Much Needed Clarification of the Source of Funds Law by DPOR

hangerlawReal Estate Leave a Comment

On July 1, 2020, the General Assembly enacted an amendment to the Virginia Fair Housing Law (“VFHL”) (Va. Code §§ 36-96.1 et seq.) to include source of funds as a protected class. The Virginia Real Estate Board division of the Department of Professional and Occupational Regulation (“DPOR”), charged with carrying out the VFHL has recently added some clarification to the amendment’s affect on existing practices in home sales and rentals.

Home Sales and Source of Funding

To the relief of many home sellers, “it is not unlawful under the VFHL for a seller of a dwelling to consider the financial terms and conditions, including the loan amount, loan program or type of loan, of a real estate purchase contract from a prospective purchaser.” Guidance Document, Housing Discrimination on the Basis of Source of Funds (Virginia Real Estate Board April 16, 2021) (emphasis added). Home sellers routinely decide between multiple offers based upon the proposed financial terms, including type of loan or lender, and according to DPOR, “[n]othing in the text or legislative history of the source-of-funds law suggests that such non-discriminatory consideration should be prohibited.”

In other words, if a seller is more motivated to accept an offer with less restrictive financing conditions, such as cash rather than a VA loan, the new source of funding amendment does not prohibit the seller from choosing the more appealing option. Weighing and evaluating the financial terms of multiple offers continues to be an approved mechanism for selecting one offer over another, and is not considered a discriminatory practice under the VFHL.

Leases and Source of Funding

In the landlord-tenant arena, the source of funds amendment has created more sticking points for property managers and landlords of 5 or more Virginia rental units. Owners, “whether individually or through a business entity,” of rental units could be exposed to personal liability for discriminatory practices or for practices that have discriminatory results based upon a prospective tenant’s source of funding.

Under the amendment, landlords and property managers may still ask about a prospective tenant’s source of funding, “as long as they do so in a non-discriminatory manner,” and may inquire into a prospective tenant’s income but should only do so as to the “tenant’s portion of rent.” The tenant’s income should not be evaluated for any portion of the rent that is being paid for by a third-party source, such as a Housing Choice Voucher.

Landlords may not, however, refuse a source of funds based on the “duration” such funds last, such as temporary grant assistance, and may not make income thresholds higher for those with a particular source of funds. Also notable, unlike sales transactions, administrative burden is not a lawful basis to deny a prospective tenant based upon their source of funding.

In summary, landlords must carefully consider their wording, both orally and in writing, when making any communications concerning the availability of a rental unit. Neutral non-discriminatory bases, such as the order in which applications are received, are still valid criteria in approving potential rental agreements.

Importantly, a landlord who owns 4 or less rental units in Virginia is exempt from the VFHL. Landlords may also deny a rental if the source of funds does not approve the rental within 15 days of a completed tenancy approval request to the source administrator.

What does this mean for you?

Whether you represent buyers or sellers, or manage properties for homeowners, the source-of-funds amendment has far reaching implications. Before you get into any hot water as a landlord or seller, you should reach out to an attorney on your specific situation. The attorneys at Hanger Law are diligently monitoring changes in real estate law, and are here to help you with any questions.

You can access the full text of Guidance Document published by DPOR here. This article is not intended to be a comprehensive discussion of this topic, and cannot be relied upon as legal advice.

Ashley Grant
Attorney at Law

Leave a Reply

Your email address will not be published. Required fields are marked *