New York City Fair Change for Housing Act Introduces Two-Step Approval Process

Co-op admissions have always been a fraught legal area with many pitfalls to avoid. Now the admissions process has one more to contend with — the New York City Fair Chance for Housing Act (Local Law 24), which went into effect in January. The new requirement turns what had been a one-step admissions review into a two-step process. It’s important to make sure key changes are implemented. “It’s a process issue more than anything else,” says Dean Roberts, a member at Norris McLaughlin. “It’s just getting used to understanding what boards can and can’t do.” 

NEW RULES

In the past, criminal background checks were routinely done when a purchase application was received, and depending on what it revealed, the process would continue. Melissa Cafiero, president of Halstead Management, spoke to one of her board directors who was concerned because they had been doing background checks as part of their application process. “If the criminal history was not good, they would not approve the applicant and they would not commence an interview,” she says. “When you’re talking about white-collar crimes, there are things of that nature that may or may not be important to certain boards.” Cafiero says in her co-op experience, she has not seen something really terrible in a background report: “I’m sure it’s happened, but personally I have not come across that.”

The Fair Chance Act has upended that process. Now, says Cafiero, the board “must accept an offer in writing and agree not to revoke or change the deal based on the buyer’s criminal history, except as permitted by the act.” What that means, practically, is creating a two-step process.

NAVIGATING TWO STEPS

The typical admissions package is a set of documents that reveal the financial picture of the buyer, and may include personal and professional references and a host of other documents in which the purchaser acknowledges they have read the building’s rules and regulations. Until the beginning of this year, the package also included the results of a criminal background check. When the package was complete and it seemed that the applicant was qualified, an in-person interview was scheduled. Professionals advised boards to forgo the interview if, after reviewing all the documents, they were going to deny the purchase. 

This process has now morphed into a two-step one. All the financial information and personal/professional references your co-op requires can remain the same ­— but your board can consider the criminal history of somebody only after they have been offered a conditional approval. You’ll have to make sure that the prospective purchaser has signed a document acknowledging that their criminal history will be reviewed, says Mark Levine, principal at the management firm EBMG. “From a paperwork standpoint, not too much is going to change,” he says. “But now we’ll have to separate out when we can actually do the criminal check.”

To complicate matters, Fair Chance stipulates that you can take into account only “reviewable criminal history.” That means “you may only consider certain types of convictions, and only within a specific time frame,” says Julie Schechter, partner at the law firm Fox Rothschild. “For most felonies, they can only go back five years, and for misdemeanors, three years. The look-back window captures the time of release from jail or prison, or the time of an individual’s sentencing if they weren’t incarcerated.” The reviewable history also includes convictions on registered state or federal sex offense registries. Schechter advises boards to order criminal background checks from third-party vendors that will conduct searches solely for reviewable criminal history.

Instead of approving the purchaser after the interview, under Fair Chance you’ll now offer a conditional approval, which is an initial commitment to approve the applicant before conducting a criminal background check. If, after reviewing the criminal background check, the board decides to reject the potential buyer, then it must follow certain guidelines. In particular, says Cafiero, you’ll have to “provide the applicant with a written explanation, including a copy of supporting documentation and a statement demonstrating how the reviewable criminal history is relevant to a legitimate interest of the housing provider and how the supporting documents were taken into account. That is the key language. You’ve really got to demonstrate airtight that criminal history would have a direct impact on the housing community.” 

If you’ve turned down the purchase based on the criminal background check, you’ll have to give the applicant a copy of the report and an opportunity to correct any errors or provide any information that they think may change the decision. The applicant will have five business days to respond. The thinking behind this requirement, says Levine, is “if you’ve served time or you’ve paid a penalty or some other payback for the crimes that somebody has perpetrated, everybody is given a chance to have equal footing on prospective housing options in the future.”

UPDATE YOUR PURCHASE APPLICATION

Purchase applications vary, but you’ll want to make sure that yours is updated to include the Fair Chance Housing Notice. If your co-op or condo uses a standard REBNY purchase application form, you’ll want to make sure you (or your management company) are using the latest one, which reflects these requirements. And if your building’s application package is online, whether on your management company’s portal or the Domecile (formerly BoardPackager) portal, you’ll want to confirm Fair Chance is included.

You’re not obligated to perform a criminal background check, of course, and many professionals within the co-op/condo community report that prior to the Fair Chance Act, criminal findings haven’t been a problem. Denying a prospective purchaser because of criminal activity opens your board to litigation on many fronts, and some boards may decide to go with their gut perceptions during the interview, rather than require criminal background checks as a second step.

The law is buttressed by tough city oversight. “There are a couple of consequences,” said Schechter. “If a co-op or a condo violates the law, the applicant could file a lawsuit. The New York City Commission on Human Rights is tasked with investigating complaints that are filed for violations of the new law. And if it finds that you are in violation, it can fine you, and the fines can be significant, up to $250,000. So there are fines, they are significant and the buildings have to make sure that they comply.”