Applicant Decisioning

The tenant screening process finalizes with the decisioning phase to accept or reject an applicant. During the screening process applicants have been qualified to rental standards. Now the decision must be made to offer tenancy to one applicant and notify other applicants that their applications have been rejected. Rejecting an applicant is a business task that if not conducted in a compliant, professional manner can create liability for a landlord.

To fill a vacancy, much of the landlord’s attention is given to the screening and selection process. However the evaluation process leading up to applicant selection requires full attention by the landlord as well. Many landlords receive multiple inquiries regarding a vacancy and some of those inquiries are converted to rental applications. The landlord may be faced with rejecting one or more applicants for non-qualification to rental standards or declining qualified applicants because the vacancy was filled.

There are times when the best business decision is to say NO to an applicant. Saying “no” can be a difficult decision for some landlords. A landlord may desperately need to fill the vacancy and be willing to accept a marginally qualified applicant when it might be a better business decision is to extend the vacancy and reject the applicant. A landlord’s hesitancy to say “no “can be costly to his business. The decision that is made can either make money or cost money. A landlord needs to make sure the decision to say “no” is reasonable and legally justifiable. Protecting his business investment should be the priority factor in the landlord’s decisioning for tenant selection.

A selection decision cannot be discriminatory, arbitrary or without basis of sound business principles. A landlord can choose the appropriate screening criteria for his business provided the criteria is legally compliant and applied in a non-discriminatory manner. All questions asked of one applicant must be uniformly asked of all applicants.

The Fair Housing Act prohibits discrimination in housing based on race, color, religion, sex, national origin, disability or familial status. There are additional protections against housing discrimination afforded by state and local laws. A landlord should be sure to understand applicable fair housing laws as well as other federal, state, and local consumer protection laws and landlord-tenant statutes when setting his rental standards.

A landlord can help his business by disclosing his rental criteria to potential renters. A prospective renter should know the criteria by which his application will be evaluated and the business policies that will govern his tenancy before submitting an application. The disclosure, as part of prescreening practices, allows prospects to self-evaluate their interest in the vacancy and their ability to meet rental standards.

Prescreening interested prospects responding to the advertised vacancy is a risk management measure to help reduce the number of unqualified applicants and accordingly reduce the number of rejections that will need to be dealt with.

There are many valid business reasons to legally reject an applicant. These include:

  • Falsification or misleading applicant supplied information on the application
  • Incomplete application
  • Applicant cannot meet lease terms and conditions such as lease term, payment of deposits and fees, occupancy standard, unit availability date, property specific policies such as no pets, or other landlord requirements
  • Unsatisfactory rental history such as tenant unpaid rent, property damage, noise or nuisance issues or early termination of tenancy, as discovered through landlord reference checks and tenant screenings
  • History of evictions shown on public records or through reference checks
  • Insufficient income to meet rental obligations
  • Unsatisfactory credit history or credit score
  • Unsatisfactory background check
  • Unable to verify current employment status or proof of sources of income
  • Evidence of illegal activity discovered during screening

A landlord cannot assume he can legally discriminate for any reason that is not specified in federal, state, or local fair housing laws. Some states prohibit housing discrimination on the basis of personal characteristics (arbitrary discrimination). A landlord should carefully evaluate applicants against rental standards and base any decision on facts that can be supported by business principles and legal compliances.

When a landlord uses consumer reports to make tenant decisions, the landlord must comply with the Fair Credit Reporting Act (FCRA).  Under the FCRA, the term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for credit to be used primarily for personal, family, or household purposes.

As required by the FCRA, landlords who deny leasing to an applicant based on the information in the applicant’s consumer report must 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 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 in whole or in part on any information contained in a consumer report the landlord shall:

  • provide oral, written, or electronic notice of the adverse action to the consumer,
  • provide to the consumer written or electronic disclosure of a numerical credit score used in taking any adverse action based in whole or in part on any information in a consumer report,
  • provide to the consumer orally, in writing, or electronically the name, address, and telephone number of the consumer reporting agency (including a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis) that furnished the report to the landlord,
  • provide a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken,
  • provide to the consumer an oral, written, or electronic notice of the consumer’s right to obtain a free copy of a consumer report on the consumer from the consumer reporting agency which notice shall include an indication of the 60-day period for obtaining such a copy and to dispute with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.

While oral adverse action notices are allowed, written notices provide proof of FCRA compliance.

Disclosure of this information is important because some consumer reports contain errors. The adverse action notice is required even if information in the consumer report was not the main reason for the denial. In fact, even if the information in the report plays only a small part in the overall decision, the applicant still must be notified.

A landlord will need to keep written documentation of the reason why the applicant was rejected along with supporting documentation such as screening reports or reference interviews. A good paper trail will help to defend against a claim of fair housing discrimination. All applicant documentation including the completed application, tenant screenings, verifications, interviews, copy of the adverse action notice, notation of date and manner in which the applicant was notified of the denial, and other miscellaneous paperwork should be organized in the applicant’s file and retained for a minimum of three years or according to the statute of limitations for fair housing claims or per state statute.

Turning away a rental applicant is a business decision most landlords don’t want to make. However if the applicant does not meet rental standards, the landlord is putting his business at risk if he does not say no.

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