Applying Tenant Screening Criteria
A landlord must establish tenant screening criteria before accepting rental applications. Once criteria are set, all applicants must be evaluated to the same criteria. The end goal of tenant screening is to install a quality tenant in a legally compliant process. When a landlord develops his screening criteria he does so with the quality tenant in mind. Who is a quality tenant? Many landlords define a quality tenant as the tenant who:
- Pays full and timely rent
- Complies with lease terms and conditions
- Maintains the rental unit to good condition
But how does the landlord know what types of screenings can provide relevant data to qualify applicants to these desired tenant behaviors? What screenings correlate to rental standards and how is the information used to evaluate applicant qualifications?
When a landlord uses consumer reports to make tenant decisions, the landlord must comply with the Fair Credit Reporting Act (FCRA). A consumer report may contain information about an individual’s credit characteristics, rental history, or criminal history. While consumer reports are obtained from a tenant screening services company, verification of current employment, income, and rental housing history is generally conducted by the landlord or his rental staff. As part of best practices screening, a landlord should also contact previous landlords for rental references.
Screening reports provide information to determine if the applicant has:
- Satisfactory credit report
- Satisfactory background check (criminal history)
- Positive rental housing history
- Satisfactory landlord references
- Satisfactory public records (No evictions, bankruptcies, liens, or judgments)
Proof of Identity
When accepting applications, landlords must ask for proof of identity. Many landlords require two forms of identification with one document containing a photograph of the individual. A state issued driver’s license or equivalent identification document with photo is most commonly used for verification of identity.
Full and Timely Rent
Full and timely rent is a top priority for most landlords. Without a stable, consistent rental income stream a landlord may have trouble meeting his own financial obligations. The landlord is motivated to select a tenant who is able and willing to make his regular rent payments on time, every time. Therefore the applicant’s financial condition is an important decisioning factor.
Tenant screenings that can help evaluate the applicant’s financial condition include income verification, employment verification, the credit report, credit score, public records, and landlord reference checks. Financial ability to pay rent and a positive history of timely rent payments may be indicative of a future tenant’s performance of rent responsibility.
Income verification is done to determine if the applicant has sufficient income that provides for housing, living expenses, and contracted debt obligations. A commonly used industry standard is a gross monthly income that is three times the monthly rent. However a few municipalities have passed legislation that sets a lower income to rent ratio. A landlord will need to research current state and local regulations to determine how to set his screening criteria.
Most landlords will conduct employment verification with the current employer for salary/wage earnings and may require copies of the applicant’s most current pay stubs as confirmation of employment and income. The issue of employment and the requirement for proof of employment by providing copies of pay stubs must be researched to determine whether state landlord-tenant statutes and local laws address this issue. A screening criterion that restricts potential tenants to only those currently employed may have unintentional consequences of discriminating against those applicants who have alternate source of income. Potential tenants should be qualified for sufficient monthly income to meet rent obligations. Source of income is a protected class/characteristic in many states and municipalities and landlords cannot reject an application due to source of income, such as Housing Choice vouchers. A landlord can require the applicant to provide documentation of income to show the amount of assistance/income and the schedule of payments.
The credit report can be a valuable, diverse source of information to evaluate the applicant’s financial situation. The willingness and ability of an applicant to pay his debt obligations as agreed is documented in the applicant’s credit report. The report can verify the applicant’s personal information and is a history of the applicant’s credit usage and management of debt obligations including payments history. The credit report contains information that can be used to figure debt to income ratio and compare debt load and rent load for risk assessment. Accounts that have been sent for collection are shown on the credit report as well as accounts that have been charged off. The number of late and missed payments and the delinquency period can be found in the credit report.
Some landlords utilize a credit score as a decisioning factor for qualification of an applicant. A high credit score may be indicative of a good tenant but a low credit score is not necessarily indicative of a bad time. It is a business decision by the landlord to use credit scores or a specified scoring range as part of tenant screening criteria but this requirement should be disclosed to allow potential tenants to self-select before submitting an application.
Past rental history listed on the application and as shown on the credit report provides the landlord with information on previous rentals, length of tenancy, and landlord contact information. The applicant can be required to provide landlord references in order to verify details of a previous tenancy and whether the former tenant would be welcomed back.
Comply with Lease Terms and Conditions
The tenant’s willingness to comply with lease terms and conditions, the landlord’s house rules, and expectations of acceptable behavior for community living can be evaluated by a search of public records, background check, past rental history, landlord reference checks, and the credit report.
A background check, as permissible by state statutes and local ordinances, will provide information on the applicant’s criminal history. A landlord must conduct research for applicable laws to determine the requirements, regulations, and restrictions for evaluation of applicant criminal history. An arrest record that did not result in a conviction is generally not permissible for evaluations. Per guidance published by the Department of Urban Housing and Development (HUD the Fair Housing Act applies to the use of criminal history by providers or operators of housing and real-estate related transactions. A landlord’s policy or practice that restricts access to housing on the basis of criminal history, if it does not serve a substantial, legitimate, non-discriminatory interest of the landlord, or if such interest could be served by another practice with less discriminatory effect, has a disparate impact on individuals of particular race, national origin, or other protected class and is unlawful under the Fair Housing Act.
When a landlord’s policy or practice has an unjustified discriminatory effect, the landlord has violated the Fair Housing Act even when there was no intent on the landlord’s part to discriminate. A facially neutral policy or practice that has discriminatory effect is unlawful if the policy or practice is not supported by sufficient legal justification.
Landlord policies or practices used to make housing decisions that exclude individuals based on criminal history must be tailored to serve the landlord’s substantial, legitimate, nondiscriminatory interest. Consideration must be given to such factors as the nature of the crime, the severity of the offense, the date of the conviction and the length of the time since conviction. Individualized assessment of the applicant’s criminal background history must be conducted to determine if the applicant’s behavior would put other tenants at risk of harm.
If a material lease violation resulted in filing for eviction during a previous tenancy, a public records search will show if a judgment for possession was entered during the eviction hearing or if a money judgment was also entered for unpaid rent and damages.
Contacting landlord references will allow the landlord to determine if the applicant had a history of lease violations, noise and disturbance issues, late or missed rents or was served notice of material lease violations resulting in eviction proceedings. Some landlords will review information provided by the applicant on his application to information known by the previous landlord to determine if there are discrepancies that should be investigated further. Most landlords will question the former landlord to determine if the applicant would be welcome to apply again for tenancy at the named rental property. A satisfactory reference from the previous landlord can be a decisioning influence in considering the applicant for tenancy with his new landlord.
Reviewing past rental history may indicate a need to contact previous landlords in addition to the named landlord reference. If the applicant has moved frequently or there are short time intervals between rentals, it may be advisable to conduct additional screenings to determine if there were rent default issues or lease violations.
Information in the credit report will show collection actions taken against the applicant for unpaid debt obligations. Some credit reporting bureaus now report rent payment data including rent payment history and delinquencies.
Tenant’s Duty and Obligation to Maintain Rental Unit in Good Condition
The lease agreement should contain a clause regarding the tenant’s duty and obligation to maintain his rental unit in good condition and to promptly report any repair and maintenance issues to ensure the property is safe and habitable. By contacting previous landlords named as references, a landlord can ask if the tenant fulfilled his obligation to take good care of the property while in residence. A landlord should also ask if the former tenant’s security deposit had deductions taken for property damage. If so, there is indication that proper care of unit was not done. The landlord may choose to conduct additional research to determine the circumstances of the deduction before making a final decision.
While there can be overlap of information between the different types of consumer reports, verifications and reference contacts, there should be a consistent pattern of information that can be cross-referenced with the application and the information supplied by the applicant during the initial contact/interview. With compliant practices and appropriate screenings a landlord can select a quality tenant who meets rental standards.