Archive for the ‘Uncategorized’ Category

Fraudulent Rental Applications

September, 2022

The number of fraudulent rental applications has increased over the past few years. The increase has been attributed to several factors within the rental housing industry. Rents have risen faster than household incomes creating affordability issues and rental housing supply and demand in current markets has limited housing choices. Factors such as these can put pressure on applicants to lie about their financial ability in order to qualify to rental standards.

Application fraud is deliberate, purposeful misrepresentation of information as a means to manipulate a rental outcome such as tenant screening and selection. Application fraud is not a case of an applicant forgetting a detail or making an innocent mistake, the applicant intentionally lies on the application no matter how small a detail.

Rental processes have transitioned to a more digital presence making it convenient to conduct business online. The use of online rental applications can create opportunities for fraud. An online application provides a level of anonymity that is problematic for a landlord since the landlord has no knowledge of how the application was completed and by whom. An applicant who might not have considered intentionally altering his personal and financial information in the presence of the landlord may be tempted to alter his information through online application and submission.

Risk assessment research of application fraud shows that as many as one in three applications contain some fraudulent information. Even if that risk factor is adjusted to an average of one in five, the risk can be too high for some independent rental housing providers. Even if the risk can be acceptable to some landlords, the fact that the applicant has intentionally committed fraud may be indicative of a troublesome tenancy and potential financial loss.

The reality is that application fraud is a known risk factor for landlords and property managers. Risk mitigation procedures should be incorporated into rental policies and practices to prevent fraudulent acts by applicants and tenants. Surveys of property managers have documented that most managers have experienced application fraud at some point during their property operations. Unfortunately for some managers the discovery happens after the applicant has become a tenant and the situation then requires legal action to regain possession of the unit and file a judgment for lost rents and damages. The success of the legal action may be harmed by the fraudulent information given by the applicant.

Application fraud can be easy to commit and hard to detect. Without sound business policies and practices enforced to safeguard business operations and to protect current residents, the landlord can incur business liability and financial damage. Risk mitigation of application fraud relies upon recognizing fraudulent applications backed by comprehensive tenant screenings to protect against fraud.

Accordingly, landlords must increase their due diligence efforts, strengthen their tenant screening practices, and keep vigilant against tenant fraudulent acts. Complete tenant screening should be conducted for every applicant. Screenings should include identity verifications, credit report, background check, rental history, eviction history, and references to protect against rental fraud. Utilizing a documented system of checks and balances to verify tenant information allows early discovery of potential fraud. Discovering fraud after a tenant has skipped a rent payment is too late to prevent loss.

A landlord must be alert to discrepancies, omissions or inconsistencies in information in the application itself, as discovered during applicant interviews, background checks, or revealed in reference verifications. Any document used in support of a rental application should be independently verified at the appropriate source or level of agency that purportedly issued the document.

The timing of the investigation and verification process is critical to identify fraud before advancing the applicant to consideration for tenancy. Once a tenant is installed, a landlord must use the legal system to remove the tenant from the property, which may take several months and at great expense.

Application fraud is generally of two types to either inflate or adjust income to qualify to the landlord’s rental standards or to hide an applicant’s negative information on their credit report, background check, a history of eviction, or other evidence of unsatisfactory rental behaviors, such as property damage, skips, and pending legal actions.

Inflating income can be accomplished by altering financial documents to support the landlord’s income requirement. By inflating their income, applicants appear to be qualified for a rental unit that otherwise they could not qualify for. Many type of documents used for financial verification can easily be edited to add or delete information as needed to intentionally commit fraud. As examples, pay stubs and bank statements can be altered to show adjusted income sufficient for qualification. Financial documents can be altered to show name changes, current and past addresses, or other personally identifying information.

Identity theft and manufactured identity documents are used to conceal true identity in committing rental fraud. Identity fraud prevents discovery of true credit history, previous rental addresses, criminal background, bankruptcy, judgments and liens. Identity verification is a critical screening practice to prevent this fraud. A landlord should require the physical presence of the applicant to check identity against a government issued photo identification document or a similar identification process using an online application tool.

Types of Identity Application Fraud

Individual (First Party) Fraud

First-party fraud is when the individual committing the fraud uses their own identity to commit fraud. The individual is not misrepresenting his identity but is intentionally being deceptive about his qualifications, such as using altered financial documents or fake documents for application submission.

True Identity (Third-Party) Fraud

True identity fraud is fraud which occurs when an individual’s personal information is used without their knowledge by another individual to commit a criminal act (identity theft). An imposter applicant uses the identity theft victim’s personal information, such as the victim’s name, date of birth, or Social Security number, as his own information on the rental application Qualification and selection of the incoming tenant is based upon fraudulent use of the identity theft victim’s information.

Unless the landlord discovers red flag issues or obvious discrepancies, the applicant may be approved for tenancy based upon the qualifications of the identity theft victim. When the fraudulent tenant defaults on his lease, the landlord will discover that his tenant was never who the landlord thought he was.

Synthetic Identity Fraud

Synthetic identity fraud is manufactured identity fraud. Applicants create a fictitious identity by combining real and fake information. If a landlord approves this applicant, the person using the false identity now has the means to use this identity and rental address to obtain credit or commit other types of fraud. The fraud may not be discovered until the tenancy is well along and may only be discovered if there is a material default of the lease. The landlord will likely suffer financial damage since the only information on file is a fictitious identity.

A landlord should be aware of the risk posed by professional tenants who never intend to pay rent. Identity theft and synthetic identity fraud can make it possible for an applicant to qualify for tenancy based on false information, occupy the unit but never pay rent, and finally skip out.

Application fraud can take other forms of false and misleading information used to qualify an applicant. An applicant may provide false references, using friends and family to act as a former landlord or employer to give previous rental and employment income information to the landlord calling to verify references on the application. Care should be taken to verify the identity of the reference and the source of information through appropriate independent sources. The check and balance system established by the landlord to help cross-reference information helps to identify this type of application fraud before harm is done to the landlord’s business.

Rental application fraud is costly and can have long lasting negative outcomes on business operations. Financial damage, property damage, increased evictions, increased operating expenses, and damage to the landlord/rental community’s reputation are some of the issues that can result from rental application fraud. Best practices for business operations must include strong tenant screenings and risk mitigation policies and practices.

Tenant Abandonment of Rental Unit

August, 2022

Discovering a rental unit which is currently leased but apparently unoccupied leaves a landlord to question whether the tenant has abandoned the unit without giving notice or whether the tenant has left for an extended period for personal reasons.

There are a number of reasons that a tenant could be absent from their unit for a lengthy period of time. A tenant owing past due rent may skip out ahead of being evicted. Tenants have personal reasons to leave unexpectedly, such as being called to handle a family emergency, being arrested and held in jail, being hospitalized for medical reasons or simply taking a long vacation.

A landlord will need to establish reasonable evidence that the rental unit has been abandoned by the tenant in order to gain possession of the unit. The landlord cannot make an assumption regarding the tenant’s intent and action in absenting himself from the rental unit. The tenant may truly intend to return to the rental unit but has failed to communicate his absence and future plans to the landlord.

An unannounced departure by a tenant creates problems for a landlord in retaking possession of the rental unit. There may be issues of disposition of tenant personal items left behind in the unit. If not handled in the appropriate legal manner according to state statutes for abandonment of rental premises, a landlord could potentially be subject to claims by the tenant that the landlord violated the tenant’s rights to privacy and quiet enjoyment of the rental unit. The tenant may file claims of damage, destruction or unauthorized removal of tenant personal possessions from the unit or claims of damages and suffering as a result of a landlord’s lock-out of the tenant from the unit without cause.

Most states address the issues of abandonment of real and personal property through specific statutes including notice requirements and waiting periods to be followed if a landlord believes a rental unit has been abandoned and tenant personal property has been left behind in the unit.

An important first consideration before assuming abandonment is whether the tenant is current in his rents. If the tenant is current with rent, many states do not consider a unit to be abandoned. The tenant is absent from the unit but still legally in possession of the unit as long as the tenant has not violated lease terms and conditions. Abandonment must be proven by investigation of the matter.

In some cases, it is the tenant’s rent default that alerts the landlord to the tenant’s absence. Even when the landlord can establish the tenant’s rent default as probable cause for the abandonment, the landlord must fully investigate the circumstances to establish clear evidence supporting a finding of abandonment. Using a reasonable person standard, the landlord must follow due process of the law to investigate the matter and evaluate his findings. All reasonable efforts should be made to contact the tenant and documented in writings as to the type and number of attempts and the associated results.

If the landlord is able to contact the tenant directly, the landlord should inquire what the tenant plans to do, such as return to the unit or surrender the unit back to the landlord. If the tenant responds that he does not intend to return, the landlord should request that the tenant document in writing that the tenant has surrendered the rental unit to the landlord with no intention to continue the tenancy and return the unit keys to the landlord. With the tenant’s signature and date on the release document and the receipt of keys the landlord has evidence to transfer possession of the unit from the tenant back to the landlord.

If the tenant cannot be reached in a timely manner, to establish reasonable belief of abandonment a landlord may take steps such as:

  • Entry and inspection of the rental unit as a health and welfare check. Complying with statutory requirements for landlord entry for permissible purpose, a landlord can conduct a brief inspection of the unit to determine if the unit is unoccupied, whether tenant personal possessions are still in the unit, whether utilities have been shut off, whether there is evidence of physical damage to the unit, whether there are health or safety issues, or whether tenant pets have been left unattended.

For the landlord’s protection it is advisable for a third party to accompany the landlord during the inspection to act as the landlord’s witness as to the condition of the unit. Appropriate, reasonable action must be taken to safely shelter any pets that have been left behind as well as preventative measures taken to protect the unit and its contents from damage until further investigation and resolution can be made.

  • Contacting neighbors to determine if they have any information regarding the tenant’s absence or have noticed evidence of the tenant moving out.
  • Speaking with the tenant’s emergency contacts to determine if they have information regarding the tenant’s plans, knowledge of the tenant’s move-out, or forwarding information for the tenant.
  • Determining if a change of address notice has been submitted to the post office. A landlord may choose to mail a letter to the tenant with return receipt requested with notification of the address where the letter was delivered.

Many states require the landlord to notify the tenant regarding the belief of abandonment in order to officially establish abandonment and terminate the lease. In those states a landlord must deliver the required official notice using the required delivery method to the tenant at the tenant’s last known address regarding the landlord’s stated belief that the property has been abandoned. The official notice gives the tenant a respond-by date to refute the property has not been abandoned. If there is no response, the lease is terminated and the tenant is held responsible for payment of unpaid rent and fees and for any damages.

When a lease is terminated a landlord must secure the rental unit by changing locks and taking appropriate steps by statute to remove and store the former tenant’s personal possessions that were left in unit. State statutes will provide guidance on what to do with the tenant’s personal property if the tenant does not respond to the legal notice within the designated timeframe. The notice typically includes:

  • A detailed inventory of the property abandoned,
  • An estimated value of the abandoned property,
  • The address of the storage facility where the property may be claimed,
  • The deadline set by state statute to reclaim the property,
  • The final disposition of unclaimed property specified by state statute.

In some states landlords may either discard the property, arrange for sale of the property to apply against the costs of storage, donate the property to a non-profit organization, retain the property for landlord use, or surrender the property to a designated state agency.

Documentation of the process is important to protect the landlord against claims of wrongful actions. Documentation of every action taken should be done including reviewing status of the tenancy regarding lease default, efforts made to reach the tenant, notes from interviews with tenant emergency contacts, notes from interviews with neighbors, other attempts to locate tenant, notices sent, responses to notices, utilities correspondence and notice of shutoffs, returned mail, and storage receipts for safekeeping of tenant personal possessions. During unit inspections, conditions of the rental unit should be documented with photos and videos of each room, noting evidence of tenant personal property left behind. Abandoned vehicles should be reported to law enforcement to determine legal disposition.

A landlord may wish to consult with an attorney experienced in landlord-tenant matters if there is reasonable doubt whether the tenant has abandoned the rental unit. It may be the better practice to proceed with applicable legal actions, such as formal notice to the tenant and filing an eviction action in the applicable jurisdiction governing the property location.

As a practical matter to help minimize the negative impact of tenant abandonment, a landlord’s lease agreement should contain language that details specific terms about tenant abandonment of a rental unit and abandonment of tenant personal property. An extended absence clause included in the lease might state that the landlord requires the tenant to notify the landlord in advance of an extended absence by the tenant and that during the tenant’s absence from the rental unit the landlord may enter and inspect the rental unit as reasonably necessary to maintain the unit and inspect for damage and needed repairs.

Common Tenant Screening Mistakes

August, 2022

There are some common mistakes that landlords make when conducting tenant screenings that create problems for their business. Some mistakes can be serious violations of applicable laws, such as fair housing requirements and landlord-tenant laws. Other mistakes result from outdated policies and practices when due diligence was not done to keep current with latest federal, state, and local requirements Failure to screen to legal compliances creates potential for business liability if the selected tenant turns out to be a safety and security risk during tenancy or affects the business due to rental income disruption.

Being in a hurry

One of the biggest mistakes a landlord can make is to rush the tenant screening process. Being in a hurry to fill a vacancy is rarely a good business practice. Many landlords, anxious to fill vacancies, create problems for themselves by rushing through the screening process, putting the business at risk for a troublesome, perhaps costly tenancy. A landlord helps to reduce business risks such as loss of rental income, legal liabilities, costs of eviction, property damage, and safety and security issues by conducting full, compliant tenant screenings.

Failure to screen

Some landlords choose not to screen rental applicants. This decision may be rationalized as a cost-savings business practice, or an urgent need to fill a vacancy. Choosing to disregard stated business policy by foregoing tenant screening can have a significant negative impact on the business. An unscreened tenant can create unplanned expenses due to property damage, reduced revenue due to loss of rental income, or costly early termination of the lease through eviction. An unscreened tenant is a stranger to the landlord presenting a potential threat to the business and potentially a threat to the safety and security of other tenants.

Relying on gut feelings

Some landlords rely on their gut feelings when meeting with prospective renters . Relying on instinct to evaluate an applicant’s qualifications for tenancy has potential for claims of fair housing discrimination as well as financial loss for the business. A gut feeling brings emotional, subjective bias into the screening process. Applicants should be evaluated to written objective, measurable business standards.

Non-compliance with Federal, state, and local laws

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 .Violation of the Fair Housing Act can be costly. Penalties may include fines, punitive damages, and attorney fees.

Fair housing laws of states, cities, and counties may provide more stringent protections against housing discrimination than does the federal Fair Housing Act. It is important to know the fair housing laws that apply to the location of the rental property to meet legal compliance. The landlord must comply to the standards that give the greatest fair housing protections.

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.

Other regulatory requirements

Tenant screening is subject to numerous federal, state, and municipal laws. Due diligence is required to ensure compliance with current regulations, restrictions and prohibitions for the applicable jurisdiction.

Failure to establish rental criteria

If there is no written rental criteria for screening to qualification, a landlord puts himself at risk for discrimination claims. There should be documented clear, nondiscriminatory policy in language readily understood that details the screening policy and the process for evaluation of the applicant’s qualifications. Policy documentation also helps in the prescreening process to allow prospective renters to self-select their interest and ability to qualify to standards. Some states have landlord disclosure requirements to inform prospective tenants of rental qualification policy and practices before application submission.

Inconsistent application of rental criteria

The best screening practice is to screen every applicant. If a landlord does not screen every applicant, there is discrimination. Inconsistent or selective use of screening could put the landlord in danger of being a victim of rent fraud or giving the perception of profiling applicants. Every applicant must be screened to the same business standard according to the same established screening procedure.

Not utilizing prescreening

Prescreening interviews provide opportunity for the landlord to preliminarily determine prospect qualification to standards. If a landlord does not prescreen inquiries from interested rental prospects, time is wasted if the prospect cannot preliminarily qualify to minimum standards. The earlier in the process that a landlord can screen for qualification, the more efficient and effective the screening practice is to the filling vacancy process.

Not using a written 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. A landlord should not miss this opportunity to collect important relevant information about the applicant.

A landlord should not risk claims of discrimination by prejudging whether the rental prospect will qualify to standards. All applications from all interested prospects of legal age should be accepted and reviewed according to business policy for submission All applications should be verified for complete and accurate reporting of information.

Not conducting applicant interviews

A landlord misses an opportunity to request additional information from the applicant or to clarify information on the application if the landlord does not conduct an applicant interview.

A landlord must be knowledgeable of fair housing laws to understand what questions are permissible and what questions are not permissible during an interview.

The interview is a time to confirm the applicant’s responses to the questions regarding the completed application form. By confirming the applicant responses, a landlord prepares for the verification process at the source document or source entity. While a landlord may want to get to know the applicant, it should be remembered that the landlord-tenant relationship is a business relationship, contractual to specific duties and obligations. Questions asked must be relevant to business purpose and not stray into personal or non-essential topics. A professional working relationship between landlord and tenant will be a best practice for both landlord and tenant. A landlord should be clear in the expectations for tenant duties and behavior and follow legal compliances for disclosures and notification to tenants.

Not conducting a full, complete tenant screening process

A full, consistent, uniform tenant screening process helps the landlord obtain a big picture view of the applicant and his qualifications. Failure to conduct one or more screenings can create liability for the landlord and potentially impact his business. Full screening includes screening for:

  • 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 must determine applicable compliances for the jurisdiction governing his rental property regarding the use of background checks for tenant screenings.
  • Public Records Search – A 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.

The landlord must also conduct verification of income, employment, and references to complete the screening process.

  • Income verification – A tenant’s ability to pay full and timely rent ranks as of the top concerns for landlords. Failure to conduct adequate verification of income can mean potential problems with late or missed rent throughout the tenancy. A common mistake in screening for income is source of income discrimination. Some states, cities, and counties have passed fair housing laws to include source of income protections. In these jurisdictions landlords must incorporate source of income (SOI) protection into fair housing policies and rental practices. 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. Fair housing protections for source of income do not prohibit a landlord from setting his rental criteria to include income qualification sufficient to meet rental obligations.
  • Employment verification – For many applicants, employment verification of current employment status and wages/earnings is income verification. A landlord should verify the accuracy of the employment information supplied on the rental application by directly contacting the employer with an information request.

No verification of rental references

Contacting landlord references to verify previous rental history information should be a screening practice conducted for all applicants. Rental history is as important as credit history in the tenant screening process. The applicant’s past pattern of rental behaviors with landlords and fellow tenants may give clues as to how he will conduct himself as a tenant in his future choices for rental housing.

Failure to keep complete and accurate documentation of rental matters

Failure to keep accurate documentation of important landlord-tenant interactions puts a landlord at risk. Documentation is key to defending against charges of discrimination or to show cause in a landlord’s court action for tenant eviction. Any communication with a prospect, applicant, or tenant should be documented and retained for at least the period required by statute. Without written documentation of policies, practices, forms, interviews, or other rental records, it will be a landlord’s word against a claimant’s allegations.

Failure to conduct due diligence

A landlord should prioritize conducting due diligence for new and proposed legislation that impacts the rental business As a business owner a landlord must know the regulatory climate rules and regulations that affect his business.

There is a greater responsibility for landlords under their obligation of duty of care to tenants to protect them from known risks to persons and property. That duty too falls under the landlord’s due diligence to actively manage his properties according to legal requirements for habitability and tenants’ rights by statute.

Mold and Mildew Issues in Rental Property

August, 2022

Mold and mildew result from moisture problems in the rental property. Landlords must take appropriate, timely action when notified by a tenant of mold problems in the rental unit or as discovered by maintenance inspections of the rental property. Moisture problems can be quite costly in terms of physical damage to the rental property, cause financial harm to rental operations, and adversely affect physical health of individuals exposed to the presence of mold.

Moisture issues are quite common in rental operations. Landlords should have rental policies and practices to identify and address mold and mildew issues. To prevent mold growth, there must be moisture control protocols in place. In as little as 48 hours in a moist environment, mold spores can grow into mold problems. With regular property inspections and requiring tenants to promptly notify the landlord of water damage/mold issues a landlord can reduce conditions favorable to mold growth and subsequent damage. However there can be other incidents of moisture damage caused by natural events such as storms and floods, as well as environmental issues such as localities with generally humid conditions that can contribute to a greater number off mold events.

Molds multiply by producing microscopic spores that travel back and forth from outdoors to indoors attaching themselves to people, pets, and possessions. The number of mold spores suspended in indoor and outdoor air fluctuates from season to season and day to day Spores are everywhere and exposure to them cannot be avoided. Everyone is exposed to molds on a daily basis and most people are unharmed by their exposure. It is not practical, probably not even possible, to eliminate all molds and mold spores indoors.

Regular Scheduled Inspections

A visual inspection of the rental property is one of the most effective ways to detect a moisture problem and the presence of mold. Regular inspections of the property’s exterior and interior spaces can help identify a mold problem or potential problems that could cause mold and mildew issues.

Scheduled property inspections should be done for vacant units as well as occupied units. If units have been vacant for some time, particularly if air conditioning units have been turned off, high heat and humidity can build up in the unit and provide a breeding ground for mold and mildew.

Mold can be generally identified by fuzzy irregular shapes appearing in a wide variety of colors including black, brown, green, gray, white or yellow. Mildew is generally identified as a flat, powdery substance on the surface of objects. Mildew is lighter in color than mold, usually white, grey, or green color.

Although visual signs of mold are not always obvious, the musty smell of mold is another way to discover moisture/mold problems. Mold can grow on the hidden surfaces behind paneling and wallpaper; the top of ceiling tiles; beneath carpet and pad; or inside heating and cooling ducts. Attics, crawl spaces, and basements provide many opportunities for mold growth. Areas inside the wall around plumbing or heating/cooling ducts may have condensation that is trapped and causes water damage. Hidden mold growth should be investigated cautiously since there is the potential to release massive amounts of new mold spores into the air causing additional problems.

As the mold grows, the organic material is destroyed. Allowed to grow, mold can cause serious damage to property and furnishings. Molds can rot wood, damage drywall, and eventually cause structural damage to buildings. Mold can cause stains and other cosmetic damage to furnishings.

Controlling indoor moisture significantly limits mold growth. Mold does not need a lot of water to grow. A little condensation in a bathroom or around a windowsill can be enough to start mold growth. Common sites for indoor mold growth include bathroom tile and grout, basement walls, ceiling tiles, areas around windows, floor coverings near sinks, and leaking plumbing and plumbing fixtures. Other common sources of moisture include roof leaks, condensation due to high humidity, sprinkler systems, and flooding.

Mold and Mildew Health Concerns

Serious health problems, potentially life threating, can occur when individuals are subjected to prolonged or high-level exposure to mold. Even brief exposure to the presence of mold can cause irritation to an individual’s eyes, nose, throat, skin, and lungs.

Landlord Responsibility

As of this writing there is no Environmental Protection Agency (EPA) standard or Threshold Limit Values (TLVs) for airborne concentrations of mold or mold spores in residential buildings. There are governing regulations that vary by state or municipality location regarding hazardous conditions which include mold.

In some states the landlord is required to disclose any hazardous conditions to potential tenants before lease signing. The majority of states hold a landlord responsible under the implied warranty of habitability to provide and maintain rental housing that is fit and habitable. Negligence by the landlord in maintaining the rental property to good condition would be a material violation of landlord responsibilities and obligations under the habitabilty warranty statutes.

Mold/Moisture Lease Addendum

A tenant bears responsibility to conduct good housekeeping practices during tenancy to maintain the rental unit to the same good condition the tenant received at move in. Many landlords utilize a mold/moisture lease addendum to emphasize the importance of preventing mold in the rental unit and to detail housekeeping practices that can prevent mold intrusion.

In addition to housekeeping requirements, the addendum requires the tenant to notify the landlord of any mold growth on surfaces inside the tenant’s dwelling unit; to notify the landlord immediately of any circumstances involving excess moisture such as water leaks or drips, sweating pipes or toilet tanks as well as any water overflows in kitchens, laundry facilities, and bathrooms, especially in circumstances where water overflow may have permeated walls, floors, carpeting or other floorcoverings or cabinets. Excess water shall be immediately removed to prevent further damage. Tenant agrees to allow landlord to enter dwelling unit to inspect and make necessary repairs for mold and moisture issues.

Mold Remediation

Some states may require the landlord to remediate the mold problem as opposed to mold removal. If remediation is required, the landlord may be held to a legal definition of the term mold remediation as “the removal, cleaning, sanitizing, demolition, or other treatment, including preventive activities, of mold or mold-contaminated matter that was not purposely grown at that location.” Some states specify a time frame for the landlord to repair the mold problem, while other states may use a “reasonable” time period. The time to repair the mold problem starts the day the tenant’s request or notice is received by the landlord. Most states require the tenant to notice the landlord in writing of the presence of mold and request a correction of the problem.

Some states address tenant remedies if the landlord fails or refuses to act in compliance with landlord obligations for mold remediation. Options are contingent upon the tenant noticing the landlord in a timely and appropriate manner and allowing specified time per statute for mold treatment repairs. Tenant remedies for landlord failure to cure a mold problem include:

  • Terminating the lease without incurring landlord penalties or loss of security deposit
  • Withholding rent
  • Paying reduced rent
  • Paying for mold remediation and deducting the cost from the rent
  • Suing the landlord for damages incurred due to landlord failure to comply with his obligations
  • Notifying appropriate regulatory agency of landlord default in maintaining habitable premises and disclosure of building code, health, safety violations

Landlord Retaliation

In most states it is illegal for a landlord to retaliate against a tenant because the tenant requested repairs or remediation to mold infestation.

Landlord Liability Issues

Landlords should take proactive prevention measures and remediate problems as soon as discovered. Detailed written moisture/mold protocols help to reduce landlord liability and minimize the possibility of litigation over mold damage to property and tenant health.

Landlords may have potential and substantial legal liability to tenants for mold damages. Possible compensatory damages to the tenant include expenses for (1) medical mold diagnostic and treatment procedures, (2) loss of earnings, (3) mold damage to clothing, furniture, and other personal property, (4) rent differentials when tenants must move to a higher cost mold-safe place, (5) moving expenses, (6) various tenant expenses including mold inspection and testing, (7) remediation of the rental unit, (8) remediation and/or replacement of tenants’ damaged personal property, and (9) jury-awarded punitive damages.

Applicant Decisioning

July, 2022

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.

Landlord Notifications and Disclosures

June, 2022

Landlord notifications and disclosures are business practices required by federal, state, and local laws. The nature of the notification or disclosure and the method of delivery may be specific to the circumstances and the jurisdictional requirements of the rental property location.
There are a variety of circumstances that may require a landlord to provide notice to his tenant. Notifications can convey information and instructions of important rental matters; e.g., lease terms, house rules, and rental practices, of which some matters, may require a confirmation of receipt from the tenant. As relevant to their subject matter, it may be a better rental practice to provide notices to tenants in written forms such as published electronically on a tenant portal or delivered by certified mail and require written response from the tenant. This provides an audit trail to help defend against a claim of discrimination or unfair treatment by a landlord.
Landlord notification letters may be issued for a number of rental matters including but not limited to:
• Lease defaults
• Late, missed rent
• Property damage
• Inspection schedules
• Repair/maintenance work schedule
• Landlord intent to enter
• Property management policies/changes
• Lease renewal
• Change in rent
• Utility costs
• Non-renewal of lease
• Lease termination
• Move-out procedures
• Disposal of abandoned personal property
It is the landlord’s obligation to conduct due diligence to determine the notification requirements specific to statutes governing his property’s location. Competent legal advice may be advisable for guidance on some rental matters.
Most commonly, notifications are served to tenants for material lease defaults. Notices include:
Notice to Pay Rent or Quit
Since failure to pay rent is the most common reason to initiate eviction actions, the Notice to Pay Rent or Quit is the notice most often used. A Notice to Pay Rent or Quit demands that the tenant pay his rent within the statutory period a (specified number of days) and, if not paid, to move out (Quit), ending his occupancy.
If delinquency exists in the payment of any portion of rent due, a Notice to Pay Rent or Quit may be served on the delinquent tenant, in most states, as early as the day following the rent due date. If rent is due on the first, a notice may legally be served on the next day absent a grace period being specified in the lease agreement or by state law.
A few states will not allow service of a termination notice (either a Pay Rent or Quit Notice or an Unconditional Quit Notice) until the rent is a certain number of days late. In these states, tenants enjoy a statutory grace period plus the time specified in the Pay Rent or Quit Notice in which to come up with the rent.
Statutes require the landlord to provide the Notice a minimum number of days before the lease can be terminated and a lawsuit for possession filed with the Court. The Notice gives the tenant a few days (usually 3 to 10 days in most states) to pay all rent owed or to move out.
Notice to Cure or Quit
A Notice to Cure or Quit demands that the tenant comply with one or more terms of the lease agreement (Cure) and, if the tenant does not comply, to end his occupancy (Quit). Notices to Cure or Quit are typically given after a violation of a term or condition of the lease agreement, such as nuisance, waste or illegal use. Usually, the tenant has a specified amount of time in which to cure the violation.
Unconditional Notice to Quit
An Unconditional Quit Notice orders the tenant to vacate the rental premises and does not allow the tenant to cure any violation of the lease agreement. These notices are the strongest of all termination notices and mean exactly what they say. The tenant must move without an opportunity to pay back rent, correct some other lease violation, or otherwise change his behavior. In most states, Unconditional Quit Notices are used when the tenant has:
• Been late with the rent on more than one occasion,
• Repeatedly committed a material lease agreement violation,
• Committed serious waste or damage to the premises, or
• Engaged in illegal activity, such as drug dealing on the premises.
In a few states, the Unconditional Quit Notice is the only notice statute for any type of violation including late rent or breach of the lease agreement.
The federal government and many states and cities require landlords to disclose certain information to prospective and current tenants. Some disclosure laws require landlords to make disclosures before entering into rental relationship with a tenant, while others require landlords to incorporate certain language in the lease agreement
Federal Disclosure
The federal Residential Lead-Based Paint Hazard Reduction Act (Title X) requires landlords renting property built before 1978 to disclose to prospective tenants that there may be a health hazard due to the use of lead paint.
The Environmental Protection Agency (EPA) enforces Title X. To comply with the EPA’s regulations, a landlord must:
• Disclose any known lead-based paint on the property
• Disclose any lead hazards on the property
These issues must be revealed before renewing or signing a new lease. In order for the disclosure to be valid, both the landlord and the tenant must sign an EPA-approved document that proves that the landlord disclosed any known lead paint or lead paint chips on the rental property. The landlords must keep this document for their records for at least three years after the landlord-tenant relationship began.
The landlord must also provide each tenant with the EPA pamphlet Protect Your Family from Lead in Your Home, or another state-approved pamphlet.
If a landlord fails to comply with these procedures, he may face penalties from the EPA of up to $10,000 for each violation. In addition, if a landlord fails to disclose known lead paint hazards in a rental property, and a tenant is injured by the known lead, the landlord may have to pay the tenant triple damages in any lawsuit.
There are some properties that are not covered by Title X. They include:
• Lofts, efficiencies, studio apartments, and other residential leased properties that contain zero bedrooms
• Housing that had a construction permit obtained after 1978
• Any property that had construction started after January 1, 1978
• Single rooms rented in a larger residential building
• Short term rentals of 100 days or less
• Any housing that has been certified as lead-free by a certified lead inspector (certified by the state)
• Any housing that was designed for elderly persons (housing designed for seniors where at least one tenant is 62 years of age or older)
• Housing for persons with disabilities unless any child less than six years old resides there or is expected to reside there
State-Required Disclosures
Most states have specific disclosure requirements, which vary by state as to subject matter and delivery. The following are examples of state required disclosures:
• Owner or agent identity
• Person authorized to receive legal papers
• Security deposit accounting including collection, interest paid, allowable purpose, and deposit return
• Non-refundable fees
• Screening criteria
• Move-in checklist
• Summary of Landlord-Tenant Law
• Utilities sharing
• Extended absence
• Renters Insurance
• Domestic violence victims’ rights
• Environmental health/hazard issues – lead paint, mold, radon, bedbugs, pests ,vermin
• Installation and maintenance of smoke detectors and alarms
• Flooding/flood zone
• Military zone
• Smoking policy
• Foreclosure
• Homeowner associations
• Housing code violations
• Tenant’s rights to be present during a move-out inspection
• Disclosure of any methamphetamine production that had occurred at the property previously
• Information on how to access the state’s registered sex offender database
Other Disclosures
There may also be disclosure requirements by city or county ordinances. A landlord will need to research city and county ordinances to determine requirements such as occupancy limits or rent control.
Failure to Disclose
Depending on the circumstances, a landlord’s failure to provide timely disclosures in accordance with legal requirements could result in a notice of non-compliance, fines, penalties, or worse case – criminal charges.

Rental Price Regulations

May, 2022

Rental price regulations are laws to protect tenants from unwarranted large rent increases and to help maintain access to existing affordable housing. Rent control and rent stabilization laws regulate rents that a landlord can charge tenants and limit the reasons for tenant evictions. A landlord cannot use eviction as a means to circumvent rental price regulations.

Early rent controls adopted in the 1920s and extending through the next few decades set strict price ceilings and rent freezes to lock in rental prices. With the postwar 1950s housing boom, these strict policies, commonly referred to as first generation rent control, were abandoned by most cities.

New efforts for rental price regulations in the 1970s led to 2nd generation price regulations which took a more moderate approach. Rent stabilization policies allowed periodic rent increases during tenancy and applied to certain building types rather than all tenant occupied housing within the city. Rent stabilization allowed rents to increase to market rate between tenancies. A new tenant paid market rent with a limited fixed amount of rent increase as set by ordinance and administered by a governing board.

Most rent price regulations are set by municipalities and counties and vary by location for statutory requirements, type of property, age of the property, tenant income, and other jurisdictional issues such as calculation of maximum rent, exempt properties, eviction restrictions, and enforcement polices and penalties.

Most states have preemptive laws regarding rent regulations. Preemption occurs when a law at a higher level of government overrules authority at a lower level. In the case of rent regulations, preemption means state law prohibits municipalities from passing any type of rent control legislation. A few states follow Dillon’s Rule which requires states to expressly grant powers to local governments to adopt rent regulations. Some states do not address the issue of rent control by statute.

Currently only five states have some form of rent regulations of which two, Oregon and California, have statewide rent control regulations. The other 3 states have laws authorizing local government to adopt rent control ordinances. Approximately 200 municipalities have adopted some form of rent regulations.

Rental price regulations provide benefits to tenants, such as:

  • Affordable housing,
  • Stable rents, predictable regulated rent increases,
  • Automatic lease renewal, and
  • Long term tenancies – costs of moving are avoided.

However rental price regulations can present challenges to landlords, such as:

  • Regulations may limit or restrict ability to make a profit or meet current financial business obligations since regulated units are often priced below fair market rents,
  • Expenses for maintenance and upkeep are rising – some tasks may be deferred,
  • Less incentive for updates and renovations, and
  • Less tenant turnover but no new renters may mean keeping a troublesome tenant on renewal.

Rent regulation can also impact construction of new rental housing. Developers may be hesitant to commit to new construction in certain areas since the new housing market rent would be in competition with stabilized rents.

State Regulations


In 2019 Oregon became the first state to enact statewide rent control establishing a broad-based relatively high cap on annual rent increases. Oregon’s law generally limits rent increases, bars landlords from raising rent during the first year after tenancy begins and requires landlords to give tenants 90 days written notice before raising rent after the first year of tenancy.

These protections of rental increase cap and a tightening of rules for eviction apply only to multi- unit buildings constructed more than 15 years ago whose rent is not subsidized by the government.

The law prohibits landlords from raising current rent by more than 7% plus inflation, a version of the Consumer Price Index (CPI) published by the US Bureau of Labor Statistics during any 12-month period. The Oregon Office of Economic Analysis is required to calculate and publish by September 30 each year the maximum annual rent increase percentage for the coming year. Allowable rent increase for 2022 is 9.9%. The maximum allowable annual rent increase is uniform across Oregon.


Effective in 2020 California enacted statewide rent control legislation to target steep rent increases. Statewide rent control law generally caps annual rent increases for qualifying units, limits the number of allowable annual rent increases and includes additional tenant eviction protections. Specifically the law limits annual rent increase at 5% plus the change in the regional CPI over a specified time period or no more than 10% of the lowest rent charged during any year long period before the date of the increase and prohibits landlords from increasing rent in more than two increments annually if a tenant occupies the unit for at least a year.

California statewide rent control laws will sunset January 1, 2030 unless renewed by the legislature.


New York City

New York City is the most widely recognized municipality with rental price regulations, having both rent control and rent stabilization policies.

Rent control regulations New York City requires:

  • The building must have been constructed before 1947.
  • The same family must have occupied the unit since 1971.
  • Tenants can only pass down their rent-controlled apartment to family members.
  • The tenant’s family member (the individual inheriting the rental) must live in the apartment for at least two consecutive years before ownership can transfer to them.

The rent price is a fixed amount and the landlord cannot legally increase rent when the original lease expires. Moreover the tenant has the right to automatic lease renewals.

Rent stabilization regulations in New York City require:

  • The building must have been constructed before 1974 with six or more units.
  • The rest must be less than $2,700 a month
  • The tenant must earn less than $200,000 a year.

Rent stabilization allows a small increase in rent per year according to guidelines established by a governing board. A mid-year rent increase may be allowed in certain circumstances such as improvements or increased services made to rental unit, major capital improvements, or the landlord’s economic hardship.

In some situations a landlord may be able to deregulate a rent stabilized unit, such as:

  • Landlord or immediate family member needs unit for their primary residence,
  • Building is in disrepair and should be demolished,
  • A high rent vacancy deregulation – legal, regulated rent exceeds $2700/month and the tenant voluntarily relinquishes unit,
  • A high rent, high income deregulation – regulated rent is $2733.75 or more per month and the tenant’s annual income is $200,000 annually in each of the two preceding calendar years, (high rent, high income amounts may vary based on the governing municipality and may change every year),
  • Individual unit improvement — once the unit is vacated voluntarily or through eviction, the landlord can increase rent equal to a specified portion of the cost of any renovations and improvements on the unit in addition to any other vacancy increases applied,
  • Conversion of building to a co-op – any regulated units in the building are deregulated upon vacancy,
  • Expiration of tax abatement – landlords are allowed to charge market rate rents,
  • Tenant buy-out by landlord to pay tenant to vacate regulated unit.

St. Paul MN

In 2021, via a ballot initiative, St. Paul voters passed the first rent control policy in the Midwest. The rent control policy effective May 2022 prevents landlord from raising rents more than 3% a year. The ordinance does not include exemptions for new construction. The cap rate of 3% is not tied to inflation and applies even if the tenant vacates the rental unit. A landlord however may request an exception based upon a limited criteria. Landlords have the right to a reasonable rate of return on their investment. This is defined as the property’s net operating income (NOI) of the base year 2019 adjusted by subsequent changes in the Consumer Price Index.

The city has published factors that will be taken into account for exception requests by landlords. Factors include improvement projects, increased operating expenses or increased taxes. Landlords can self-certify requests for rent increases between 3% and 8% by completing the exemption request online. Landlord exemption requests for rent increases greater than 8% will be processed by city administration staff. Landlords have the right to appeal exemption decisions. A landlord cannot increase a tenant’s rent more than 15% in one year, although, if justified, increases beyond that limit can be deferred to the subsequent year.


The above states and municipalities examples reference only major points in their specific rental price regulations. Landlords will need to conduct due diligence for their own property locations and determine complete requirements for administration and compliances. While many landlords are not currently in markets with rent regulations, rental price regulations are an issue to be aware of as more states and municipalities consider/reconsider rent regulations to address affordable housing issues and housing shortages in many areas of the county.

Credit Risk Analysis Using Credit Scoring Models

April, 2022

There is an element of financial risk to the landlord’s business in the installation of a new tenant. Tenant screenings provide risk management tools to assess credit risk by estimating the probability of tenant default on rent obligations. With credit risk analysis, the landlord can make an informed decision acceptable to the landlord’s business model. With adequate due diligence using screenings for a credit report and credit score, a landlord can reduce potential financial business risk by objectively analyzing the applicant’s credit history and credit management.

There is good reason for the landlord to protect his business from credit risk. Credit risk occurs when a tenant fails to meet his debt obligations. Rent defaults disrupt the landlord’s cash flow and can increase operational costs if the debt is sent for collection.

Credit risk analysis uses credit scoring models as marketed by the three national credit reporting companies, Equifax, Experian, and Transunion. The credit reporting companies analyze information in the consumer’s credit file as of the date of the credit score request. The analysis estimates the probability of a credit default triggered by an event such as consumer failure to pay as agreed. The probability of default is expressed as a three-digit number that represents creditworthiness. A lower score indicates a more likely credit risk while a higher score indicates a lower risk of credit default. A landlord may utilize credit scores to help evaluate an applicant’s ability to meet rent obligations in compliance with lease terms and conditions.

Credit Risk Scoring Models

How a credit score is calculated is dependent upon the credit scoring model used and the applicable version of the scoring model. There are many different credit scoring models targeting various credit populations, industry applications, and specific credit products.

Each credit reporting company generates its own scores by running the consumer’s credit data through a proprietary modeling process. Credit risk analysis models are predictive tools that can be based on either financial statement analysis, default probability, or machine learning.

As a basic discussion of a conventional scoring model, model development takes into consideration a sample population of consumer accounts large enough to make the model statistically valid yet characteristic of the population to which the model’s scorecard will be applied. Accounts in the selected population would be statistically analyzed to identify the characteristics and attributes that relate to creditworthiness. These characteristics would then be further refined into a smaller group of predictive variables which could best indicate how a credit applicant could be categorized as a credit risk. Predictive variables could include, but would not be limited to, prior credit performance, current level of debt, amount of time that credit has been in use, and new credit. Any characteristic or attribute that is prohibited by law for credit decisioning or that lacks predictive value would be excluded from scoring.

The scoring model would summarize the relevant available consumer credit data into a set of ordered categories that predict an outcome. This ordered set, a numerical score, is a snapshot of estimated credit risk at a specific date in time. The credit score is a statistical assessment of the consumer’s risk within the context of the total risk for the credit population being scored.

However there are limitations in the effectiveness of any credit scoring model. Models are developed, calibrated, and validated using lengthy historical data. If relevant un-modeled conditions change, models may not correctly predict credit behaviors out of sample. And, while a model forecasts the probability of credit default, it is not necessarily a predictor of the level of risk, i.e., the magnitude of loss. For tenant screening purposes landlords, as a matter of business policy for risk reduction, still need to assess the amount of risk posed by the rental applicant in relation to the amount of risk the landlord is willing to absorb.

The sample population size, changing economic conditions, global and domestic business environments, and the reactive nature of consumer credit behaviors can also be constraining factors influencing model effectiveness.

This has led developers to refresh credit scoring models periodically to reflect changes in the industry, consumer behavioral data, and product trends to provide relevant data for credit modeling.

As part of this relevancy, credit scoring models have been optimized to align with the National Consumer Assistance Plan (NCAP) to make credit reports more accurate, transparent, and easier for the consumer, including consumer ability to correct errors on the consumer’s report. As examples, tax liens and public records data reporting were historically used for conventional scoring. Now, tax liens and public records data have been removed from consumer credit files if they failed to meet the enhanced data quality standards as set out in the NCAP guidelines.

While there are many credit risk scoring models and many versions of the scoring models, the scoring models most commonly used to determine credit scores are FICO and VantageScore Solutions.

The current versions of FICO and VantageScore models incorporate trended credit data in their modeling process. Trended data is credit data that reflects patterns in a consumer’s behavior, as example, how the consumer borrows credit and repays credit over time. This is different than conventional credit scoring models that captured static credit events, e.g., looking to the most recently reported utilization rate to calculate the credit score.

FICO and VantageScore use a point credit scoring scale from 300 to 850. The scoring scale has five credit score ranges which determine the likelihood of creditworthiness and what credit products could be made available to the consumer, such as loans and interest rates.

The ranges differ between the two models, and also have different descriptive labels associated with each range. For example, a credit score range above 780 may be labelled exceptional by the FICO model and excellent by the VantageScore model. Other credit scoring models such as those of Experian and Equifax have their own proprietary scoring models and likewise credit scoring scales and descriptive credit range labeling.

The most common credit behaviors that influence credit scores are:

  • Payment history
  • Credit utilization
  • Length of credit history
  • Type of credit
  • New credit

A FICO scoring model may assign score factors such as:

  • 35% Payment History
  • 30% Credit Utilization
  • 15% Credit History
  • 10% Credit Use
  • 10% New Credit

A VantageScore scoring model may assign score factors such as :

  • 40% Payment history
  • 21% Age and type of credit
  • 20% Percentage of credit limit used
  • 11% Total balances
  • 5% Recent credit behavior
  • 3% Available credit

Differences in scoring models will affect only a credit score, not a credit report. Information on a credit report is based on data contained in the consumer’s credit file at the consumer reporting company as of a specific date. The credit report is not a calculated report derived from a credit scoring model. The credit report contains only information about the consumer’s credit usage such as:

  • A summary of the applicant’s positive and negative credit accounts
  • Payment history
  • Prior credit inquiries by date
  • Total estimated past due and monthly debts
  • Listing of credit accounts

A credit score is not an absolute statement of a consumer’s credit risk, financial strength, or stability. However credit reports and credit scores when used in conjunction with other tenant screenings and risk reduction policies may help a landlord to become more confident in tenant selection decisions.

Landlords are advised to conduct their own research and due diligence regarding credit risk analysis and credit scoring models. Those landlords utilizing third party tenant screening services may wish to consult with their screening partner to determine how the screening process is conducted, including the source of credit reporting, the type of credit report, and the availability of credit scoring.

National Fair Housing Month 2022

April, 2022

April 2022 marks the 54th anniversary of the Fair Housing Act (FHA). During Fair Housing Month the Department of Housing and Urban Development (HUD), fair housing organizations, and fair housing advocates host fair housing activities in local communities to enhance public awareness of fair housing rights.

The federal Fair Housing Act (FHA) prohibits discrimination in the sale, rental and financing of housing on the basis of race, color, religion, sex, national origin, familial status and disability. In 2021 the Biden Administration issued Executive Order 13988 which directed all federal agencies to interpret protections against discrimination based on sex to include discrimination based on sexual orientation, gender identity, and gender expression. In the sale and rental of housing, no one may take any of the following actions based on the federal protected classes:

  • Refuse to rent or sell housing
  • Refuse to negotiate for housing
  • Make housing unavailable
  • Deny a dwelling
  • Set different terms, conditions or privileges for sale or rental of a dwelling
  • Provide different housing services or facilities
  • Falsely deny that housing is available for inspection, sale, or rental
  • For profit, persuade owners to sell or rent (blockbusting) or
  • Deny anyone access to or membership in a facility or service (such as a multiple listing service) related to the sale or rental of housing.

It is illegal for anyone to:

  • Threaten, coerce, intimidate or interfere with anyone exercising a fair housing right or assisting others who exercise that right.
  • Advertise or make any statement that indicates a limitation or preference based on race, color, national origin, religion, sex, familial status, or handicap. This prohibition against discriminatory advertising applies to single-family and owner-occupied housing that is otherwise exempt from the Fair Housing Act.

Fair Housing Law exemptions

The Fair Housing Act covers most housing. In very limited circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family houses sold or rented by the owner without the use of an agent, and housing operated by religious organizations and private clubs that limit occupancy to members.

Fair Housing Trends Data for 2020

The annual report released by the National Fair Housing Alliance (NFHA) provides an overview of housing discrimination complaint data by type of agency, protected class, and type of transaction. There were 28,712 fair housing complaints received in 2020. There were 15,664 complaints of discrimination against a person with a disability, or 54.56 percent of all housing complaints.


Federal nondiscrimination laws define a person with a disability to include any (1) individual with a physical or mental impairment that substantially limits one or more major life activities; (2) individual with a record of such impairment; or (3) individual who is regarded as having such an impairment.

Examples of disability may include mental or physical impairment such as hearing loss, restricted mobility, visual impairment, chronic mental illness, chronic alcoholism, AIDS, AIDS Related Complex, and mental retardation that substantially limits one or more major life activities.

Applicants and tenants with disabilities have rights and protections under the Fair Housing Act to ask for reasonable accommodations or reasonable modifications in rental housing.

Reasonable accommodation

Under the Fair Housing Act, a reasonable accommodation is a change, exception, or adjustment to a rule, policy, practice, or service that may be necessary to afford persons with disabilities an equal opportunity to use and enjoy a dwelling, including public and common use areas. Each accommodation request should be evaluated on a case-by-case basis. There must be an identifiable relationship, or nexus, between the request and the individual’s disability. A request may be denied if providing the accommodation is not reasonable – i.e., if it would impose an undue financial and administrative burden on the landlord or it would fundamentally alter the nature of the landlord’s operations.

A reasonable accommodation is a request to make an accommodation or change in rules, policies, practices, procedures or services to allow an individual with a disability an equal opportunity to use and enjoy a rental unit. Some common reasonable accommodation requests are for assistance animals or for a parking space close-in to the rental unit.

An accommodation must be requested by the disabled tenant or applicant. The accommodation request must be related to the tenant’s or applicant’s disability. A landlord does not have the obligation to ask applicants or tenants if they need reasonable accommodation or to determine what a reasonable accommodation might be.

A tenant or applicant may request a reasonable accommodation at any time, including at the time of application, at the time of lease signing, or after the tenant has moved into the rental unit.

Federal and state fair housing laws give tenants and applicants who have disabilities the right to request reasonable accommodations in landlord rules, policies, practices, or procedures if the changes make it possible for them to:

  • Complete an application,
  • Qualify for tenancy,
  • Have full use and enjoyment of the unit, and
  • Comply with rental or lease agreements.

Reasonable modification

A reasonable modification is a physical change to the public or common use areas of a building or a physical change to the structure of a dwelling unit. The most common examples of reasonable modification are requests to install grab bars in a bathroom or to install a wheelchair ramp.

A reasonable modification if approved would make the rental unit a more comfortable and safe home for the disabled tenant. All modifications are subject to the landlord’s approval. The landlord may ask for a description of the proposed modification and any necessary building permits.

If the modification will create a problem for the next tenant, the landlord may require the disabled tenant to restore the rental unit to its original condition at the end of the lease term.

A landlord cannot impose the expense of providing a reasonable accommodation on to the tenant, either directly or indirectly. The landlord assumes the costs for reasonable accommodations. The cost of a reasonable modification as approved would be borne by the tenant or applicant.


Hoarding is a recognized disability under the Fair Housing Act as Amended. The Fair Housing Amendments Act (FHAA) defines a person with a disability to include (1) individuals with a physical or mental impairment that substantially limits one or more major life activities; (2) individuals who are regarded as having such an impairment; and (3) individuals with a record of such impairment. The diagnostic criteria of hoarding include:

  • Persistent difficulty discarding or parting with possessions regardless of actual value;
  • A perceived need to save items and distress associated with discarding them;
  • The accumulation of possessions that congest and clutter living areas and substantially compromises their intended use; and
  • Clinically significant distress or impairment in social, occupational or other important areas of functioning (including maintaining an environment safe for oneself and others).

A hoarder tenant has the right to request a reasonable accommodation from the landlord to modify the landlord’s rental policies to minimize or eliminate the threat of hoarding in order to cure his default and bring his lease into compliance.


In 2020, 1,071 complaints of harassment were reported, the highest number of harassment complaints reported since NFHA began collecting detailed harassment data in 2012.

Harassment is illegal under the Fair Housing Act, both in the provision of housing and in a housing setting. There has been a significant increase in the number of complaints alleging harassment on the basis of disability and sex. Harassment based on protected class may take the form of coercion, intimidation, threats, or interference.

The Fair Housing Act prohibits sex discrimina­tion that impacts the terms or condi­tions of housing; is used as a basis for housing decisions; or otherwise has the purpose or effect of unreasonably interfering with housing rights, or creates an intimidating, hostile, or offensive environment.

Sexual harassment includes any unwanted sexual advance, request for sexual favors, or other unwelcome verbal or physical contact of a sexual nature. It also can take the form of offensive remarks, derogatory statements or expressions of a sexual nature, or other hostile behavior because of a person’s sex. Harassment can consist of oral, written, or other conduct and does not require physical contact between the harasser and victim. Harassment can be directed to any person, male or female, by someone of the same sex or the opposite sex. Sexual harassment does not have to be motivated by sexual desire in order to violate the Fair Housing Act. Sexual harassment could be motivated by hostility toward a particular sex, even if the harasser is the same sex.

HUD Anti-harassment Rule

HUD has issued” Quid Pro Quo and Hostile Environment Harassment and Liability for Discriminatory Housing Practices under the Fair Housing Act”, (the Rule), as the standard to evaluate complaints of quid pro quo (“this for that”) harassment and hostile environment harassment under the Fair Housing Act.

Quid pro quo sexual harassment occurs when a landlord, property manager, employee, or agent conditions access to housing or retention of housing or housing-related services to an applicant or tenant’s submission to an unwelcome request or demand to engage in sexual conduct or sexual favors. .An unwelcome request or demand may constitute quid pro quo harassment even if a person acquiesces in the unwelcome request or demand.

Hostile environment sexual harassment refers to unwelcome sexual conduct that is sufficiently severe or pervasive as to interfere with the terms and conditions of tenancy or deprives the tenant of his right to use and enjoy the housing, resulting in an environment that is intimidating, hostile, offensive, or substantially less desirable.

Hostile environment harassment can also occur when a tenant is sexually harassed by another tenant and the harassment is not addressed by the housing provider.

State and Local Fair Housing Laws

State and local fair housing laws also provide protections from housing discrimination. State and local city and county fair housing laws often provide broader coverage for additional protected classes such as sexual preference, gender identity, occupation, source of income, Section 8 voucher participation, educational status, medical status, marital status, military service, political affiliation, or other classes as noted by statue. Fair housing compliance should always be to those fair housing laws providing the greatest protections against discrimination.

Additional Information

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Ending a Lease

March, 2022

A lease may be terminated for a variety of reasons. The process of terminating a lease requires landlord and tenant to follow certain procedures to ensure the termination is conducted in a legally compliant manner.

The contractual relationship of landlord and tenant is a binding agreement between the two parties detailing the lease terms and conditions during a specified period of time. The lease imposes duties and obligations on each party by statute and the lease terms. Primary among these duties and obligations is the obligation of the landlord  to maintain the rental premises in a safe and habitable manner during the term of the lease and the obligation of the tenant to pay rent during his tenancy as agreed.

Fixed-term Lease Agreement

A fixed-term lease agreement may be  the most common rental agreement between landlord and tenant. A fixed-term lease obligates landlord and tenant to a set period of time for tenancy, i.e., has a designated start date and end date. The fixed-term lease automatically terminates at the specified end date unless the lease agreement provides other options.

During a fixed-term lease, a landlord cannot raise the rent or change other rules, terms, and conditions of the lease unless the lease provides for such future changes and the tenant agrees to the lease modification in writing.

A landlord is not required to extend renewal terms to a tenant nearing the expiration date of his current lease nor is a tenant obligated to accept a renewal offer.

Periodic Rental Agreement

A periodic rental agreement, typically a month-to-month agreement, provides lease terms and conditions for a shorter period of time, and renews automatically at the end of that specified  period unless landlord or tenant give the proper amount of written notice to terminate as required by statute or the rental agreement. With proper notice to the tenant,  a landlord can change the rent or other terms and conditions of tenancy.

Due Diligence

The landlord must conduct due diligence for state and local regulations for lease termination including  notices, notice periods, and other requirements per statute and  ordinance. The lease agreement must be compliant with all statutory requirements.

End of Lease Term

Generally neither landlord nor tenant may end a fixed-term lease unless there is cause, such as a  violation of lease terms by one of the parties. The fixed-term lease simply ends of its own accord on the expiration date set by the lease. At that time the tenant is expected to move out, sign a renewal lease, or convert to a month-to-month tenancy with the landlord’s approval.

As noted above, the periodic agreement continues until proper termination notice is given by either landlord or tenant.

Lease Terminations

Lease Default

For a fixed-term lease, a landlord cannot remove tenants from the rental premises or terminate the lease before the set expiration date unless there is tenant violation of the lease terms. As examples, lease default by a tenant could be:

  • Material rent default – habitual missed rent, late rent, partial payments,
  • Property damage – intentional damage, negligent use,
  • Unauthorized occupants in rental unit,
  • Repeated violations of rental rules, terms, conditions – e.g., violation of no pets policy, noise and disturbance issues, violation of guest policy,
  • False or misleading information provided to the landlord for tenancy,
  • Violation of health and safety standards for sanitary conditions at rental unit, or
  • Illegal use of property, criminal activity, danger posed to others.

To terminate a lease, the landlord must follow the statute requirements of the state where the rental property is located. While each state may vary in requirements for lease termination, commonly, statutes require landlords to notify tenants of the intent to terminate a tenancy. Some states allow tenants the opportunity to cure a lease violation before the landlord can take further action for lease termination; while other states allow a landlord to terminate a tenancy without giving the tenant a second chance to cure the violation.

Notices commonly used for notification of intent to terminate a lease are

  • Pay or quit notice – applicable to rent defaults. The notice gives the tenant a specified number of days, usually 3–5 days, to pay the rent or quit the premises (move out).
  • Cure or quit notice applicable to default of lease conditions. The notice gives the tenant a specified number of days to comply with lease terms by curing the default or quit the premises (move out).
  • Unconditional quit notices – This notice requires the tenant to quit (vacate) the premises immediately without opportunity to cure the lease default.

If the tenant ignores a notice to pay, cure or quit a lease default, the landlord can begin legal action for eviction. If the landlord proves the default, a legal order will be issued to remove tenants from the rental premises.

Breaking the Lease

Early termination of the lease agreement breaks the contract terms and conditions of the lease and could be requested by landlord or tenant as a business or personal necessity.

The lease agreement may contain language that specifically allows the landlord to terminate a lease before the contracted end date. Reasons that a landlord may want to terminate a lease early include:

  • Sale of the rental property,
  • Landlord intends to move into the rental as his personal residence, or
  • Rental unit requires extensive repair or renovations that require the unit to be vacant for an extended period of time.

There could be other circumstances whereby landlord and tenant reach mutual agreement to end the tenancy without further responsibility by either party.

The landlord cannot terminate a tenant’s lease for discriminatory or retaliatory reasons nor lock the tenant out of the rental unit.

State statutes provide protection for tenants who have legitimate reason to request early termination of their lease. In some states landlord-tenant statutes allow a tenant to terminate a tenancy before the end of term without landlord permission for reasons such as:

  • Military Duty – A tenant who is a member of the armed forces, or that tenant’s spouse or dependent, who delivers copies of reassignment or deployment orders to the landlord within the required number of days of receipt of orders.
  • Domestic Violence – A tenant who is a victim of domestic violence, sexual assault, unlawful harassment, or stalking, and who has a legal protection order or has reported the incident to the authorities.
  • Harassment – A landlord or landlord’s agent violates the tenant’s right to privacy and quiet enjoyment of the property by stalking, sexual assault or unlawful harassment of the tenant.
  • Habitability Issues – As a remedy to the landlord’s failure to maintain fit and habitable housing resulting in constructive eviction of the tenant.
  • Withholding of essential services to the tenant excluding or  limiting access to rental premises
  • Property Damage – The rental property is significantly damaged or destroyed by natural disaster or other reasons beyond the tenant’s control.
  • Violation of Privacy Rights to Quiet Enjoyment of the Premises – Intrusiveness of the landlord that violates tenant privacy, such as landlord entry to unit without tenant notification.

In a few states landlord-tenant statutes allow for early termination of tenancy for reasons such as tenant health problems, or tenant need to move to assisted living facilities.

The death of a tenant during an active lease requires due diligence by the landlord to determine how state statutes address the issue. Lease termination may be allowed at a certain period of time after the landlord has been notified of the tenant’s death. In some states the death of a tenant does not  automatically terminate the tenant’s lease agreement unless the landlord’s lease agreement specifically contains language to the contrary. The tenant’s lease agreement remains active to the lease expiration date. What happens to a lease agreement following the tenant’s death depends on whether the tenant was in a month-to-month rental agreement or a fixed term lease agreement. A landlord will need to review applicable state laws and terms of the lease agreement to determine how to proceed.

There might be other reasons that a tenant could have cause to break his lease such as  the rental unit did not meet required building codes, licensing requirements, or compliance with federal and state regulations regarding environmental issues, such as lead-based paint regulations. Not as likely, a lease could be terminated because the lease was made void and unenforceable because the lease agreement contained illegal clauses that require the tenant to:

  • waive landlord liability for landlord negligence,
  • accept an as-is clause for habitability,
  • accept responsibility for repairs to the property,
  • waive their right to privacy and quiet enjoyment, or
  • waive their right to take legal action against the landlord.

However, the most common tenant reasons for requesting early termination of the lease are personal matters such job transfer/relocation, job loss, divorce, serious illness, buying a home, moving in with a family member, partner/roommate, other life events or changes in in lifestyle. In most states these reasons are not considered legitimate reasons for early termination of a lease. The landlord’s lease agreement may contain clauses that address the issue of early termination by the tenant and options that could be pursued for release from the lease contract.