Screening Tenants
Screening Tenants
You are probably familiar with the adage “an ounce of prevention is worth a pound of cure.” This adage can be applied to tenant screening. Every landlord wants to find tenants who will pay rent on time and maintain the property in a clean and sanitary condition. In addition, property owners want tenants who will inform them promptly of any issues with property maintenance (leaking roof, mold, etc.) so that any necessary repairs can be addressed before they become more costly. Landlords want tenants who do not cause disturbances and who get along with neighbors. Finding these tenants is the goal of every landlord. Paying critical attention at the tenant screening process can save you from a lot of aggravation later on.
There are a lot of decisions to be made before you advertise the property and begin screening tenants.
- How much will you charge for rent and security deposit?
- What is the occupancy limit on the property?
- Will you be offering this rental on a yearly basis only?
- Are you willing to consider a month to month rental for someone who does not want to commit to a year lease or a longer lease for a person who needs to make disability- related modifications?
- Who will be responsible for each utility?
- What is the minimum credit score you want to see for an applicant?
- Based on the monthly rental amount, what is the minimum monthly income your prospective tenants need to earn to qualify to rent your property?
- Are you going to use a tenant screening service?
- Will you collect an application fee?
The tenant screening process is where landlords are most vulnerable to be accused of unlawful discrimination. Many housing discrimination complaints are filed due to discriminatory behavior or actions that occur during the application or tenant screening process. Being a landlord is difficult enough without adding on the aggravation, time, and considerable expense of defending yourself against a discrimination complaint. How does a landlord tip toe through this potential minefield? It all comes down to proper planning and consistency. This chapter will cover some of the most common pitfalls and challenges for landlords. Here’s how to avoid some of the most common discrimination complaints which are filed against landlords.
You have to carefully evaluate the rental market as well as your needs and make smart decisions. Once you establish the parameters of your rental contract, you will need to ensure that you:
- Present the same parameters and pricing to every single applicant that you have for each rental unit.
- Adopt and apply uniform, objective, and nondiscriminatory criteria designed to evaluate a prospective tenant’s credit worthiness, such as requiring credit or criminal background checks.
- Establish policies that ensure adherence to local, state, and federal fair housing laws.
One of the most important things that you can do to screen tenants effectively, fairly and without unlawfully discriminating, is to first find out if a prospective tenant has sufficient verifiable income to be able to pay the rent. This should include verifiable third party payments such as child support, alimony, SSDI, or rental assistance. Other permissible inquires may include whether the prospective tenant is willing to comply with the property’s rules, requesting references from previous landlords, and other questions related directly to tenancy.
Accept all applications and show the property to everyone who requests to see the property. Refusing to engage with a prospective tenant without a lawful reason for doing so can result in the perception of discrimination and the prospective tenant filing a complaint. Do not profile callers due to the sound of their voice over the phone. Do return calls in the order in which they were received.
Any questions that you ask of those inquiring about your rental property, you must ask of all applicants on an equal opportunity basis, without regard to race, color, national origin, religion, sex, familial status, disability, LGBTQ+ status, or age (over 40).
If you are going to reject an applicant, you will want to show that they did not qualify based on objective qualification criteria. Choosing the most qualified applicant based on income, credit, and references is a best practice. If you have to make a decision among equally qualified applicants, be objective in making the final decision. Choose the one who applied first or look at some other objective and nondiscriminatory factor based on income, credit, or references. You will want to show that applicants were not rejected because of their race, color, national origin, religion, sex, familial status, disability, LGBTQ+ status, or because they are over the age of 40.
The Fair Credit Reporting Act mandates that if you take an adverse action (such as denying a rental applicant) based on information found in an applicant’s credit report, you must give the applicant an “adverse action notice.” You must provide the name and address of the credit reporting agency that provided the credit report. See Fair Credit Reporting Act.
Maintain records of all inquiries and applicants. Keep these records for at least two years. These records can be invaluable to defend yourself against an unfounded claim of discrimination. See What Happens When a Discrimination Complaint is Filed Against You.
Be certain that your vacancy listings and advertisements are accurate and up to date. You do not want to advertise that a unit is vacant only to tell a prospective tenant that the unit is no longer available. Likewise, do not lie about an apartment being rented when it is still available.
Best Practices to Avoid Discrimination in Tenant Screening
- Be aware that we can be influenced by subtle unconscious biases which affect our perceptions and the decisions that we make. These biases can lead to what constitutes unlawful housing discrimination.
- When screening tenants, be careful that you are not eliminating prospective tenants based on their accent or an unfamiliar or difficult to pronounce name. Do not make comments about how difficult a person’s name is to pronounce or spell.
- Do not engage in voice profiling, or discrimination based on your perception of a person’s race or ethnicity based on how they sound over the phone.
- Do not print or publish any potentially discriminatory advertising or statements. See Advertising.
- Treat all applicants the same. Ask the same questions of all applicants.
- Do not ask if a prospective tenant is pregnant or if they have children. It is permissible to ask how many people will occupy the unit.
- Do not ask a prospective tenant about their race, ethnicity, or national origin.
- Do not ask a prospective tenant about their religion.
- Do not ask a prospective tenant about the nature or severity of their disability.
- Do not make comments about a person’s disability or offer a reasonable accommodation or modification if one has not been requested.
- Do not ask prospective tenants if they are capable of “independent living.”
- Do not ask if a prospective tenant has a disability, takes medication, has been hospitalized, or has been in a drug or alcohol rehabilitation program.
- Make sure all employees understand and abide by anti-discrimination laws. You are legally liable for the actions of any managers, agents or employees working on your behalf.
The Rental Application
You want to ask prospective renters to fill out a rental application. This application may request:
- Credit references and other credit background information
- A list of past landlords including telephone numbers and addresses
- An employment history including salary information
- An application fee that may be non-refundable
- The first month’s rent
- A security deposit
Make sure that prospective tenants are aware of possible consequences, such as the loss of a non-refundable fee, if they decide not to take the rental unit.
If you require a deposit at the time of application, make sure it is clear if the deposit is non-refundable. Be sure to keep records and give receipts for all monies paid.
Offer the tenant an opportunity to read the proposed lease before signing the rental application to make sure that they are willing to comply with the terms of the lease.
Legitimate Nondiscriminatory Reasons to Reject Applicants
- Lack of sufficient income
- Poor credit record
- Reliable information that the person has a recent history of violent, disruptive, or destructive behavior
- Negative landlord references
- A record of late rental payments
- Inability to come up with the full security deposit
- Applicant is a current user and dealer of illegal drugs
Remember that consistency will be the key to both avoiding and defending yourself against fair housing discrimination complaints.
What Questions May I Ask a Prospective Tenant With Disabilities?
Determining if a Tenant Would Pose a Direct Threat
The Fair Housing Act does not require that housing be made available to a person who would constitute a direct threat to the health or safety of others or who would constitute a risk of substantial physical damage to the property of others. The determination that a person would pose a direct threat to others or to property must be based on objective evidence. A recent history of violent, disruptive, or destructive behavior qualifies as objective evidence.
If the tenant or prospective applicant refuses or is unable to comply with the tenancy rules that apply to all tenants, or if the tenancy would pose a direct physical threat to the health or safety of others, then the housing provider can reject that applicant or evict that tenant.
It is important to understand that the Fair Housing Act does not allow housing providers to deny housing opportunities to people with disabilities based on fear, speculation, or stereotypes about a particular disability or disabilities in general. To show that a tenancy would pose a direct threat, the housing provider must do an individualized assessment to determine if reliable objective evidence exists that shows there is current or recent history of disruptive and/or destructive behavior. The direct threat assessment must take into account the nature and severity of the risk of injury as well as the probability that an injury will occur and whether there are any reasonable accommodations that would eliminate the direct threat.
Case law addresses that even in cases of tenants who do in fact present a “direct threat” due to their disabilities, these tenants are entitled to a determination of whether any reasonable accommodation would mitigate any risk posed by their disability-related behaviors prior to eviction. If an individual has received treatment or medication that has eliminated the direct threat, that should be taken into account and the housing provider can request that the individual document how circumstances have changed or how the individual no longer poses a direct threat. Denying an individual housing because of a direct threat must be based on reliable and objective evidence.
Example: A housing provider may not deny housing to a prospective tenant just because they know that individual has recently been in drug rehab. Rejecting someone based solely on a belief that people who have a history of addiction are dangerous and may damage property will violate the Fair Housing Act. However, if the housing provider finds out through landlord references that the individual has perpetrated property damage repeatedly in the recent past and there is no evidence to show that this threat has been mitigated in any way, then the housing provider can reject this applicant based on direct threat.
Example: A housing provider may not deny housing to a prospective tenant because they know that individual has a psychiatric diagnosis. If a tenant with a psychiatric disability stops taking their medication and threatens another resident and if the management has a policy of evicting residents who engage in violent or disruptive behavior, then the tenant can request a reasonable accommodation to this policy if they are able to show that treatment and medication monitoring will eliminate the direct threat. If the tenant is not willing to undergo medication monitoring and treatment or continues to pose a direct threat to the health and safety of other residents, then management can proceed with an eviction.
Example: A tenant threatens another tenant with a baseball bat. Because of this unacceptable behavior, the landlord issues a Notice to Quit to terminate the lease. Soon after, the landlord is contacted by a case worker for the tenant who explains that the tenant had stopped taking their medication and has agreed to resume the medication along with increased counseling and case management. While the term “reasonable accommodation” is not actually used in the request, this is, in fact, a reasonable accommodation request to retract the eviction notice due to a disability-related need. Remember, a third party can request a reasonable accommodation on behalf of a person with a disability. If the medication and counseling do not work or the tenant does not cooperate and reengages in threatening behavior, the landlord can resume terminating their lease.
Criminal Backgrounds
The U.S. Department of Housing and Urban Development (HUD) issued guidance in 2016 stating that because of the racial disparities in the criminal justice system, blanket bans (or refusing to rent to anyone with any type of criminal history, regardless of circumstances) would most likely have a greater impact on Black or Hispanic applicants, and as such, could violate the Fair Housing Act. This guidance applies to private providers of rental housing, as well as to public and subsidized housing programs.
HUD’s guidance states that housing providers need to consider the nature and severity of a crime and the amount of time that has passed to determine if the person would pose a direct threat to the health and safety of other residents. The guidance issued by HUD states that a mere arrest does not indicate guilt and a person should not be denied housing based on an arrest without a conviction. Furthermore, housing providers must apply criteria equally to all applicants and tenants, regardless of protected class. Using criminal background as a pretext for discrimination based on a protected class is illegal. For example, a landlord should not make an exception to their policy of rejecting applicants with drug convictions only in cases where the applicant is a woman.
The U.S. Department of Justice reports that approximately 100 million U.S. adults have some type of criminal record. These individuals, making up approximately one-third of the population of the U.S., face significant barriers to securing housing. Whether they are formerly incarcerated individuals, convicted but not incarcerated, or arrested but not convicted, having a criminal record is a frequent reason for rejection of an application for rental housing. Furthermore, because of racial and ethnic disparities in the criminal justice system, the arrest, conviction, and incarceration rates of African American and Hispanic men in particular are disproportionate to their share of the general population. Therefore policies and practices that create barriers for individuals with criminal records have a disproportionate effect on minority home seekers.
According to HUD’s guidance, “While having a criminal record is not a protected characteristic under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters or other housing market participants
of one race or national origin over another.” In addition, “While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification.”
HUD has provided guidelines for determining if a policy or practice of denying housing to an individual based on past criminal history has a discriminatory effect on racial and ethnic minorities. An understanding of these guidelines is a critical risk management strategy for real estate professionals.
There are a few key concepts that landlords and real estate professionals should understand:
- Unintentional discrimination may occur due to a facially neutral criminal records policy, even when such a policy is applied equally to all applicants. According to 2015 case law, “A housing provider violates the Fair Housing Act when the provider’s policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate.”
- If a policy or practice has a discriminatory effect on members of the protected classes and if it does not serve a “substantial, legitimate, nondiscriminatory business interest of the housing provider” then the policy violates the Fair Housing Act. Furthermore, if the business interest could be served by another practice that has a less discriminatory effect, then the less discriminatory policy must be implemented to avoid a fair housing violation.
- As with any other qualification standard, if applied in a discriminatory manner, a criminal record policy or practice is a clear Fair Housing violation. Example: Allowing white applicants with criminal records to rent a home but disqualifying African-American or Hispanic applicants with similar records.
- Criminal history-based restrictions to housing violate the Fair Housing Act if a housing provider has a blanket policy of excluding individuals with prior arrests (without conviction). This policy would not meet the burden of demonstrating that it is necessary to achieve a “substantial, legitimate, nondiscriminatory interest.”
- The nature and severity of criminal conduct, as well as the amount of time that has transpired since the conduct, need to be taken into consideration. Policies or practices that fail to take into consideration these factors are likely to violate the Fair Housing Act.
- Housing providers should be able to show that a policy distinguishes accurately between past criminal conduct which signifies a demonstrable risk to resident safety and/or property and that which that does not suggest a demonstrable risk.
There is an exception to the HUD guidance on criminal backgrounds. If a person possesses a conviction for the manufacture and/or distribution of illegal controlled substances, they can legally be denied housing and the landlord will not be in violation of the Fair Housing Act for this denial.
Note: this exception does not include either arrests for drug charges that do not lead to conviction or convictions for possession only.
A well drafted lease should clearly state that tenants must abide by all local, state, and federal laws, regulations and ordinances. If a tenant engages in illegal activity on the leased premises, the landlord can take action to evict the tenant based on breach of lease.
Can a landlord refuse to rent to someone with a criminal background?
Yes—but it depends on the circumstance and overly broad criminal history blanket bans (ex. refusing to rent to anyone with a criminal record no matter how long ago the conviction occurred) can violate the Fair Housing Act.
Financial Qualification Standards
Credit Reports
Fair Credit Reporting Act
If a landlord uses a credit reporting agency (such as TransUnion, Equifax, or Experian) to pull a credit report on an applicant and takes an adverse action as a result of information disclosed by the credit report, the landlord is obligated under the Fair Credit Reporting Act to furnish an “adverse action report” to the tenant. An adverse action means any action taken that is contrary or unfavorable to the tenant’s interests, including a rejection of an application, requiring a co-signor on the lease, charging a higher rent, and/or requiring a larger deposit.
If a landlord takes an adverse action that is based, in whole or in part, on any information contained in a consumer credit report, the landlord must provide oral, written, or electronic notice of the adverse action to the consumer. The landlord must also provide to the consumer orally, in writing, or electronically, the name, address, and toll free telephone number of the consumer reporting agency that furnished the report. The landlord must state in this notice that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer with specific reasons why the adverse action was taken. The landlord must also advise the consumer in this notice that they have the right to obtain a free copy of their credit report from the referenced consumer reporting agency within 60 days and to dispute the accuracy or completeness of any information in the consumer report furnished by the agency.
The Fair Credit Reporting Act (FCRA) contains penalties for noncompliance by landlords including civil penalties for both willful and negligent violations. A landlord who knowingly violates the FCRA can be ordered to pay the consumer not less than $100 but no more than $1,000 in addition to punitive damages, along with court costs and attorney’s fees. A landlord who negligently fails to comply with FCRA requirements is liable to the consumer for actual damages along with court costs and attorney’s fees.
