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:

• First, last, middle names of all applicants

• Birth date of each applicant

• Current and most recent previous addresses of residence w/landlord phone numbers

• Current employer with address and phone number

• Make, model, year, color, and license number of each vehicle

• Driver license state and number for each applicant

• Bank name, address, account numbers

• Has tenant ever filed bankruptcy.  If so, when & why?

• 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:

• 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

• 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.

• 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:

• Do not automatically deny tenancy just because you discover that the applicant may have a criminal record.

• 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.

• 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.