What You Need to Know About Tenant Screening
What is included in a background check? A Property Manager and/or Landlord must know what ought and ought not to be included when screening tenants. Tenants should also be aware of what a Landlord or Property Manager will have legal access to. Rental applications are necessarily designed to access personal information. This can only be procured with the tenant's written permission and landlords/property management companies usually work through a qualified tenant screening company.
A background check is used to make a reasonable estimate as to whether a prospective tenant has a track record for and the current ability to fulfill the terms stipulated in a rental agreement. Sincere promises are not adequate. A winning personality isn't sufficient. There is, of course, no way to guarantee that an applicant will be the 'perfect tenant'. Circumstances may well change things. Yet, a carefully pursued screening process will eliminate most of the common tenant issues. Though a signed rental agreement is a court respected legal document, it is always wiser to avoid the potential hassle of having to evict a non-compliant tenant by doing a thorough background check up front.
It all begins with Pre-screening
You can save a lot of time and effort by being more specific in your advertising. If your listing includes the location, property specifics, and the price you will receive far less calls from folks who are not looking for what you have available. In other words, if you are trying to rent a two bedroom, no pets allowed, 4th floor condo for no less than $1500/month that is immediately available, do you really want to spend time with a family of five seeking to rent a three bedroom, pet-friendly house on a cul-de-sac for under $1000/month but not until 5 weeks from now?
Be careful on how you pre-screen in your advertisements. Some types of advertising 'screening' are actually illegal. For instance, don't state for 'couples without kids' (unless you are a qualified senior housing unit), or say 'a completely white neighborhood', or 'only heterosexual couples in this neighborhood'.
Even before you hand out any paperwork, state clearly your non-negotiables. If they are still interested in what you have available, ask the applicant what they would like to know about the property. You can learn a lot about a person through the questions they ask. Then show them the property. Sometimes there is that 'je ne sais quoi' about the property that just doesn’t resonate with the applicant. Best to know that before the paperwork is begun.
Make sure that you are clear between what are and are not legally acceptable reasons to reject an applicant. Federal Fair Housing Laws prohibit discrimination or a different set of terms, conditions, or privileges based on race, color, national origin, religion, sex, familial status, or handicap. It is not legal to even ask some questions such as their religious preference, their marital status, or national origin. State laws may add additional and even more specific laws, prohibiting discrimination based on marital status, sexual orientation, gender identity, age, and whether or not they receive government subsidies. If the property is HUD housing other rules may apply. It is legal to ask if the applicant is on Section 8, how many animals they have and what kind they are, how many people will be living in the property, and even how many felonies they may have been convicted on.
The Background Check
- Obtain a completed and signed rental application along with proof of identity - such as a valid government issued photo ID - and the fee. This, and all the following, apply to any co-signers.
- A tenant screening company will use the information on the application to search all relevant data sources to check your credit history by accessing one of three national credit bureaus - Experian, Equifax, or Transunion. The response is usually immediate.
- The screening company will confirm if the applicant has ever been evicted, a valid social security number, a criminal record, ever gone bankrupt, any liens/judgments/repossessions/garnishments, and whether or not they are on a sex offender registry.
- References from previous landlords/property management companies will be checked. Their current landlord may give a glowing report simply to get rid of them. Contact previous landlords as well. Did the tenant leave their last rental clean? Were there any complaints by neighbors or visits by the police because of fights or loud and parties? Were there any indications of illegal drug use or other criminal activities? If the property belonged within a HOA, were the rules respected? Was the tenant considered ‘high maintenance' - constantly complaining about truly trivial issues? Did the tenant pay their rent on time?
- Employment will be confirmed. Is the income at least 3 times the rental rate?
It is important for the landlord and/or property management company not only to confirm that a tenant has had a good rental track record, but that the prospective tenant is currently capable of paying the rent each month. Even a ‘perfect’ past rental history doesn’t necessarily mean the future will play out the same. If, for example, the applicant has moved from full time to part time work, has lost their job, or has recently incurred large amounts of debt, their ability to meet future financial obligations will be different from what it was in the past. Confirm with their current employer the exact nature of the tenants employment. Ask for proof, but be sure that you have obtained a 'release of information from the applicant. If the applicant has been self-employed, request at least two years of tax returns.
Denying an Applicant(s)
Always document exactly why you denied an application. Be consistent so that anyone can see that there isn't even the appearance of bias. It must only be for legally acceptable reasons as stated above. Send a letter to the applicant, stating the exact reason for why they did not qualify. Their application fee must be returned if they were denied simply because someone else applied and were qualified first.
Our resident screening choice is through Appfolio. Within minutes we receive a FICO credit score, complete credit report and public records from Experian. They also provide a nationwide eviction search that uncovers unlawful detainer filings (even those without a judgment that will not appear on a credit report). Their nationwide criminal search will examine the sex offender registry and even the terrorist (OFAC) watch list.