First things first! Choosing a tenant is not an easy process. Landlords face a myriad of challenges in sorting through applicants. Among them, local, state and federal laws prohibit certain forms of discrimination and restrict the questions a landlord may ask of a prospective tenant and federal credit reporting laws restrict the fees a landlord may charge for a credit check and impose certain notification requirements on the landlord. These laws are complex and will not be dealt with here. Instead, this article will detail some hints so that landlords can find a “good” tenant.
WHAT MAKES A GOOD TENANT
In a word, a good tenant is “money”. Money in the bank, money in the landlord’s pocket, money saved from legal and other expenses. For a reputable landlord, the ideal tenant is one who pays rent like clockwork on the first of the month and is then forgotten for the next thirty days. That is not to say that a tenant that asks for repairs or who contacts a landlord is a bad tenant, as a good landlord will gladly address the routine requirements of a rental business. However, a tenant that breaks personal property, disturbs neighbors, or does not pay rent is a bad tenant. This is the tenant that must be carefully screened out.
THE SCREENING PROCESS
The tenant screening process begins with a prospective tenant. To avoid claims of discrimination or disparate treatment, a landlord should treat all prospective tenants equally and employ an identical process when checking out rental applicants. A landlord should begin by opening a folder for each applicant. This folder should contain all information regarding the prospective tenant’s application and should be maintained for at least two years (perhaps more depending on the laws of your jurisdiction). In all cases, a landlord should truthfully and carefully deal with a prospective tenant. The landlord should expect a truthful dealing back from the tenant. In most cases, a truthful tenant will opt not to rent from a dishonest landlord.
The place where the landlord most requires truthfulness from a prospective tenant is on the tenant’s rental application. All landlords should require written applications which should be completed by all prospective tenants and retained by the landlord (to possibly defend against future discrimination claims). The landlord should carefully review the application. A potential tenant’s refusal to complete a written application is a sure sign of trouble and a landlord should not consider renting to that potential tenant. At a minimum, the application should request the following information from all prospective tenants over the age of 18 who will reside in the property:
tenant full name (including middle name, maiden name, and aliases)
tenant’s employer’s name and tenant’s monthly income
tenant’s driver’s license number and social security number
(the landlord should get a photocopy of the driver’s license)
tenant’s date of birth
tenant’s credit and bank information, including monthly debt payments
a credit report authorization
tenant’s automobile information including license plate number
tenant’s rental history (at least the past four addresses where the tenant has resided, the
time periods of residence, and the name and telephone number of the landlord)
references (at least three to four references, including information on how long they
have known the applicant and in what capacity)
The application should include a credit check authorization that informs the prospective tenant that the landlord intends to verify and check the information contained in the application. The authorization should include a sentence authorizing the landlord to obtain and verify any credit, employment, and any other information, including that information contained on the application, from a credit reporting bureau in the form of a credit report, from the creditors directly, from the prospective tenant’s employers, and from the prospective tenant’s references and prior landlords.
CHECK FOR CONSISTENCY
Once a landlord has received a full application, the first step is to make sure the information is consistent. Does the name on the Driver’s license match the name on the application? Does the tenant’s signature look correct? Inconsistencies are not a guarantee of a problem, but can be an indicator. Are there gaps in the information? For instance, is there a gap of one year in the prior rental history? If so, the tenant may be trying to hide a landlord who the tenant does not want the landlord to contact.
CONFIRM REFERENCES, EMPLOYMENT AND CONTACT PRIOR LANDLORDS
Too often, landlords fail to check up on references, employers, and prior landlords. It is worth the effort to make these checks to screen out poor tenants. When contacting these people, landlords should keep detailed written records. Landlords should note the actual answers to questions as well as the attitude of the person giving the answer. Employers should be asked about the prospective tenant’s attendance at work and income levels should be verified. Prior landlords should be questioned about noise levels, complaints from other tenants, lease violations, promptness of rent payments, and evictions or other lawsuits against the prospective tenant. The most recent landlord will not be a good indicator.
References should be quizzed regarding the character of a prospective tenant, but in general, these are the least important persons to contact, as a prospective tenant would listed a reference unless they were sure any feedback would be positive. Be mindful of the fact that most people do not want to speak poorly of other people. Instead, they will be evasive or vague with answers. Obviously, if a reference does speak with disfavor about a prospective tenant, this is a red flag. The key is to actually check with these persons to make sure that the references are valid and possibly learn a bit more about the applicant.
THE CREDIT REPORT
Once a landlord has received a completed and signed application and credit authorization which looks promising and the landlord has checked references, employment, and prior landlords, the landlord should find a credit reporting bureau and order a credit report. As a side note, landlords can pass along the credit report charge to prospective tenants as long as the tenant knows that the fee will cover only a credit report. If a landlord does pass this cost on, he or she must charge only the actual cost of the report, no more. The report should be reviewed for a history of late payments, prior bankruptcies, and outstanding debts. The report will not usually disclose prior evictions or landlord information because this information is rarely reported to these agencies, but it will give a landlord a general idea of a prospective tenants creditworthiness. If the credit report turns up a valid reason to reject a prospective tenant, the Fair Credit Reporting Act requires that the landlord notify the prospective tenant of such and inform the prospective tenant of the name and address of the credit reporting agency along with a notice that the prospective tenant can get a copy of the report if he or she files with the agenct within sixty days of the landlord’s notice of rejection. Remember, if the landlord collects a fee for a credit report and does not obtain one, the money must be refunded to the applicant.
QUICK AND DIRTY CHECKS AND PROFESSIONAL CHECKS
Technology has opened up a new world of information when it comes to tenant screening. Many court systems now provide public records over the internet. It is easy for landlords to do their own inexpensive check to see if their prospective tenant has been involved in any other lawsuits or evictions. While it is advisable to have a professional prior eviction search performed, a landlord can easily spot a tenant with past evictions when there are reported cases online. Other governmental information can also sometimes be found online, including names of people who are delinquent on child support and names of criminal sex offenders. The world of social networking and blogging also opens up a non-traditional route to check up on a prospective tenant. Landlords can learn plenty about tenants by just doing a “google” search on the tenant’s name. Of course, landlords should be careful to make sure that the results they find are actually attributable to the tenant they are screening and not another person who shares the same name as their prospective tenant. Even in the world of new technology, a professional prior eviction check and even criminal background check can be worthwhile.
THE SECURITY DEPOSIT AND THE TENANTS ABILITY TO PAY
Landlords should try to make sure that tenants have the means to pay monthly rental obligations. To do this, a landlord should offset the prospective tenant’s income from the applicant’s other likely monthly obligations to make sure that the applicant can make the rent on a timely basis. Landlords should not assume that higher income equates to an ability to pay the rent. Plenty of high income tenants have large monthly obligations. An applicant with a lower income, no student loans, a fully paid automobile, and less monthly debt may be more likely to pay on time than an applicant with a large income, a leased luxury car, student loan debt, and a lots of other credit card borrowing.
Landlords should require, at a minimum, a security deposit equal to one month’s rent in advance of lease execution and possession up front along with the first month’s rent. A better policy is to require one and one half months (or even two months) security deposit from a new tenant. This prevents the landlord from being without security against damages in the event that a tenant wrongfully fails to pay the final month’s rent and desires that the security deposit be applied to that obligation instead. In addition, any tenant who cannot provide at least the required deposit and the first month rent is unlikely to be able to pay on a timely basis. When accepting a security deposit, it is essential that the landlord provide a receipt for the deposit to the tenant (it should explicitly state the amount of the deposit) and the deposit should never be comingled with the landlord’s personal funds. Many states and local municipalities have strict rules regarding the procedures to be employed dealing with security deposits. A good landlord will seek out,
understand, and follow these laws.
SET CRITERIA AND DECIDE
Before considering any applicant, the landlord should set some basic criteria that will guide the landlord’s decision making process. Criteria to consider are minimum income available for housing costs, maximum occupancy of the rental unit, minimum credit score, minimum history of stable employment, clean history regarding prior evictions or prior criminal conduct, and any other criteria not prohibited by Fair Housing or other anti-discrimination laws. A landlord should make the decision to accept or deny an application based upon these criteria in all cases to prevent claims of discrimination. A landlord rejecting an applicant should clearly document the reasons and comply with any disclosure laws depending on the reason for denial. Landlords should not rush the decision to accept a tenant or be swayed by a prospective tenant’s “sob” stories. A comprehensive and uniform set of standards can help a landlord avoid making an
irrational decision based upon emotion or financial need.
AFTER ACCEPTING THE TENANT
The single greatest mistake made by landlords is the failure to adequately screen a prospective tenant. A good tenant is a joy to deal with and is profitable to a landlord. A bad tenant can be a costly disaster. Many times, a landlord will lose focus when leasing an apartment. The landlord will accept security deposit payments in installments or even worse, require none at all. Some landlords have been known to accept a new tenant and turn over possession of an apartment without even a rent payment or security deposit. This is a disaster waiting to happen. A landlord may be so desparate to rent a property that any tenant with cash is acceptable. Most landlords who get into these unacceptable situations regret their actions down the line when they lose other tenants or lose rental income as a result of accepting a bad tenant. Property ownership is a business and should be treated that way. Landlords provide a service to tenants. Through adequate screening, a landlord can significantly cut the risk of trouble tenants and costly procedures down the road. This is the key foundation to successful operation of a rental property.
Richard Magnone is an Attorney with REDA CIPRIAN MAGNONE, LLC http://www.illinois-attorney.com/