Lesson 10
Tenant Screening
& Selection
Landlords and property managers
must understand that adequate tenant screening and proper selection are crucial
to their success. If landlords and property managers always selected ideal
tenants, their would be nothing but millionaires in the rental housing business.
Read everything you can, here and elsewhere, then join a local Rental
Housing Association. Many of them have lists of tenants who are
chronically evicted and landlord groups can also offer a multitude of other
services. You must always check out your applicant before you commit. You can
also collect an application fee from your tenant to pay for this service.
Collecting this fee is a common practice and it is a very small cost to your
tenant compared to a deposit.
Property managers must not only select tenants
who are good credit risks and can be expected to take good care of the property,
but also people who will coexist peacefully with their neighbors and other
tenants. Middle-of-the-night calls are much more likely to deal with some kind
of disturbance than with leaky plumbing.
Application
The first line of defense against bad
tenants is having an adequate application form. An adequate form is one
that requires the applicant to provide information that can be used to verify
his identity, obtain a credit report, verify employment, contact previous
landlords, and do a criminal background check. And, the application should
contain a clause specifically stating that the applicant authorizes you to do
all these things. The application should also warn that failure to provide
all items of information being requested (unless not applicable) is grounds for
not considering the application. We suggest that the following information
be requested on an application:
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First, last, middle names of all applicants
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Birth date of each applicant
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Current and most recent previous addresses of residence
w/landlord phone numbers
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Current employer with address and phone number
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Make, model, year, color, and license number of each vehicle
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Driver license state and number for each applicant
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Bank name, address, account numbers
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Has tenant ever filed bankruptcy. If so, when &
why?
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Emergency contacts (can be useful for tracing a skipped
tenant)
Some rental property owners and agents require that tenant applicants provide a
deposit of $200 or more to cover application screening fees and to hold a rental
unit until their application and credit is approved. In most cases, the
"holding portion" of the deposit is returned if the applicant is
denied - and some landlords apply the screening fees to the first months rent if
the applicant is accepted.
Many landlords with high quality property hire a
tenant screening service to check evictions, credit, employment and references.
Those costs usually range from $20 to $100 per person. Low-income
landlords must also find a way to cover those costs, or do much of the work
themselves.
If the tenant applicant withdraws their
application because they found more suitable or less expensive housing, the
landlord may elect to keep all or part of the deposit. Particularly if the
landlord incurred an economic loss as a result.
When the landlord holds the rental unit for a
tenant applicant, it is off the market and unavailable to other qualified
prospective tenants who may have to be turned away. If the applicant later
changes their mind, the property owner may have suffered financial harm in the
form of a lost business opportunity. In such a case, the landlord is justified
in retaining all or part of the holding deposit.
Landlords and agents should use good judgment and
be fair in their deposit policy. An applicant whose holding deposit is retained
without adequate justification may well have a cause of action for damages
against the property owner.
In the event a landlord elects to retain a
deposit with good cause, it is imperative that all records pertaining to the
application be kept for at least two years. In fact, the applications of all
prospective tenants should be kept the time period prescribed by law, generally
three years. Keeping the application, with documents supporting any reason for
refusal attached, will ensure that the landlord has good evidence if a rejected
tenant later decides to bring a lawsuit or complaint charging housing
discrimination. View our example form.
Most professional property
managers now consider allowing some pets, providing the tenant pays a pet
deposit and signs a pet agreement. Pet fees at apartments now range from
flat fees of $20 to $700, and monthly surcharges from $6 to $25. The most often
quoted monthly charge for a pet is $15. The average up-front fee is about $225,
but the most often quoted fee is $100. High fees are usually for large dogs.
A few states have limits on the amount allowed as a pet deposit (e.g., Nebraska
limits the amount to 25 percent of rent), but an overwhelming majority do not.
Investigation
Verify Identity
Identity theft has become a real problem
throughout the country and the prudent landlord will take steps to avoid such
fraud. Obtaining a credit report on the wrong person is worse than
no credit report at all because it might put at the top of the list a person who
would have not made the cut if no credit report were available.
Require at least two items of identification.
A drivers license is usually the primary item. The second item should also
include a photo - for example, a photo credit card. Verification of bank
account information provided by the applicant can also provide additional
verification of identity.
Credit Report
A credit report is the most important
element of screening. The
FCRA
limits the purpose for obtaining credit reports and otherwise regulates
credit reporting, so be sure to follow the law.
Through a third-party vendor, RHOL provides instant
24/7 web-based access to credit reports. You will immediately receive
information regarding an applicant's:
- credit accounts
- payment history
- collections
- tax liens
- wage garnishments
- judgments
- inquiries
Be sure to provide the applicant a rejection
letter if the credit report is the reason for rejecting an applicant.
Previous Landlord Reference
For reliable results, you want to check a
previous landlord, not the current one. Although you wouldn't do so, a
landlord with an existing problem tenant might be happy to provide a good
reference in order to expedite departure.
Employment Verification
In recent years it has become more difficult
to get information from employers because of the fear of lawsuits. Some
employers will not even admit over the phone to knowing their own employee.
Many will not give out any information without written authorization from the
employee and will only respond to a written request. The best approach is
to have a separate form for completion by the employer regarding dates of
employment and income that has been signed by the applicant employee.
Criminal Record Check
The governing law is the Federal Fair Housing
Act, and any state or local additions. According to the
Act, you cannot refuse
to rent to any person based on a protected class, including: race, religion,
age, gender, marital status, national origin, handicap and a few other
characteristics.
Even though the federal housing law does not
specifically mention "criminal history," you will want to ensure
that there is no question that your screening procedures are legal if you choose
to deny tenancy based on the applicant's past criminal record. The most
important and relevant section of the Fair Housing Act is section 3604(f)(9),
which states,
"Nothing in this subsection
requires that a dwelling be made available to an individual whose tenancy
would constitute a direct threat to the health or safety of other individuals
or whose tenancy would result in substantial physical damage to the property
of others."
It is this section of the
Act that landlords most often use to deny tenancy based on a person's criminal
record. However, before you deny housing due to an applicant's criminal record,
be sure to take some important safeguards. They may not only save you from
violating Fair Housing Laws but perhaps a very expensive defense to a lawsuit
for discrimination. Due diligence on this issue can be as easy as 123.
Do's:
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Always make an "independent and objective"
evaluation of the actual threat that the tenancy of the applicant would pose
on the other tenants and their property, and base the decision to accept or
deny tenancy on that investigation
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Contact the police department where the applicant was
convicted; the applicant's parole officer; the prosecutor's office; the
prison or jail where the applicant served their sentence for details of the
applicant's full criminal history.
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Make sure that the crime that the applicant has
committed is one that fits within the protective framework of the Fair
Housing Act. Keep in mind that the crime must be recent for it to affect
your decision. Examples of crimes that will, most often, allow you to deny
tenancy are murder, assault, robbery, arson, rape, and sale of drugs.
Don'ts:
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Do not automatically deny tenancy just because
you discover that the applicant may have a criminal record.
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Do not confine your screening investigation to
just the interview where you just ask the applicant for the details of the
crime they have been convicted of.
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Do not deny an applicant housing based on just
any kind of crime they may have committed. Several crimes do not fall within
the requirements of the Fair Housing Act, including most misdemeanors,
simple possession of drugs or other controlled substances, fraud, bad
checks, vehicular homicide (in most cases), and DWI.
The most important thing you
can do to protect yourself when making these decisions is to establish a set of
criteria you use for every tenant applicant and always make the required
investigation.
Evictions Records
It is recommended that a landlord never rent to a
person who has previously been evicted unless protected by a personal guaranty
from a well qualified individual. Eviction records are available from the
Courts of jurisdiction and, as mentioned at the beginning of this lesson, many
rental housing associations maintain databases or lists of evictions.
Other
Most major credit reporting companies are seeking
to some day provide tenant histories of applicants for the use of landlords.
Such records are already available on a small scale from various other sources,
but they will not be very complete until years in the future.
Selection
There are many good reasons for accepting or rejecting an applicant that are not
discriminatory if they are applied equally and fairly. Make a written list
of all requirements and use them to evaluate everyone who wants to rent a
property in exactly the same manner. The list should include all
qualifying items, including identity verification, credit report, employment
verification, criminal record check, income, length of employment, interview,
etc.
Keep in mind that you can make the qualifying
requirement as high as desired regarding financial criteria and regarding
certain other items. You can require a certain length of employment, a
certain income, a certain net worth, and a certain credit record standard.
You can require that the applicant have no criminal record (within above
guidelines) and/or no eviction record, that the tenant not smoke (at least
inside the unit), and that the tenant have no pets. The important issue is
that you absolutely must apply the same standards to every applicant.
In practice, however, you should not set
standards so high that you never find anyone meeting those standards because
those who do will be looking for bigger or newer housing in a better
neighborhood to begin with.
Once a property manager has completed appropriate
tenant screening, they should always select the first qualified applicant.
Some property managers brag that they select the most
qualified applicant, but since any such definition can be subjective, it can
also be challenged as discriminatory. The mere allegation of discrimination can
lead to expensive legal costs, time and trauma covering months or even years
Professional property managers protect
themselves and their employers from expensive charges of discrimination by
employing a tenant selection
check list and accepting the FIRST tenant applicant who meets their
established qualifications.
Again, landlords are allowed to select tenants
using criteria that are based on valid business reasons, such as acceptable
credit history, a minimum income or a positive references from previous
landlords, no criminal record, no pets (with restrictions) as long as these
criteria are applied equally to all tenants.
About the only method of insuring against
discrimination claims is to make sure that everyone - owners, managers and
employees - who deal with tenants or applicants, do not discriminate, and are
educated about the risk and ramifications of their every word or action.
They must also be made to understand that black
lists are illegal when based on subjective information, even if they consist
of nothing more than a list of "undesirables" compiled by a few
landlord friends and associates, or a local rental housing association.
Summary
Picking of the right applicant to
be your next tenant is the most important step in assuring that your income
property is a profitable and relatively trouble-free investment. Being in
a hurry to fill a vacancy and not properly checking tenant's
credit history, references and background often
results in very serious problems for both landlords and neighborhoods. It also
contributes to the public's perception that "Those
Damn Landlords Will Rent To Anyone." There are many services
available that make it relatively easy to adequately screen applicants.
All of these can be accessed from your desk using either your computer or
telephone. The landlord who does not take advantage of them is being foolish.
For addition discussion regarding tenant screening, visit our screening
page.
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