Kansas City Missouri recently passed a new “Source of Income Law” that goes into effect in August of 2024. To prepare Kansas City Housing Providers, the KC Regional Housing Alliance held an informational seminar on March 9th. The seminar discussed the new law, how to comply, Section 8, and how we fight it.
Many thanks to Stacey Johnson-Cosby, leader of the KC Regional Housing Alliance. She has worked hard pulling everyone together to bring this seminar together.
The Source of Income Law in Kansas City Missouri
“Please keep in mind that the new housing law passed in Kansas City, Missouri affects everyone, regardless of their location. The law’s impact could spread to other cities and states soon. Given the success of the last two or three similar laws, more are likely to follow. Hence, it is important to be aware that these laws may come to your city or even Washington soon.”
- Source of Income Discrimination
- Rent Control
- Just Cause Eviction
- Free Attorneys for Renters
- Banning Eviction & Criminal Records along with Credit Reports
- Taxing Housing Providers for Owning Too Many Houses
- Taxing Housing Providers for Having a House Sit Vacant
- White House Tenant’s Bill of Rights
- People’s Action Homes Guarantee
Every new rule and regulation tacked on to our industry increases the cost of rental housing. And regulating the industry more is not the answer.
The Replay of this seminar is posted on YouTube and you can watch it here.
We highly recommend watching the replay. We have taken a few notes on your behalf because many of you will not.
Who Owns the Rental Housing?
Despite all the media outlets blaming Wall Street for buying up all the houses and increasing costs. Andrew Syrios discusses who owns rental housing in his article Wall Street is Not Buying Up Main Street. He shares that there are about 83.3 million single-family homes in the US. About 20 million of those are rentals. Wall Street owns roughly 450,000 or less than 2.5% of all single-family rentals. That’s less than 0.5% of all single-family homes. (Consider Wall Street has been building many of those single-family housing to rent over the last 10 years) . Who owns the other 97.5% of all rental housing in the US? We do. You and I, the members of the Mid-America Association of Real Estate Investors. Members of KC Regional Housing Alliance. Our counterparts nationwide.
History Behind the Source of Income Discrimination Ban in KC
KC Tenants did their homework when writing the most restrictive source of income law in the country. They researched how housing providers were getting around the rules. Then they added additional restrictions to prevent skirting the rules.
The Kansas City Missouri Fair Housing regulation has introduced new limitations to the common screening practices and stiffer penalties. This law applies to the long-standing fair housing protected classes, which include race, color, national origin, religion, sex, familial status or disability. The fine for violating these classes is $500, but if source of income is violated as the new protected trait, the fine will be $1000.
How to Comply with the Law
What do you need to do to protect yourself from being fined or put in jail? Other than not investing in Kansas City Missouri, what do you need to do in August?
Outlining the sections of the law was Attorney Dan Kelly. Practicing landlord-tenant law in Kansas City since 1998, Kelly sits on the board of Landlords Inc. He outlined what was in the ordinance and how it will affect local housing providers.
Rent to Income Ratio
Section 38-105-d(10) To refuse to rent to a tenant solely on the basis of a rent-to income ratio that does not take into account verifiable and lawful sources of income, such as vouchers, maintenance, disability payments, pensions, or other income supports.
If a prospective tenant has a voucher, the landlord’s requirement for any rent-to income ration shall apply only with respect to the portion of the rent not covered by such a prospective tenant’s voucher amount, consistent with state and federal law, including, but not limited to, fair housing laws.
Practical Application:
The standard of practice of rent to income ratio is no longer going to work. Requiring 3 times the rent or whatever your ratio might have been is not going to be allowed. Housing providers know that a person renting a home for $1000 is going to have other obligations to pay for. They will need to cover the rent plus utilities, food, car, clothing, school, entertainment, etc. All the other things that people spend money on.
So while the 3 times the rent ratio seems reasonable, the law prohibits using it.
To Use a Ratio:
First, you would need to take your rent, $1000 in our example. Deduct their voucher of $900 in our example. The way the ordinance is written, you would only be able to use your ratio on the difference of $100. So Rent-To-Income Ratio no longer works.
Now you need to manually calculate what you think a renter will need in income monthly to cover rent and expenses. Actually calculate what you estimate they will need in utilities, food, entertainment, clothing, insurance, car, and other expenses. Then add that amount to your rent to come up with your minimum income requirement. Then compare to their verifiable income including a voucher.
In our example, rent is $1000, living expenses $2,100. So the renter would need to earn $3,100. If they have a $900 voucher, your criteria would need to see $2,200 in other verifiable income.
Credit Report Screening
Section 38-105-d(11) To refuse to rent to a tenant solely because of an adverse credit report or lack of credit history without reference to additional information pursuant to Section 38-105€.
What this means is you can’t deny an applicant based on their credit score alone.
Eviction History Discrimination
Section 38-105-d(12) To refuse to rent to a tenant solely because of prior evictions or alleged damages without reference to additional information provided pursuant to Section 38-105(e), except that prior evictions or alleged damages that occurred within one year of the date that the tenant would begin a new rental agreement may result in the refusal to rent to that tenant.
This means that while you can look at this history, you cannot discriminate solely on this criteria unless it happened in the past year. You would need to have other factors to combine with this. Plus you would need to allow them to provide you with additional information regarding the matter.
Criminal History Discrimination
Section 38-105-d(13) To refuse to rent to a tenant solely because of prior convictions or arrests without reference to additional information provided pursuant to Section 38-105(e).
If the applicant has a criminal history, you cannot use this alone as a reason to disqualify them. And you must give them the opportunity to provide additional information.
Charging Tenant for the Ordinance
Section 38-105-d(14) To increase charges, reduce services, or require the tenant to bear financial or other responsibility for penalties imposed as a result of violating sections 38-105, 38-111 or 38-113.
The Two-Factor Exception to Discrimination
38-105-d(15) It shall not constitute a violation of this subsection to deny a rental application based on reference of two or more factors described in Section 38-105 (d) (10)- (d) (14)
This means that if the applicant has any two of these factors above, you can decline them after first considering the additional information they provide. But you can’t tell them this in advance. You first must let them apply and pay the screening fee and go all the way through the process.
At MAREI, we don’t think this song and dance will change screening practices in the long run.. What it will do is prevent housing providers from defining criteria up front and allow renters to self-screen. Instead, they will have false hope. Causing them to fill out the application and pay the screening fee, only to ultimately be denied. So protect themselves, the housing provider are young to have longer more detailed applications and application processes.
Allowing Additional Information
Section 38-105(e) . . . as referenced by several other sections, this states . .. the person shall review and consider additional information provided by the rental applicant, . . . Denying an application based on reference to such factors specific to the individual applicant shall not constitute a violation of this Section.
This means that you have to allow them to provide additional information. That you need to review their information. But you do not need to change your criteria because of the information.
Attorney Kelly advised that Landlords Inc is changing the rental applications they offer their members. They will include a section documenting the fact that the applicant was allowed to provide any additional information.
PreScreening
It has been a common practice in the past to present many of your screening criteria upfront. This allows the applicant to pre-screen themselves. Thus, saving the applicant time and an application fee when they know they would not qualify. Now you cannot present this information up front. You need to let all applicants apply and pay their application fees. Allow them to present additional information, go through the entire process and then make your determination.
Declining an Applicant
Section 38-105 (f) Anytime a person denies an application for rental housing, said person must inform the prospective tenant that their application was denied.
(1) If a prospective tenant requests the rationale for their denied application, the person who denied their application must affirmatively state that it was not on the basis of their membership of a protected class or a protected trait as defined by this chapter and inform the prospective tenant in writing of their rights as defined by this chapter.
This means that you can verbally tell them they were declined. If they want to know why they were denied, you have to put it in writing. State that it was not the result of discrimination and provide them access to this statute. You only have to tell them why when you follow federal law, not why. Provide a declination letter if the credit report was the reason for denial.
Practical Advice
Attorney Kelly had several items of practical advice for all housing providers in Kansas City:
Do not put your rental criteria in your ads. We can no longer tell applicants in advance what you require of rental applicants.
Invite everyone who calls to tour the unit. You never know when the person on the phone might be a secret shopper. Someone trying to find housing providers who don’t know the rules.
Use a script when answering the phone. Make sure everyone knows what they can and can’t say and always use a script when answering the phone. (Perhaps, don’t allow applicants to call, do it all through online forms so you can’t accidentally say the wrong thing.)
Don’t disclose screening criteria. If the applicant wants to know your criteria up front, explain that this ordinance does not allow you to tell them. The only option is to apply to see if they qualify.
Let everyone apply. Invite all to view the property. Allow everyone to apply to rent the unit, and collect a fee from everyone who applies.
Keep good records of everyone who turns in an application.
Tip for MAREI Members: We would advise all members of MAREI who own or manage rental property in Kansas City Missouri to join Landlords Inc. At a cost of $75, it will be money very well spent to help you have the best forms and advice for complying with the Healthy Homes, the Tenant Bill of Rights, this Source of Income Ordinance, and any future regulations that KC Tenants might create.
Best Practices to Stay Compliant With Section 8
Property Manager Myeisha Wright then took the stage to share some best practices to Cover Your Assets when Navigating the Source of Income Ordinance.
- Don’t be combative, it’s just business.
- Be consistent and document everything.
- Have written policies, procedures, and checklists.
- Limit verbal communication when discussing criteria (write it down)
- Limit criteria in your written ads other than “Tenant is responsible for all Utilities.”
- Implement hard deadlines and requirements for taking possession of the property.
- Only process applications when they are complete, and all additional documentation is provided.
- Communicate in writing reasons for denial if another applicant was chosen.
- Remember falsified or fraudulent information on an application is a reason for denial.
- Keep all records accessible for up to 3 years at a minimum.
Suggested Policies as it Pertains to Section 8
Myeisha then shared her suggested policies that she uses when dealing with Section 8 Renters.
- All rental applications must be complete before processing.
- Falsified information on a rental application is an automatic denial.
- Applicant must tour the home before applying to rent.
- Keep the unit on the market until all move-in requirements have been met.
- Only take off the market once all deposits have been paid in full.
- A policy that you only accept a set number of applications before you take off the market.
- Applicants must have reasonably verifiable and lawful income.
- Applicant must demonstrate financial ability to cover rents, utilities, and other household obligations.
- Income outside of W-2 wages and vouchers are calculated on an annualized basis.
- Applicant must have 6 to 12 months of reasonably verifiable and lawful income.
- If an applicant has 2 or more of the following it could be a reason for denial and the applicant is welcome to submit additional information to be considered:
- Credit Score under a certain number.Evictions within the past three years.History of property damage.
- Criminal offenses including but not limited to fraud, bad checks, violent crimes, drugs, etc.
- Applicant must have at least 2 years of rental history.
- All adults over 18 years of age who will reside at the property must complete, sign, and pay for a separate rental application.
- Applications that were not denied are only good for so many days.
- Voucher holders cannot take possession of the unit until HAP Contract is signed.
- The rent offer must meet the total rent amount.
- Applications are processed within 24 to 48 hours.
- If asked about screening criteria such as criminal, credit, or eviction, tell them that all are welcome to apply.
- Utilize a tracking system when accepting, processing, and approving applications to document that you are making objective and data-driven decisions.
- Process the application fee once the application is deemed complete and all supporting documentation is received.
- Denied applicants to be sent a denial reason letter within 1 business day.
- If a voucher applicant passes your process, it will take an additional 24 to 48 hours to process the RFTA.
Make Sure You Understand Section 8 Procedure
- Just because they have a voucher and pass your screening does not mean the property will pass the RFTA (request for tenancy approval)
- That payment standards are based on the number of Bedrooms and inclusive of utilities.
- There is a map: https://www.hakc.org/payment-standards-map
- Make sure you add the “Tenancy Addendum” to your lease with “This lease includes the attached tenancy addendum as prescribed by HUD” and if they violate the addendum, they could lose their payment. This would also be a violation of your lease.
- If the applicant takes possession prior to the Housing Authority approving the tenancy according to the program requirements, they will be 100% responsible for any rent due under the lease (Housing Authority will not pay until approving the Tenancy Agreement)
- Housing Assistance Payments will not be distributed until the unit passes inspection and the HAP Contract is executed by the Housing Authority.
- Tenancy Approval Requirements
- The unit is deemed affordable when tenant rent and their utilities are not more than 40% of their monthly adjusted income.
- The rent is reasonable as determined by the Public Housing Authority.
- The unit must pass Housing Quality Inspections
- And the Housing Authority has received the lease and prepared the HAP contract for execution.
MAREI Member Tip: Explore options to learn more about managing rental property in Kansas City Missouri by taking Myeisha Wright’s training class Property Management Bootcamp for $199.
How do We Fight this Source of Income Law
Next up was Attorney Doug Stone with Lewis Rice. He spent many hours in meetings with City Hall, trying to educate the City Council about the ordinance before its passing. He, along with many others, put up a good fight to defeat the ordinance, and although they couldn’t manage to defeat it, they did manage to get some concessions.
In order to oppose this ordinance now, we have two main options. The first is to change state law, which would render this ordinance invalid at the state level. The second option is to pursue legal action. Out of these two options, changing state law is the preferable choice.
The last result may require litigation, which would be costly and time-consuming.
There are several legal cases that could be relevant to this situation. However, some of these cases are still being heard in trial court and have not yet been appealed. Additionally, Attorney Stone briefly mentioned a few other cases that could also be applicable. But to date, nothing fits this situation perfectly.
Our better option is to change State Law that would invalidate this City Law.
Missouri House Bill 2385
Missouri Representative Ben Keathley briefly took the stage to talk about MO HB 2385, a bill he started drafting last fall to protect private property rights. Initially, he was focused on St. Louis County, where he observed that the county’s ordinances had a significant impact on rental housing. These laws have adversely affected the housing market, causing providers to sell out and decline to do business in the area. However, the Source of Income Bill came along in late December in Kansas City.
Stay up to date on HB 2385 by following it online. At the time of this writing, it has been read a 3rd time. It has passed in the Missouri House. Then it was sent to the Senate for its first reading.
Additional Information Provided
There were a few items shared from pass ordinances passed. We also heard from Sean Smith a Jackson County Legislator on county property taxes. Plus a few words from Eapen Thampy Jefferson City Lobbyist.
