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Top Ten Legal Dos And Don'ts For Age-restricted Communities
by Roger D. Winston *
Introduction
Age-restricted communities are growing in the United States. Due in large part to aging baby boomers and longer life-expectancy, age-restricted communities are being developed to meet consumer and housing needs. In the year 2000, the portion of the population that was 60 years of age or older reached 45 million.1 This is dwarfed when compared to the almost 88 million projected in the year 2030.2 If these demographic trends are any indication, age-restricted communities will continue to rise in the United States. Not only are individuals seeking such communities, housing providers are also benefiting from the advantages involved with these developments. For example, local governments often offer developers incentives to build housing projects for older persons, which have a lower impact on public facilities such as schools and roads. Although many aspects of developing a senior community are the same as a traditional one, this article discusses key legal considerations and issues that every housing provider should understand before embarking on a senior housing development.
Federal Framework
Federal law circumscribes the development of communities for older persons. By way of background, in 1968 Congress enacted the Fair Housing Act to prevent discrimination in the housing market based on race, color, religion or national origin.3 The Fair Housing Act was designed to address inequities in the rental and sale of real property and to create fair housing opportunities for everyone in the United States.4
In 1988, Congress amended the Fair Housing Act with the Fair Housing Amendments Act ("FHAA"), which added "familial status" and "handicapped" as protected classes.5 While this prohibited housing discrimination on the basis of familial status, exemptions were carved out for communities for older persons.6 "Familial status" is defined as one or more persons under the age of 18 who lives with a parent, a person who has legal custody or the designee of such parent or person who has legal custody.7 The exemption for older persons stated that as long as (1) 80 percent of the dwellings in a housing community were occupied by at least one person age 55 or older and the community provided significant services and facilities for seniors or (2) the housing community was reserved exclusively (100 percent) for persons age 62 or older, a community was statutorily allowed to discriminate on the basis of familial status.8 Another exemption applied to federal or state programs "specifically designed and operated to assist elderly persons."9 The 55 or older exception is most prominently used in the development of private sector age-restricted communities and will, therefore, be the focus of this article.10
Congress added "familial status" to the Fair Housing Act due to the growing incidences of rental housing restricted to people without children.11 FHAA served as a protective mechanism where families with children would not be denied opportunities to obtain affordable housing.12 However, Congress also understood the desire to live in communities without children.13 The prohibition of discriminating against familial status and the creation of an exemption for housing for older persons protected "families with children from discrimination in housing without unfairly limiting housing choices for seniors."14
FHAA resulted in litigation, debate and criticism for requiring senior communities to provide significant services and facilities.15 As is clearer in retrospect, the significant services and facilities requirement was an undefined standard that left many uncertain as to what it exactly entailed. Congress reacted to this by amending FHAA and creating what is commonly referred to as the Housing for Older Persons Act of 1995 ("HOPA"). HOPA removed FHAA's significant services and facilities requirement and is the framework upon which communities for older persons have since operated and been developed.16
For purposes of this article and to prevent confusion, the Fair Housing Act and the amendments made to it by FHAA will be collectively referred to as the Fair Housing Act. HOPA will be used when discussing the specific provision, 42 U.S.C. section 3607, of the Fair Housing Act relating to exemptions for older persons.
HOPA
HOPA requirements are at the crux of legal considerations for age-restricted communities. The federally mandated requirements must be strictly adhered to in order to create a sound legal foundation for such housing developments. This means that all the requirements under HOPA must be met in order to comply with federal law.17 In fact, the courts construe HOPA requirements narrowly and the burden of proving that a community meets the legal requirements is placed on the defendant.18 Although there is a recognized need for communities for older persons, there remains a highly protected goal of preventing housing discrimination.19 Thus, communities designed and intended to be housing for older persons that do not meet all of the HOPA requirements, are precluded from discriminating against families with children.
Top Ten Dos and Don'ts
Following are ten legal considerations that should be understood by all senior housing providers. Although certainly not exhaustive, these topics focus on the HOPA standards and legal requirements that must be adhered to in order to create and maintain a community that can lawfully restrict children.
1. Do be certain at least one occupant is 55 or older - Under HOPA, a minimum of 80 percent of the occupied units in the community must have at least one resident per unit who is 55 years of age or older.20 However, in the case of housing that was constructed after March 12, 1989 or renovated to such a degree that the entire project was unoccupied for at least 90 days before it was reoccupied, the 80 percent requirement does not apply until at least 25 percent of the units are occupied.21 Once 25 percent of the units are occupied, at least 80 percent of occupied units must have at least one resident 55 years of age or older.22
2. Don't use unqualified units in your calculations - Unoccupied units are not included in the total when calculating the 80 percent minimum.23 If a unit is temporarily vacant, but the occupant has resided there during the past year and intends to return on a periodic basis, it is considered "occupied."24 Units occupied by association employees who are under the age of 55 and who perform substantial duties related to the management or maintenance of the community are exempt.25 This includes the employee's family members.26
If calculating 80 percent of the number of units results in a fraction of a unit, that unit must also be occupied by a person 55 years of age or older.27 For example, if 80 percent of the number of units equals 22.7 units, 23 units must each have a resident who is at least 55 years old.
3. Don't confuse ownership with occupancy - It is important to take note of the exact wording of HOPA. It states that the units must be occupied by at least one person who is 55 or older. HOPA is not concerned with the ownership of units.28 Instead, a unit only needs to be occupied by one individual who is at least 55 years of age or older.29 Therefore, even if a unit is owned by someone under the age of 55, as long as a 55 or older resident lives in the unit, it will be counted towards the 80 percent minimum. Additionally, only one person in the unit must be at least 55 years of age. For example, if a 56 year old and a 52 year old both reside in a unit, it will still be counted towards the 80 percent minimum.
4. Do comply with more stringent local laws - The Fair Housing Act does not prevent enactment or imposition of more stringent state or local laws, as long as they do not promote or require any discriminatory housing practices.30 As an example, a local law could require that all residents in 100 percent of the units be at least 55 years of age or older. On the other hand, local law requirements cannot be less stringent than the federal law. For instance, if a local ordinance for a senior housing zone stipulated that all residents must be 50 years of age or older, then the application of the local law and the federal law together would require at least one resident to be 55 years of age or older and all other residents be at least 50 years of age or older.
5. Do publish and adhere to policies and procedures and show an intent to comply- An age-restricted community must not only meet HOPA requirements, it also must publish and adhere to policies and procedures that show the community intends to operate as housing for people 55 years of age or older.31 Intent to comply is most often demonstrated in the covenants, conditions and restrictions of a community. However, there may be additional policies and procedures in rules or other community manuals or books. For example, advertising or describing a community as a 55 or older community, including lease and purchase agreement provisions containing 55 or older language, and including language in the governing documents that a community is intended for 55 or older residents, may be used to show the community's intent to comply with HOPA.
Several factors will be taken into consideration in order to determine whether a facility or community has shown the requisite intent and is in compliance with the policies and procedures test.32 Factors include the community's written rules and regulations, the way the housing is described to prospective occupants, the nature of advertising, lease provisions, public posting in common areas with statements that the community is for people 55 years of age or older, and the actual practices of the community.33
Simply marketing a community with such phrases as "adult living", "adult community" or like statements does not create the requisite level of intent that a community desires to operate as housing for individuals 55 years of age or older.34 Indeed, if such terms are utilized, it is important to also indicate that the project is "senior housing", "retirement housing", or "55 or older housing" to clearly demonstrate the intent to comply with HOPA. Furthermore, intent to comply with federal law is not demonstrated through maintaining a community reputation for being a facility for older persons.35
In order to demonstrate a clear intent to operate as a 55 or older community, documents that are binding on all occupants in the community should include provisions stating that unless an exception is granted in accordance with HOPA, every occupied unit must have at least one permanent occupant who is 55 years of age or older. Although federal laws do not define the time frame to become or provide for a definition of a "permanent occupant," it is wise to include a measurable amount of time and an enforceable standard in the binding document.36 This avoids sticky situations where, for instance, a person over the age of 55 who visits his or her under 55 year old children on weekends claims they are the "permanent occupant."
6. Do verify age initially and every two years thereafter - HOPA also requires that an age-restricted community comply with rules for verification of occupancy through reliable surveys and affidavits.37 This means that a community must develop procedures for regularly determining the ages of residents and ensuring that at least one occupant is at least 55 years or older.38 Surveys that gather information on the ages of unit occupants and whether association employees reside in units prove useful for obtaining information.39 Drivers licenses, passports, immigration cards, military identification cards, birth certificates and any other government document that shows a date of birth are considered reliable documentation of the age of an occupant.40 A signed certification by any member of a household 18 years of age or older stating that at least one resident of the unit is 55 years of age or older can be made part of a contract, lease, application, affidavit or other document and is also considered reliable documentation of the ages of unit residents.41
If unable to obtain evidence of age because an occupant refuses to provide such information, a community may also get an affidavit from a person not in the household who has personal knowledge that the resident is at least 55 years of age.42 The affidavit must state how the person knows the resident's age and be signed by the person under the penalty of perjury.43 Furthermore, government documents such as local household census reports that demonstrate a unit is occupied by an individual who is at least 55 years of age or forms or information previously completed that verify the ages of occupants can also be used when an occupant refuses to provide information relating to their age.44
A community must remember that verification procedures are a continuing process and must be done on an ongoing basis.45 While it may be quite obvious that new prospective occupants must be subjected to the verification procedures at the time of contract, ages of occupants must also be re-verified at least every two years.46 It is not that information must be re-gathered, it must be reconfirmed so that the community can accurately meet the 80 percent minimum requirements. Attempts by communities to guess the ages of residents or to verify the ages of residents after compliance with age requirements was challenged, are not looked upon favorably by the courts.47
Verification of age is more easily understood than implemented. For various reasons, it is often difficult to obtain the ages of residents. Due to this obstacle, it is legally wise to incorporate covenant provisions that require a resident to subject itself to the community's age verification process. Provisions setting forth procedures and enforcement mechanisms also ensure that information can be obtained and verified in a timely and effective manner. This puts the resident on notice of what will be expected of them and will often allow a smoother completion of the verification procedure. Furthermore, provisions could be incorporated into sales contracts that require the person signing the agreement to assure the housing provider that at least one of the occupants in the unit will be over 55 years of age.
Occupants should also be made aware that information received through the verification process may be shared as required by law. In fact, the association must make a summary of occupancy surveys available for inspection upon reasonable notice and request by any individual.48
7. Don't mislead purchasers - Senior housing purchasers, perhaps more so than other purchasers, are often reliant upon brochures, marketing materials and oral conversations to make a decision to purchase a unit. The purchaser's vision of the finished community and the individual unit is often based on such materials. While marketing is part of all sales, sellers must be aware of the difference between promoting the verifiable attributes of the community and making lofty promises that cannot be kept. The latter runs the potential of a lawsuit when such promises cannot be met or the purchaser is led to believe the community will be something it is not. In light of this, all staff associated with the sale, marketing and development of the community should be clear on how the finished project will look, what amenities it will contain, and the scope of services to be offered. Although this may be obvious, promises and assurances that cannot be kept should not be made. Good sales and marketing practices produce happy homeowners and happy homeowners, especially seniors, provide many referrals. However, the reverse is true as well. Meeting or exceeding purchaser expectations is critical to the success of a senior housing development.
8. Do anticipate situations that could jeopardize HOPA compliance - The importance of maintaining the 80 percent occupancy requirement has already been discussed. However, it is useful to emphasize how this requirement can be obtained and maintained through anticipating potential obstacles by including necessary provisions in the governing documents. For instance, it is likely that some of the residents within a community may have their under 55 year old children living with them in order to provide care. While this is not a problem during the parent's life, it could pose difficulties after the death of the parent.49 If the child decides to remain within the community after the parent dies, the child could jeopardize the 80 percent occupancy requirement.50 The community's governing documents must anticipate this type of situation. By including a provision that clearly prohibits a child from remaining in the community if it jeopardizes the 20 percent allowance for occupants under the age of 55, all residents are put on notice as to the community rules and the community is able to operate in compliance with applicable laws.
9. Do consider the interests of the people who will live in the community - A senior community does not necessarily mean a homogenous community. Many age-restricted communities are home to a diverse group of people with diverse needs. While HOPA requirements must be strictly adhered to, the documents can be more flexible and still meet all federal and state legal requirements. As can be seen through the various types of age-restricted developments throughout the country, a community can be legally sufficient and address the diverse interests of the residents. Given the diversity of the community, it is imperative that planning and forethought are invested in creating an effective governance structure. Although HOPA requires one resident to be at least 55 years of age or older, the composition of the other residents is largely dependent on the marketing goals and objectives of the developer. Should the governing documents for the community include a minimum age for all residents? How should hardships be addressed? For instance, if the minimum age for residents is 50, should an exception be made for caregivers who are required to live in the home to provide assistance to the age-qualified residents? What about college age children? Should they be allowed to live with their age qualified parents during college breaks? (The answer may be "yes" if your prospective purchaser is a couple with college age children or "no" if the prospective purchaser is seeking peace and quiet!) These are but a few of the issues that must be carefully considered by the developer.
There is not one correct way of structuring the governance scheme in situations such as these and whether a community is governed through one or several associations is community specific.51 However, the importance of this short discussion is to make this issue known so that documents can be clearly drafted to create a governance structure that best meets the needs of each community.
10. Don't invite noncompliance or litigation - Obviously litigation and any challenge that a community has violated the Fair Housing Act are to be avoided. However, housing providers should be aware that litigation could not only result in an award of the actual damages incurred by the plaintiff, but also punitive damages.52 Punitive damages may be awarded in housing discrimination cases, particularly "in cases where the defendant shows a reckless or callous disregard for the plaintiff's rights."53 Determining the size of a punitive award depends on a number of factors and although it is ultimately a matter within the discretion of a jury or a judge, it should be sufficient to serve as both a deterrent and as punishment. Furthermore, depending on the facts involved, other equitable remedies such as injunctive relief may be ordered by the court.54 Perhaps the most severe sanction is the loss of the project's status as a qualified age-restricted community. Upon such an occurrence, the community may thereafter be forever barred from restricting children and purchasers who may have relied heavily upon the senior housing status of the project may have their goals thwarted. As an example, in HUD v. Murphy, complainants claimed a community discriminated against individuals on the basis of familial status.55 Although the community was initially developed and operated for families with no age-restrictions, in 1988 the owners claimed the community was converted to a 55 or older community.56 The administrative judge found that only 70 percent of the units were occupied by individuals 55 years of age or older.57 Furthermore, the community was described as an "adult park" but did not demonstrate through policies and practices that it was a housing community intended for individuals 55 years of age or older.58 The judge found that the community failed to meet the criteria needed to qualify as a 55 or older community.59 Without an exemption, the owner was discriminatory in refusing to rent dwellings to individuals based on familial status.60 Compensatory damages including actual and economic losses as well as emotional damages were awarded.61 Additionally, punitive damages were awarded.62 Moreover, the community was ordered to discontinue operating as an "adult" community and to cease employing any policies or practices and implementing any rules, including their 55 or older policy, that would discriminate based on familial status.63
There is slight comfort in knowing that a good faith defense exists for people, not corporations, who believed, in good faith, that an association qualified for the 55 and older exemption.64 This is a narrow defense, though. It only applies if a person has actual knowledge before any alleged discrimination occurred that the community's authorized representative certified, both in writing and under oath, that the community qualified for the fair housing exemption.65
Conclusion
The development of an age-restricted community must follow specific statutory guidelines. Due to these requirements and other community issues particular to residents in age-restricted developments, much thought and energy must be put into the creation of a governance structure, the governing documents and all marketing materials. Furthermore, to be a success, all those involved in the project must understand and be aware of the impact legal requirements will have on a community. While certainly not the only factor, adherence to legal requirements is a large factor in the creation of a successful and lasting senior housing community.
287576 v.3
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*
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Partner, in charge of the Common Interest Development Group, Linowes and Blocher LLP, Silver Spring, Maryland.
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1
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See National Center for Seniors' Housing Research, Executive Summary, Seniors and America's Homes: Supply Chain Solutions From The Home Building Industry (2000).
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2
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See id.
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3
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See 42 U.S.C. § 3601, et. seq. (2002).
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4
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See id.
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5
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See id.
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6
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See id.
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7
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See 42 U.S.C. § 3602(k) (2002).
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8
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See 42 U.S.C. § 3607(b)(2)(A) (2002).
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9
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Id.
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10
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See Wayne S. Hyatt, Legal Considerations, in DEVELOPING ACTIVE ADULT RETIREMENT COMMUNITIES 139, 142 (2001).
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11
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See id. at 141.
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12
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See id.
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13
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See id.
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14
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Tropics Residents Club v. California Tropics Investors 1992, 1997 U.S. Dist. LEXIS 14292, at 9 (N.D. Cal. 1997).
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15
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See Taylor v. Rancho Santa Barbara, 206 F.3d 932, 935 (Cal. 2000).
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16
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See 42 U.S.C. § 3607(b)(2)(C).
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17
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See Simovits v. The Chanticleer Condominium Association, 933 F. Supp. 1394, 1401 (N.D. Ill. 1996).
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18
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See id. at 1401-1402.
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19
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See id.
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20
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See 42 U.S.C. § 3607(b)(2)(C)(i).
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21
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See 24 C.F.R. § 100.305 (2002).
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22
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See id.
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23
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See id.
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24
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See id.
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25
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See id.
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26
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See id.
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27
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See id.
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28
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See 42 U.S.C. § 3607(b)(2)(C).
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29
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See id.
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30
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See id.
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31
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See 42 U.S.C. § 3607(b)(2)(C)(ii); 24 C.F.R. § 100.306 (2002).
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32
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See 24 C.F.R. § 100.306. This section provides that phrases such as "adult living", "adult community", or similar statements in any written advertisement or prospectus are not consistent with the intent that the housing facility or community intends to operate as housing for persons 55 years of age or older.
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33
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See id.
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34
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See id.
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35
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See Simovits v. The Chanticleer Condominium Association, 933 F.Supp. at 1402.
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36
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See Legal Considerations, supra note 9, at 154.
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37
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See 24 U.S.C. § 3607(b)(2)(C)(iii).
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38
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See 24 C.F.R. § 100.307 (2002).
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39
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See id. at § 100.307(h).
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40
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See id. at § 100.307(d).
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41
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See id.
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42
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See id. at § 100.307(g).
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43
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See id.
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44
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See id.
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45
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See id. at § 100.307(c).
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46
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See id.
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47
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See Simovits v. The Chanticleer Condominium, 933 F. Supp. at 1398.
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48
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See 24 C.F.R. § 100.307(i).
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49
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See Legal Considerations, supra note 9, at 150.
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50
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See id.
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51
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See Legal Considerations, supra note 9, at 152.
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52
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See Simovits v. The Chanticleer Condominium Association, 933 F. Supp. at 1405-1406.
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53
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Id. at 1406.
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54
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See id. at 1407.
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55
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See HUD v. Murphy, Fair Housing-Fair Lending Rptr 25,002, at 1-2 (HUD ALJ 1990).
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56
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See id. at 5.
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57
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See id. at 54.
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58
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See id. at 56.
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59
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See id. at 59.
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60
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See id.
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61
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See id. at 59-68.
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62
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See id. at 69.
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63
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See id. at 72.
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64
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See 42 U.S.C. § 3607(b)(5); 24 C.F.R. § 100.308 (2002).
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65
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See id.
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