Screening Tenants
Be Consistent, You Do Not Want to End Up On the Wrong End of a Fair Housing Complaint
All of us as NARPM members and even regular Realtors who are involved in any form of leasing or Property Management understand the legal, ethical and the potential damage any fair housing complaints can have on your firms reputation and license status.
What can Property Managers do to prevent this from happening in the first place? Do you and your Firm have a written policy manual with clear guidelines outlining the rental process from the first phone call to the approval or the rejection of the application? And if you do have a solid program in place will it stand up to any review if you do have a Fair Housing Complaint filed against you? We all go by the basic criteria in tenant selection Income level, the ability to take care of the property, job history, rental history, credit/background report, but what about any grey areas that you encounter that you may base your selection on.
Rental References
One of the first things we do is fax rental reference verification to the current or past landlord, but suppose they are a landlord who is not one to return you calls? One you do not hear back from, or worse yet what if they will give the applicants a good review just to get rid of them? What if the reference is bad because both the tenant and the landlord just did not get along? How do you be fair to the tenant and still do a proper tenant screening?
Income
While it is more involved work, you will need to set an income level for each like kind of property. The basic rule might be that income needs to be 3X the monthly rent in a average rental, but if you handle high end rentals maybe a higher formula will need to be used ( ie 3.25- 3 .50 X the rent )
Job history
A stable job history is vital to a tenant being able to pay the rent in a timely manner, but do you have a minimum time on the job ( say 6 months or so ) or if it is in the same industry a new hire might be ok to consider.
Criminal
There are a numbers of companies that do background screenings on tenants, unlike a credit background, criminal background reports are not indexed by social security (SS) numbers, they are indexed by name and date of birth so it is critical to be sure you have the correct information from the tenant ( a copy of a picture ID & something with the SS number and date of birth on it ).
Once you receive the report review carefully to be certain this is the tenant who is applying to rent your property. Sometimes we might be to quick to reject a tenant who has a prior conviction, you need to look at the charge and the outcome of the conviction and how long ago it was. A tenant who had a charge seven years ago might not be the same person who is trying the rent your property now; people do change and learn from past mistakes. The tenant might have a case against you that they were unfairly rejected by the past charge. Several local and state lawmakers are in the process of limiting landlords from rejecting applications based on some past criminal act. Look at some of our current and past political leaders who have broken the law and gone on to serve again. We never know how courts would rule if the tenant would pursue a fair housing complaint
Credit Score
Do you have a bottom line credit score that you go by? Is it tailored to different kinds of houses you manage? If you set to high of a score to your more affordable rentals you might have a hard time getting these properties rented. Also, if you set a to low of a score on your high end rentals you might put a tenant in that house who will not have the life experiences or the ability to take care of the house and pay the rent in a timely manner.
Medical Bills
How do you handle judgments on medical bills in today’s scoring medical cost if you do not have insurance most folks will have no way to pays off any judgments against them. Most landlord and property managers disregard all or most medical issues. It is however important to take into consideration the tenant will have a portion of their income going to these bills, likely from garnishment. This reduces their income to afford rent and could impact your income to rent formula.
Former home owners
Late mortgage payments. Most property managers provide a special exception when a prospective tenant’s credit history shows late mortgage payments, or a mortgage default. With the current economic climate and housing market there are a lot of previous homeowners that are either voluntarily or involuntarily losing their homes back to the bank? Sometimes being former home owners they will make very good tenants since they are use to doing all the required duties a tenant needs to do and an important point to consider is they will be someone’s tenant for approximately 5-6 years before they can purchase again. This type of tenant could save the property manager time and the owner turnover cost.
Once you have all these basics covered, you should be able to start the review process to approve or deny the applicant. If any applications are not approved, be sure the proper adverse action letter is sent to the rejected application.
Your company should have clear written guidelines to screen, deny and then process the applications. Having established written policies would eliminate the possibility of your company having different property managers or other agents in the office doing their own version of screening tenants. As the owner of the company or the firm’s broker in charge, you could be the one on the hot seat if a property manager or agent makes a bad call and rejects a tenant who, then could go and file a fair housing complaint.
BIO
Joe Inge has been a licensed agent since 1999 and a NARPM member since 2011. He started buying rental real estate 20 years ago. He is the property manager at ERA Woody Hogg and Associates in Mechanicsville, Virginia. He is looking forward to earn his RMP designation this year.
