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Tenant Screening Policies to Avoid Fair Housing Violations

Tenant screening is a landlord’s best defense against potential problem tenants. However, it is also a process that opens property owners up to major liability if Fair Housing Laws are not carefully followed. In this day and age, lack of knowledge is not a defense. So, landlords must learn and adhere to all federal, state, and local rental laws, including those related to housing discrimination. Join us below as we take an in-depth look at Fair Housing Laws and how to create compliant tenant screening policies for your rental.

What Are the Fair Housing Act Protected Classes?

In 1968, the Fair Housing Act was created to ensure consistent housing practices that protect individuals from discrimination throughout the United States. The act also covers everything from harassment to retaliatory behavior and exclusionary advertising.

The federal Fair Housing Act protects renters regardless of race, color, sex, religion, disability, familial status, and national origin. However, depending on the location of your property, state or local jurisdictions may cover additional classes such as – citizenship, age, veteran status, genetic makeup, sexual orientation, gender identity or expression, criminal history, and source of income.

So, it is important to check local laws to be sure you comply. However, the best way to avoid any discrimination, either real or implied, is to treat every applicant or tenant the same. Thus, avoiding a legal disaster with potentially crippling financial and business consequences.

How to Create Fair Tenant Screening Policies

Effective screening criteria ensure that landlords find quality tenants. The goal is to approve someone who has sufficient income to make timely and full payments and will take care of your property. Typically, screening criteria include the following elements –

  • Income and Employment Verification

  • Creditworthiness

  • Eviction History

  • Criminal Background

  • Landlord References

Screening Tenants for Income and Employment Verification

Income and employment verification are essential to tenant screening policies. While an applicant’s willingness to pay is crucial, their ability to pay requires evaluating their gross monthly income. Typically, industry standards state that applicants need 3 times the rental rate or higher gross monthly income. Thus, helping to ensure the tenant can cover the rent and other living expenses they may have. That said, there are several ways that landlords can check for income.

Types of Income Verification

  • Paystubs – Income is easily verified through pay stubs. However, always check by requesting to see at least the last 2 or 3 pay periods.

  • W2 – If pay stubs are not readily available, request a copy of the applicant’s most recent W-2.

  • 1099 or Schedule C – Applicants may have various or non-traditional sources of income. Therefore, if an applicant is self-employed, a freelancer, or an independent contractor, income may be harder to verify. That said, applicants who can produce a 1099 or Schedule C should demonstrate a sufficient income level. However, if they cannot, it may not be possible to approve them.

  • Bank Statements – For applicants who are on commission or do not have access to other forms of income proof for some reason, bank statements are helpful. If the applicant can show a history of regular incoming deposits, landlords may consider this as proof of income qualification.

  • Call to the Employer – Giving an employer’s HR department a quick call can easily verify both current work status and general income. This is necessary if paperwork is unclear or, for some reason, unavailable.

Another important aspect of evaluating income is the applicant’s job stability. Ideally, applicants should not have large unexplainable gaps in employment or a lot of “job-hopping.” Therefore, having a tenant who has remained at the same job for several years and shown proof of consistent income is a good sign that they will make timely rental payments.

How to Evaluate Applicant Credit Reports

Landlords rely on tenants making timely and full rent payments. Often, because owners need it to pay their own mortgage and expenses. That said, income verification shows a tenant’s ability to pay, and credit reports give insight into their willingness to pay. Therefore, evaluating creditworthiness is one of the most important tenant screening policies for landlords.

Is an Eviction History a Deal-Breaker for Landlords?

As the COVID pandemic comes to an end, eviction is a word on many landlord’s and tenants’ minds. Estimates show that nearly 30 to 40 million tenants may face eviction when eviction moratoriums lift due to the pandemic. While the pandemic created an unprecedented set of circumstances, prior eviction history is a major factor in tenant screening policies.

Many owners tend to focus too much on just the numerical credit rating. While a high score is unlikely to have negative factors, someone with a moderate score may have explainable circumstances that would not deter a landlord. Some examples may include students who have loans and have not yet had the chance to build up credit or someone who is recently divorced and rebuilding on their own.

So, reviewing the details provides a clearer picture of the applicant’s financial health. For example, if an applicant has no outstanding judgments, no history of late payments, no rental housing-related collections, and a higher score, this is a promising candidate. Let’s review a few key factors to look for when evaluating credit reports as part of your tenant screening policies.

What to Look for on an Applicant’s Credit Report?

  1. What is the Credit Score? – Many landlords choose to set a minimum credit score. Industry-wide, a minimum credit score of 600 is an acceptable rule. While the score alone is not a complete picture, higher scores do indicate more stable financial health.

  2. Are There Any Accounts in Collections? – Accounts in collections show that at one point, the applicant did not fulfill their financial obligation for an extended period of time. When this occurs, creditors will seek the help of a collection agency to collect the outstanding debt. Therefore, this can demonstrate an inability or unwillingness to pay, which could be detrimental for landlords who rely on on-time payments.

  3. Does the Applicant Have Outstanding Utility Bills? – In addition to accounts in collections, unpaid utility bills are a red flag for landlords. In some cases, an applicant that owes a balance to a utility provider will be unable to set up utility service at a new address. Thus, creating a problem in their new rental property. Besides, failing to make payments on essential services may mean the tenant would not reliably pay rent on time or in full.

Is an Eviction History a Deal-Breaker for Landlords?

As the COVID pandemic comes to an end, eviction is a word on many landlord’s and tenants’ minds. Estimates show that nearly 30 to 40 million tenants may face eviction when eviction moratoriums lift due to the pandemic. While the pandemic created an unprecedented set of circumstances, prior eviction history is a major factor in tenant screening policies.

According to a TransUnion study that analyzed 200 properties, tenants with a prior eviction were 3 times more likely to be evicted again. This is why checking for eviction history must be an integral part of your tenant screening policies. So, if the tenant had a recent eviction, has poor payment history, or rent-related accounts in collections, owners should take this as a risky application.

Tenant Screening Policies on Criminal History

Criminal history and what is acceptable on a background check is tenant screening policies that divide many landlords. However, to safeguard your property and the surrounding neighbors, performing a criminal background check is essential.

That said, not every arrest or law enforcement encounter ends in a conviction – and this is an important distinction. Someone who has not been convicted deserves consideration, and the Fair Housing Act prohibits any blanket tenant screening policies that automatically deny all applicants with a criminal history. So, with that in mind, take a look at some convictions to watch out for below that landlords could deny an applicant for –

  • Felony Convictions (within the past 7 years)

  • Domestic Violence

  • Assault and Battery

  • Serious Drug Charges (such as convictions for distribution)

  • Sexual Assault

  • Registered Sex Offenders

The key is to review charges or convictions, looking specifically for anything that would put you, the community, or the property at risk.

How to Verify Tenant References and Rental History

Looking through credit reports, background checks, and income documents can help owners gain a lot of insight into their various applicants. That said, speaking to prior landlords, employers, or personal references also offers a wealth of information. Asking the right questions may provide critical answers you need to decide between otherwise similarly qualified applicants. Therefore, this is not one of the tenant screening policies you want to rush through.

Pro Tip: If the applicant provides a professional property management company contact as a reference, be sure to send a Rental Verification Form. Although this can take a few days to come back, it is more likely to be a truthful report.

Check out these helpful questions to ask potential references below –

10 Questions to Ask Previous Landlord References

  1. How long did the tenant reside in the home?

  2. Were there any other occupants listed on the lease?

  3. What was the monthly rental rate?

  4. Did the tenant consistently pay on time and in full?

  5. Why did the tenant decide to vacate?

  6. Does the tenant or any occupants smoke?

  7. Did the tenant have a pet?

  8. Can you describe how the applicant maintained the property? For example, did they leave any excessive damage, trash, or unreported maintenance issues?

  9. During their tenancy, did the applicant ever receive any complaints from neighbors?

  10. Would you rent to this tenant again – why or why not?

How to Avoid Fair Housing Act Violations with Your Tenant Screening Policies

As a landlord, violating Fair Housing Laws is not something you want to do due to the potentially severe financial and legal ramifications. Therefore, when implementing tenant screening policies, landlords must create standard criteria that do not violate any Fair Housing law, such as – poor credit history, prior evictions, insufficient income, or violent criminal convictions. Continue reading below for some of our tips for staying in compliance with Fair Housing Laws.

Be Upfront with Your Guidelines

Once owners have established clear tenant screening policies, they must be readily available to all interested parties. Then, stick to those qualifications for each tenant and do not deny applicants for any reasons beyond those criteria. To avoid any disputes, we advise clearly posting applicant screening criteria in your rental ad or centrally located on your website.

Remain Consistent

Consistency across all tenant screening policies is essential to both your success and Fair Housing compliance. This means keeping the same standards, documentation, fees, and requirements for every applicant. Thus, diminishing the chances of individuals making accusations of steering, favoritism, or discrimination.

Mind Your Language

Keep in mind, everything you say verbally or in writing is open to scrutiny. Therefore, landlords, and any staff representing them, must ensure their rental ads, tours, actions, and other print materials comply fully with anti-discrimination laws.

For example, carefully script any ads or in-person interactions to avoid phrases such as “no children.” One of the best ways to avoid any questionable language is to focus solely on the property and its features – and not the type of tenant you think the unit would be best suited for.

The truth is landlords, or their agents could be accused of discrimination for not following the same procedures or asking the same questions to every prospect. That said, there are certain questions and topics landlords should always avoid discussing or asking. Let’s look at a few examples below –

  • How old are you?

  • Were your parents born here?

  • Is English your first language?

  • Do you have a disability?

  • Will children be in the home?

  • Where do your kids go to school?

  • Do you attend church in the neighborhood?

  • Are you married? (Or any other inquiry of relationship status)

Fair Housing Act Enforcement and Penalties

When it comes to enforcing Fair Housing standards and laws, this responsibility falls on the Office of Fair Housing and Equal Opportunity or FHEO. This segment of HUD focuses its efforts on eliminating housing discrimination while promoting civil rights and economic opportunity. That said, HUD and FHEO enforce these laws using two main methods –

  • Investigate Claims of Discrimination – When someone feels that they are the victim of unfair treatment, discrimination, or Fair Housing Act violations, they can file a claim with FHEO. Officials will then thoroughly investigate the claims and decide what further actions to take.

  • Fair Housing Testers – FHEO uses undercover employees that pose as potential renters. The intent is to test landlords via verbal communication and interactions as well as evaluate written materials such as rental ads, marketing materials, applications, and property descriptions.

For property owners, failing to comply with Fair Housing Laws can lead to steep financial penalties and legal ramifications that could devastate your business. Revised Fair Housing penalties that took effect on April 6, 2020, indicate the following –

  1. $21,410 maximum penalty for the first violation

  2. $53,524 maximum penalty for respondents with previous violations within the last 5 years

  3. $107,050 maximum penalty for respondents with previous violations with 2 or more violations within the last 7 years

The amounts above are staggering but keep in mind it does not include attorney’s fees, court costs, or actual damages.

How to Protect Your Rental Business from Fair Housing Claims

Protecting yourself and your business from Fair Housing claims is incredibly important. One way to do that is through fair and consistent tenant screening policies. However, even with the best of intentions, landlords could easily make a mistake. That said, one of the best ways to ensure compliance across all interactions is through qualified property management.

Overland Management can help you with all your rental business needs. Our tried-and-true practices, along with well-trained staff, ensure Fair Housing compliance across written and verbal communications. We understand the law but also truly believe that everyone deserves equal opportunity housing. We are committed to providing these opportunities while protecting landlord interests through comprehensive tenant screening policies. So give us a call today to find out more.

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