The Fair Housing Act: Does it Apply to You?

The Fair Housing Act:

Does it Apply to you?

If you are buying, selling, renting, or investing in real estate, you need to know about the Fair Housing Act.  Initially passed in 1968, and amended many times since, the Fair Housing Act prohibits discrimination in real estate transactions.

What is the Fair Housing Act (FHA)?

According to HUD.gov: "Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), as amended, prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and disability."

In a nutshell, this means you cannot discriminate against potential buyers or lessees when you are trying to rent or sell a unit.  You cannot refuse to rent to someone because they have children or might be a "bad fit" for the neighborhood.

Who is NOT Protected Under The Fair Housing Act?

The Fair Housing Act does not apply to age discrimination.  It does not apply to housing managed by certain non-profit disorganization or by private clubs that limit occupancy to members.  Certain owner-occupied buildings with no more than four units, are exempt, as is single-family housing sold or rented without the use of a broker.  When in doubt as to whether FHA applies, consult with a Real Estate Attorney.

How Does This Impact Me as a Landlord?

This effects both the tenant screening and advertising process.  For example, you cannot run an ad for a property stating "no children," unless the property is located in an "over-55" type community.  You cannot advertise "Nice Latino neighborhood; perfect for Spanish speaking individuals."  Doing so may result in a discrimination claim under the Fair Housing Act.  You may not ask questions during the tenant screening process that fall into any of those areas.

For example, you have a single family house you are trying to sell or rent.  Your first appointment consists of a couple and a young baby.  You cannot ask that couple whether they are married, or even if both individuals are parents of that baby.  You may only ask if all three residents will be living in the unit.  Is a person in a wheelchair shows up to look at the unit, you may not ask if that person is capable of living in a unit with stairs in the front.  You may only ask if the individual would need to make any modifications to the property in order to live there.

What Kind of Screening May I Do?

In most states, tenant screening is limited to a credit and background check, performed by an agency licensed to perform those checks.  You are not allowed to  perform a background check by running your own Google Search.  In addition, only certain types of things may be considered.  You may check to see that the person has the financial resources to pay the rent in a leasing situation.  When selling property, the banks are allowed to do a much more thorough financial check.  Most sellers use the mortgage documents as evidence of financial capability.  Most of the major credit bureaus offer background checks as a part of the credit check.

When it comes to rejecting someone based on a background check, you need to consult with a Real Estate Attorney to determine if a criminal history is relevant under the Fair Housing Act.  Most misdemeanors cannot be held against an individual in housing applications.  Things like drug trafficking, sex offenses, and certain felonies may be considered.  If a background check exposes anything of concern, it is best to consult with an attorney before rejecting an applicant.

So in a nutshell, you may perform a credit and background check.  However, you may NOT interview potential applicants, and lease or sell depending on those answers.  You may not ask any questions pertaining to the applicants' lifestyle.

What if Someone Thinks I've Discriminated?

If an applicant feels like s/he has been discriminated against, they may file a complaint for free with HUD.  The individual has one year to file with HUD.  The individual may also elect to file a civil case using a private attorney.  Or the individual may choose to file BOTH a civil case and a HUD complaint.  If this occurs, it may lead to a mediation conference or to an actual court case.  If it is found that you have discriminated,  you can be ordered:

• To compensate you for actual damages, including humiliation, pain and suffering.
• To provide injunctive or other equitable relief, for example, to make the housing available to the applicant.
• To pay the Federal Government a civil penalty to vindicate the public interest. The maximum penalties are $16,000 for a first violation and $70,000 for a third violation within seven years.
• To pay reasonable attorney's fees and costs.

Does the Americans with Disabilities Act (ADA) Apply to Renting or Selling Housing?

Usually, the ADA does not apply, but there are exceptions to this rule.  If the property is advertised for short-term rentals, then the ADA does apply.  If the property receives any type of Federal money, the ADA applies.  (For example, if you lease an investment property under Section 8 assistance, the ADA may apply.)  However, in most cases, when selling or renting real estate, it is the Fair Housing Act, rather than the ADA that applies.  

Where Can I Find Out More about the Fair Housing Act?

HUD is responsible for overseeing the Fair Housing Act.  Your local HUD office, or HUD.gov can provide more information about the Fair Housing Act.  This includes fact sheets for buyers, sellers, landlords, and tenants.  In addition, a good Real Estate Attorney can answer all of your Fair Housing Act questions.

Summary

This article briefly examined the Fair Housing Act and how it applies to buying, selling, and leasing property.  The Fair Housing Act applies to ALL real estate transactions in the United States.  Its limitations must be kept in mind when selling or leasing property.

If you at all follow this blog, you know that we feel strongly that ALL Real Estate Investors have a good attorney on call.  We suggest you have your attorney review ALL documents associated with any real estate transaction.  However, having your lawyer review ads and property applications is even more essential.  Violating the Fair Housing Act carries stiff penalties, and it is very easy to violate.  An attorney can help you word your documents so that you perform adequate screening, while not inadvertently violating the Fair Housing Act.  

Here at the Law Offices of Heath D Harte, we find many of our clients need this type of assistance. We are skilled at developing ads and screening documents that neither violate the Fair Housing Act nor the Americans with Disabilities Act.  We find real estate investors regularly include verbiage that may violate the FHA.  Attorney's fees are much cheaper than the fine you will receive if you violate The Act.

If you are in the Connecticut or New York area, we are here to help you with all of your Real Estate Law needs.  This includes developing effective ad copy and efficient screening procedures, all within any laws that may apply.  This is a very expensive area in which to make mistakes.  

Real Estate Closings: What Happens?

What Happens in a Real Estate Closing?

Buying property can be an exciting process.  You look at properties, find one you love, and make an offer.  When the sellers accept that offer, you will need to close on the property.  For many buyers, the closing is a mystifying process.  This article will explain what to expect at a Real Estate Closing.

The Closing Process

Closing is often called "settlement."  These two terms are used interchangeably, so a Real Estate Closing and a Real Estate Settlement are the same thing.  In a nutshell, this is when all documents are signed, monies are exchanged, and the property transfers to the buyer.  The period between acceptance of an offer and closing is often called "the escrow period."

What Happens During Closing?

All parties involved meet in a mutually agreed upon location to review and sign all of the documents. Since most of these documents are prepared in advance of the Settlement Meeting, you should have already thoroughly reviewed them with your attorney.  If there is a mortgage involved, these documents are reviewed, signed, and notarized during this meeting, and the monies are disbursed to the seller.  The buyer also pays his share, including closing costs, via certified check.  Often, the buyer is also required to set up an escrow account to cover things like taxes, insurance, and the first few mortgage payments.  The buyer will need a separate certified check for this.  In addition, closing costs (usually 3-5% of the financed amount) are paid with a third certified check.  The Real Estate Agents also receive their commissions during the closing conference.

Who is at a Settlement?

Whether you are the buyer or the seller, hopefully you've followed our advice and retained an attorney to help you with the whole process.  Your attorney should have reviewed ALL contracts and documents, as well as helped you with all negotiations.  Your attorney should also be there for the closing.  In addition to buyer's and seller's attorneys, you can expect both the real estate agents (both the Buyer's and Seller's agents,) a representative from the financing agency (usually a bank,) and a representative from a title company.  You will also need a Notary Public to notarize all the documents.  Often, one of the Real Estate Agents, Bank Representatives, Lawyers, or Title Company representatives is a Notary.  Connecticut, Georgia, and Delaware all require an attorney to execute the closing, so if you live in one of those states, settlement definitely includes at least one lawyer.

Where Does the Closing Take Place?

A closing may take place in a number of places, be that an Attorney's Office, a Title Company, an Escrow Company, or the Lender's Office.  If it is a "cash" transaction with no mortgage, settlement usually occurs at the Attorney's office, either yours or that of the seller.

When Does the Closing Occur?

The closing takes place at a date and time mutually agreed upon by all parties.  Generally, there is approximately a month between acceptance of offer and the settlement meeting.  

How Long Does the Process Take?

Generally, the Closing takes between 30 and 90 minutes, depending on how prepared all parties are, and how long it takes to review the documents.  However, if issues arise during the closing, it may need to be rescheduled, and it may take several days.  

What Documents Need to be Executed?

Usually, the closing involves signing the following documents:

• The Closing Disclosure Form: This is an itemized list of the buyer's final costs, credits, and charges;
  
• Deed of Trust or Mortgage Document: These are the actual terms and conditions of the financing agreement;
  
• Promissory Note:  This is the actual IOU form to the lender, detailing the actual amount of money you are borrowing and will need to pay back;
  
• Loan Estimate: This document outlines the actual closing costs, which are in addition to financing and down-payment;
  
• Title Insurance: protects an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters.
  

What Happens After Closing?

You take possession of the property, and the new deed is recorded.  You also receive your keys at this meeting.

What Issues May Arise During Closing?

Hopefully, the closing will go smoothly, and there will be no issues.  Ideally, both parties have all the documents ahead of time, and have had a chance to review them, so that issues do not prevent a smooth closing.  However, the following issues may delay or prevent a settlement:

• Errors in the Documents: These can be as simple as typos, or there may be terms that were not previously agreed upon.This is why it is important to thoroughly re-read ALL documents before signing them.  DO NOT sign any documents containing errors until those errors are corrected.
  
• Money Issues: Often, funds are delayed, especially if the purchase involves a mortgage.  If checks are delayed, settlement may need to be postponed.
  
• Title Issues: Sometimes title issues are found that must be cleared before final settlement may occur.  These may be unknown liens placed by contractors or an Association, unpaid Association fees, tax deeds, etc.  Despite the presence of Title Insurance, the Buyer's Attorney will not allow settlement to commence if any title issues are found.
  
• Issues Found During the Final Walk-Through or Inspection: Many contracts are contingent on a Home Inspection.  If the Inspector finds any issues, the Buyer's Attorney may negotiate buyer credits to fix these deficiencies.  Likewise, if any issues were found during a final walk-through, such as damages to the home, paint defects caused during a moving out process, non-working fixtures or appliances, or cleanliness issues, the attorneys may negotiate repairs or credits, or even a reduction in the final cost of the property.

If any of these issues arise, the closing may be delayed or continued on another day.  Sometimes, these issues may prevent a closing from happening at all.  The contract may fall through if significant issues crop up.  Again, these issues are best handled by an attorney, whether you are the buyer or the seller.  

Often, "Earnest Money," or a deposit is made when the offer is accepted.  If the closing falls through, what happens to this money is dependent on several factors, including the wording in the sales contract and the reasons for the closing falling through.  Again, it is best to let your attorney handle these negotiations.  Whether you are the buyer or the seller, it may cost you a lot of money if you try to handle these negotiations yourself, or if you leave them to your Real Estate Agent.  It will most likely cost you far more than you would have paid in Attorney's Fees.

Summary

This article attempted to demystify the closing process.  It outlined the who, what, when, where, and hows of the  settlement process.  It also stresses the importance of retaining a skilled Real Estate Attorney to represent you at settlement.  There are a plethora of complicated documents to sign, and even more issues that may arise, all of which are best  handled and negotiated by your lawyer.

The Law Offices of Heath D Harte are located in Connecticut, a state which requires an attorney to be involved in the closing process.  Again, we stress you hire your OWN attorney, rather than depending on the Real Estate firm to provide one.  Only your own attorney has your best interests at heart, (or should we say at Harte, as we always have our clients' best interests at the forefront.)  There are just too many issues that may crop up during the settlement process that can cost you far more than paying attorney fees.  With the proper preparation, we can even represent you at the closing so that you do not even have to be present.  If you live in one of the areas in which we practice, we are happy to represent you throughout the entire home buying process, from identifying property to buy, to placing an offer, to reviewing and negotiating documents, to handling the closing for you.  We can take most of the stress out of the home buying process.