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An applicant has offered a cosigner. Is there a way for a cosigner to take on responsibility for only the one tenant for whom she is signing, if tenants are jointly and severally liable for full rent amount each month?
There can be a difference between a cosigner and a guarantor, but pretty much the same issues relate to either. Both agreements are contracts between the guaranteeing party and the landlord, so they can pretty much be written however those parties can agree. However, I would personally require the cosigner or guarantor to be jointly and severally liable just as is the co-tenant who needs the cosigner or guarantor. You must remember that co-tenants are usually made jointly and severally liable for the full rent amount so that the landlord can seek payment against all or any one individual. A landlord is usually likely to collect from the one who is best financially qualified and/or the one who is easiest to serve with a lawsuit if one or all of the tenants disappear. This may well be the cosigner or guarantor.
Hopefully, you are doing full screening on the proposed cosigner and utilizing the same qualifying criteria as you did or will do for the co-tenants. I will also mention that the agreement should make it clear that the cosigner is only providing a financial guarantee and has no rights to tenancy or other type of occupancy. This is to avoid the need to evict the cosigner before obtaining possession, an unneeded additional complication. Finally, I will mention that, for some states, it is important to have the spouse of the cosigner also sign the agreement in order to avoid the potential that in some states, one can’t collect from income or assets of a non-signing spouse. Accordingly, if only one spouse is signing in such a state, it is important to be sure that the income and assets on which financial qualification is based are truly those of the signing spouse.
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I do not understand the criteria regarding when a rejection letter is required for an applicant.
Landlords using consumer reports for evaluation of rental applicants must follow the provisions of the Fair Credit Reporting Act (FCRA). The FCRA requires landlords who deny a lease based on information in the applicant’s consumer report to provide the applicant with an “adverse action notice.”
An adverse action is any action by a landlord that is unfavorable to the interests of a rental applicant. It includes not only a landlord’s denial of a rental application but also a landlord’s action that imposes a burden not required of all tenants. Common adverse actions by landlords include
- Denying an application
- Requiring a cosigner on the lease
- Requiring a deposit that would not be required for another applicant
- Requiring a larger deposit than might be required for another applicant or raising the rent to a higher amount than for another applicant
The landlord must provide the notice if the adverse action in any way is based on a consumer report that played a factor in the landlord’s action, even though its action is based primarily on an applicant’s income or prior reputation as a tenant. In fact, even if the information in the report plays only a small part in the overall decision, the applicant must be notified. This means that the landlord must usually send a notice if hiring a tenant screening company or even if just looking at a credit report.
As examples, landlords must send an adverse action letter to applicants who are denied a lease if the following describes the decision related to denial even if other factors also played a part.
- A tenant screening company is hired which gives the landlord a report that includes negative information leading to rejection of this applicant
- A consumer screening agency is used that supplies only a credit report and the applicant is rejected on the basis of information in the report,
- A local landlord or owner association has an arrangement with a tenant screening company that provides a member with a report on an applicant that results in the landlord deciding that the applicant is unacceptable,
- The landlord pays someone on a contractual basis (as an independent contractor rather than an employee) to do tenant screening and the contractor’s report leads the landlord to conclude that he shouldn’t accept the
- The landlord contracts with a property management company to investigate applicant and the landlord rejects an applicant based on what the management company says.
An adverse action report is generally not required if the basis for the rejection is one of the following:
- Information obtained from applicants themselves on the application form or in conversations with them or
- Oral or written information provided by an applicant’s reference.
Furthermore, landlords usually needn’t send a formal adverse action letter if the following describes the situation.
- The applicant is not accepted because the landlord, when asked by the applicant, won’t vary a rental term such as the rent or deposit amount or the pet policy,
- Information supplied on the rental application indicates that the applicant cannot meet the landlord’s criteria – e.g., no income,
- The landlord learns from a conversation with the applicant that he has to move in by a certain date because he’s being evicted and the eviction is considered to indicate a poor risk,
- The landlord or his employee calls the applicant’s past or current landlord, employer, or personal reference and which provides information that leads to rejection, or
- A self-employed applicant provides tax returns that show an income below the landlord’s qualifying criteria (e.g., “3 times the rent”),
- Upon analyzing an employed applicant’s pay stubs the landlord discovers that the applicant was untruthful regarding place of employment or income when filling out the application form.
In particular the law requires landlords to provide tenant applicants with a notice that informs them about the adverse action, identifies the consumer reporting agency that provided the report that contributed to the landlord’s action, and specifies consumers’ rights under the FCRA.
The notice must include:
- The name, address and telephone of the CRA that supplied the consumer report including a toll-free telephone number for CRAs that maintain files nationwide,
- A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it, and
- A notice of the individual’s right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer’s right to a free report from the CRA upon request within 60 days.
It is best to send the letter Certified Mail return receipt requested, providing proof that the letter was received by the applicant on a specific date. At a minimum send it with a Certificate of Mailing proof of mailing, as this will at least prove when it was mailed.
Landlords who fail to provide required disclosure notices potentially face legal consequences. The FCRA allows individuals to sue landlords for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations of the FCRA. In addition, the FTC, other federal agencies and the states may sue landlords for non-compliance and get civil penalties. However, a landlord who inadvertently fails to provide a required notice in an isolated case has legal protections, so long as he can demonstrate “that at the time of the violation he maintained reasonable procedures to assure compliance” with the FCRA.
The above discussion relates only to federal law. As for many property management issues, landlords must also understand and abide by any more restrictive consumer credit laws that might exist in their particular states.
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How much can I charge for an application fee?
The maximum application fee depends on a number of factors, including (1) the law of the state where the property is located, as some states specify the maximum, and (2) the number of qualified applicants you are willing to eliminate. The costs associated with changing rental units are significant for the average tenant and applicants sometimes must apply for more than one vacancy, so the application fee can prevent potential tenants from applying for vacant units when the fee is larger than usual. The effect of price depends on the particular type and location of the property and the financial status of potential tenants for that particular property.
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