Civil Rights Act of 1968, Unruh Civil Rights Act, ... there are a few other California specific legal statutes around civil rights/housing discrimination.
If you are sharing your own house vs renting out an autonomous unit, the rules are different (at least here in Seattle), you can discriminate a lot more legally than you could otherwise. So someone who rents room in their home only to Chinese international students is completely ok (as long as they share living space with the landlord). Not sure what the laws are in California, but federally it’s kosher.
You are right, here are the seattle FAQ on first qualified applications:
> Yes. The first-in-time requirement applies to duplexes and triplexes even if the owner resides in one of the units. The non-owner occupied units are considered separate dwellings, and therefore are subject to the Seattle Open Housing Ordinance, which includes the first-in-time
provisions.
Now if the lady in question was renting out the basement, that might count as an accessory dwelling unit, and she would be exempt under Seattle rules (but this is in SF, so the rules would be different).
My guess is that as long as she doesn't advertise the unit (in the sense that she put it up for application), she can simply mention its availability to a small network that conveys it by word of mouth. It is impossible to legislate that kind of discrimination, there are tons of units that don't officially go on the market (via advertising on zillow, for example) but still get rented out.
The Fair Housing Act (the part of the 1968 Civil Rights Act you are referring to) exempts owner-occupied buildings with less than five units, so it wouldn't apply to the other unit in an owner-occupied duplex.