The Process of Tenant Screening
The process of tenant screening is a series of steps taken in accordance with regulatory requirements and business practices to qualify applicants for tenant selection.
The selection of a new tenant is considered the most important business decision a landlord will make for his property operations. Therefore, developing the process of compliant screening policies and practices that support business necessity is a core management function.
There are discrete steps in a tenant screening process, that, while could be conducted as an individual screening in specific situations, if used collectively, complete the process to protect the business investment and the rental community. Conducting tenant screening as a standardized process helps to place priority and focus on those qualifications that contribute to a quality tenant. The purpose of a standardized practice is to qualify applicants in a non-discriminatory manner in the same proscribed manner removing potential subjectivity and bias from the process.
A compliant tenant screening process that protects business interests requires much detail in order to screen for potential risk for issues that may arise during a landlord-tenant relationship.
Rental Criteria
Setting tenant screening criteria customized for business protections requires time and effort to research business requirements, legal compliances, and market conditions. As business circumstances, legislative actions, and rental markets change, so should tenant screening criteria. A landlord must keep legally compliant and stay relevant to local markets in order to protect his business interests.
In creating tenant screening criteria, many landlords take into consideration the commonly accepted definition of a quality tenant as the tenant who (1) pays full and timely rent; (2) complies with lease terms and conditions; and (3) maintains the rental unit to good condition.
Based on these criteria a landlord would require an applicant to furnish proof of identity and consent to tenant screenings for a credit report, background check, public records search and verifications of current employment, income, rental housing history, and landlord references.
Fair Housing
The federal Fair Housing Act prohibits discrimination based on protected classes of race, color, national origin, religion, sex, disability, and familial status in the sale or rental of a dwelling and in other housing-related transactions. Fair housing laws of states, cities, and counties may provide more stringent protections against housing discrimination than does the federal Fair Housing Act.
Other Regulatory Requirements
Tenant screening is subject to numerous federal, state, and municipal laws. Due diligence is required to ensure compliance with the current regulations, prohibitions, and restrictions that are applicable to the location of the rental property.
Rental Listing
The rental listing helps to create interest in the vacancy by highlighting property features and amenities in the listing. Providing essential property information for property address, asking rents, qualifying criteria, and lease terms allows prospects to assess their interest in the property and to pre-qualify themselves to these disclosures.
Those prospects reaching out to the landlord for more information provide equal opportunity for the landlord to preliminarily qualify prospects to rental standards.
Showing the Unit
Most prospective renters will want to physically tour the available unit or at least take a virtual tour of the unit. Having quality photos of the property, its amenities, and unit features on the landlord’s website, an open house, or a private showing are other options for the prospect to see the unit and further qualify himself to interest and application.
Application
A rental application is the most efficient means to collect preliminary information about a prospective tenant to begin the process of qualification to rental standards.
Information requested on the application form should be relevant to business necessity. With permissible purpose and under legal compliances, a landlord can request any information that would objectively point to qualification requirements such as the applicant’s ability to pay timely rent and comply with lease terms and conditions.
An application requests personal information about the applicant, such as legal name, current and previous addresses, contact information, Social Security number and state driver’s license information. Other information that may be requested includes other occupants’ information, rental history over the past 3-5 years with landlord references and contact information; employment information; proof of income; and other financial information.
FCRA Compliances
When landlords use consumer reports to aid in tenant decisions such as applicant screenings, the federal Fair Credit Reporting Act (FCRA) obligates the landlord to certain regulated practices to ensure FCRA compliance for the protection, privacy, and accuracy of consumer personal information. This may include a separate notice and disclosure requirement for applicant authorization and consent per FCRA requirements.
Applicant Interviews
As the landlord conducts a review of application information, he may need to ask the applicant for additional information or to clarify information supplied on his application form.
Identity Verification
Verification of the applicant’s identity should be done during the initial contact with a prospective renter. Proof of identity can be verified with various types of identity documents.
Employment and Income Verifications
A landlord screens an applicant to determine if the potential tenant would be able to meet a tenant’s required rent obligations. Accordingly, one of the first tenant screenings to conduct is verification of the applicant’s employment and income. Note that source of income is a protected class by some state, city, or county statute/ordinance. A landlord cannot reject a rental applicant on the basis of the applicant’s source of income as long as the income is from a lawful source. In many of these states and localities, source of income protection includes rental assistance through participation in the Section 8 Housing Choice Voucher program.
References
Most experienced landlords recommend asking the applicant to provide rental history for the past three years. Usually that timeframe will provide one or two prior landlord references in addition to the most recent landlord reference.
A landlord may request the applicant to furnish personal references. This may be helpful in screening a first-time renter who has not yet established rental history.
Screenings
Consumer Credit Report
A credit report provides the landlord with an applicant’s credit history as reported to a credit reporting bureau as of a certain date. The credit history shows the applicant’s credit usage and credit management. By analyzing the data, the landlord evaluates whether the applicant could be a potential financial risk if selected as a tenant.
Background Checks
Landlords must comply with federal, state, and local laws that regulate or prohibit the use of criminal history background for tenant screenings. A landlord’s blanket policy that excludes any person who has been convicted of any offense is discriminatory and violates provisions of the Fair Housing Act. A landlord will need to conduct his own research to determine applicable compliances for the jurisdiction governing his rental property.
Public Records Search
Public records search for an applicant’s bankruptcy, liens, judgments, and eviction records may be conducted to determine potential financial risk to the landlord’s business.
Notification of Decisioning
It is the landlord’s business decision based upon assessment of risk and the analysis of the applicant’s qualifications to accept or reject an applicant. Qualified applicants can be advanced to an offer of tenancy. Applicants that do not qualify to standards should be notified in a timely manner that their application has been declined.
Adverse Action Notice
An adverse action is any action by a landlord that is unfavorable to the interests of a rental applicant. It includes a landlord’s denial of a rental application as well as an action by the landlord that imposes a burden on the applicant that is not required of all tenants, such as requiring a co-signer or a larger security deposit.
When a landlord takes an adverse action that is based solely or in part on information contained in a consumer report, the Fair Credit Reporting Act requires the landlord to give the applicant a notice of that fact orally, in writing, or electronically. The adverse action notice is required even if the information in the consumer report was not the primary reason for the decision. Even if the information in the report played only a small part in the overall decision, the applicant or tenant must be notified.
Additional Information