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How to Establish Your Tenant Screening Policies and Stick to Them, Part I

September 18, 2018

When filling a unit vacancy, it can be tempting to rent to people based solely on great first impressions — maybe they seem really nice, smart, and responsible, or maybe they come highly recommended by friends. While your gauge of character may be spot on or your friends’ recommendations are always right, take the extra steps to protect yourself by conducting thorough background checks that follow screening guidelines you’ve previously established. By consistently using your policies to evaluate applicants equally and fairly, you can protect yourself from expensive, time consuming, and reputation-damaging discrimination lawsuits.

Legal Requirements Tenant Screening

Know Your Legal Requirements

To keep yourself out of legal trouble, base your screening policies on federal, state, and local laws. Understanding all the laws that apply to your location will help you build policies that protect you and future applicants. Once you’ve established your policies, be sure to stay current with changes to landlord-tenant laws and continually update your policies based on these changes. Being ignorant of the law will not protect you in court.

While local and state laws vary depending on your properties’ locations, federal laws, like the Fair Housing Act and the Fair Credit Reporting Act, are standard across all fifty states and change less frequently.

 

The Fair Housing Act

The Fair Housing Act prevents housing discrimination against people based on their “race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and disability.”

To avoid being accused of discrimination on any of these counts, be very careful about how you treat and what you say to prospective tenants. Be sure to ask all applicants the same questions to treat applicants equally, and avoid saying or asking anything similar to these examples:

  • Race: What is your race? If you want to live near other Asians, you should check out the east side of the city.

  • Color: You’re very light skinned—are you white or hispanic?

  • National Origin: Which country did you immigrate from? Which country were you born in? Are you coming from the Middle East?

  • Religion: What religion are you? Most people are Christian here, so don’t make them feel uncomfortable by how you decorate or what you wear.

  • Sex: Are you a man or a woman? I’ve had a lot of trouble renting to women.

  • Familial Status: Are you married? Do you have children? Are you gay? Are you pregnant?

  • Disability: Are you disabled? I don’t accept service animals at this property. Do you have mental health issues?

After applicants submit their applications, keep the following federal law in mind as you handle their background information.

 

The Fair Credit Reporting Act

The Fair Credit Reporting Act, as it relates to landlord-tenant relations, protects your applicants’ background information by requiring you to (1) get permission from applicants to run credit reports, (2) tell them which credit reporting agency you used, and (3) let them know if something in the report is the reason for a negative outcome.

Using an online portal like TenantCloud to help you get proper permissions from applicants makes the application process a lot easier. It can also show them which credit reporting agency you used. While the interface may also tell them if their application is accepted or rejected based on credit information, this is likely something you’ll need to explain to them in person or over the phone.

 

Establish Your Tenant Screening Policy

Once you’re familiar with federal landlord-tenant laws, it’s time to set your screening policies. Forming your policies may seem tricky, but here are some example guidelines to help you think through them and create your own:

  • Credit History

    • Minimum credit score of 650

  • Rental History

    • No prior evictions

    • No more than two late rental payments in the past two years

  • Employment History

    • Verifiable employment for the past two years

  • Income Requirement

    • Proof of gross income greater than or equal to 3x the rental rate

  • Public Records

    • No criminal convictions that could negatively affect your other tenants or property (e.g., theft, robbery, assault, arson, kidnapping, sexual offenses, and murder).

  • Other

    • No animals, except when medically necessary

    • No smoking

    • Limit of two people per bedroom, not including infants

 

In part two of this blog post series, we’ll explore some nuances of this example list, but one way to be sure you aren’t in conflict with federal, state, and local laws is to work closely with an attorney to finalize your policy. It’s worth investing in a lawyer to verify that your policies align with the law, and ultimately, to avoid paying a hefty penalty to HUD for discrimination.

If you have any additional thoughts on this post, leave a comment below. We’d love to hear your comments!