and Young Lawyers sections of the State Bar of Michigan.