The landlord business has changed over the past three to five years. Increased numbers of tenant attorneys, jury trials, court closures and staff layoffs all result in longer, more costly evictions for landlords. Tenants and their attorneys attempt to force landlords into settlements on unfavorable terms or accepting a tenant who has proven him or herself to be a deadbeat. Many of my clients ask me for suggestions on the best approach to avoiding these situations, and the answer is relatively simple: the best way to avoid problematic tenants is to prevent them from getting in your building in the first place. So how do you go about that? By being proactive and thorough in developing and implementing your tenant screening policies and procedures.
The goal of “tenant screening” is to find the best qualified tenants who will perform under the terms of the proposed rental agreement, while keeping the bad applicants out. Who are the bad applicants? Those who don’t pay their rent on time, those who disrupt the lives of other tenants or management, or those who have serious criminal backgrounds which might expose the other tenants in the building to danger, and/or you to liability. By screening out the bad tenants and accepting the best qualified applicants, you’ll end up with fewer headaches, fewer complaints, fewer losses of good tenants, and fewer evictions. In other words, you will have fewer problems and increased profitability.
Determining whether an applicant will likely perform under the agreement is accomplished by looking at the applicant’s background, including their credit and tenancy history, as well as their criminal background, if any. If a credit report indicates the applicant handles their credit well, (meaning no delinquencies, no collection accounts, and no evictions), and they have sufficient income to pay the rent, then they might make a very good long-term tenant. On the other hand, where an applicant has unverifiable income, or their history reveals a pattern of delinquencies, consumer collection accounts, evictions, or criminal conduct against people or property, then simply keep looking.
Written Rental Standards Which Are Reasonable & Non-Discriminatory
The first step of proper tenant screening is establishing written, non-discriminatory, and reasonable rental standards that will be applied evenly to every individual submitting an application. The bare minimum should include:
- a completed application from all adults intending to occupy the rental unit;
- acceptable a verifiable credit history;
- acceptable and verifiable tenant history;
- acceptable and verifiable personal references; and,
- income standards appropriate for the asset class and type (e.g., 2.5 times the monthly rent in gross income). While “verifiable” is easy to understand, determining what constitutes “acceptable” will depend on your experience and comfort levels, your building, the competition in the neighborhood, the available tenant pool, and, of course, current vacancy rates.
The Application and Verification Process
An application should be given to every adult who inquires about the rental, as well as anyone intending to occupy the unit. Once you have received an application from a prospective tenant, there are three main sources of information available for determining whether an applicant meets your criteria. They include the application itself (and the associated verification process), credit and background reports, and the personal interview. By collecting, processing, and verifying as much information as you can from those three sources, you should be in a position to select the best qualified candidate for your building.
Begin the process by downloading and using the most current Application form from AOA. Fair Housing laws change regularly and AOA is at the forefront of implementing changes in the law into their forms and notices. Each proposed occupant must complete and sign a separate application, and one of your policies should be that unsigned or incomplete applications will not be accepted for consideration. Additionally, the collection of the “screening fee” from each individual applicant should be mandatory, as charging a fee attracts more serious, qualified applicants. Those who baulk at paying the fee could be giving you a clue as to what is in store for you in the near future, and their response to your policy and/or approach to the matter will tell you a lot about how they handle situations.
Once the tenant has completed and submitted the completed application and screening fee, the next step is to thoroughly verify the information provided. The key to remember here is, the more time spent on this stage, the less time you’ll spend in court! Begin with the application and supporting documentation. Do the signatures on the application match against their Government issued ID? What about the name, address, date of birth and photo? Verify all addresses and phone numbers provided. How do you do that efficiently? Use the internet. There are virtually millions of websites for looking up people and companies. In fact, reverse lookup websites can provide the addresses and names assigned to specific telephone numbers.
In addition to verifying the personal and economic information, you must also invest time verifying the applicant’s “tenant history”. While contacting the current landlord may or may not provide accurate information, prior landlords from long ago will invariably be more honest and forthcoming with useful information. In general, the further back you go, the more accurate the information becomes because the landlord is less concerned about getting rid of the tenant, lawsuits, or their apartment being destroyed. When speaking with previous landlords, be sure to ask questions that elicit both specific and spontaneous responses, such as “did they give proper notice that they would be moving?” and “how would you describe their tenancy”. Doing so will give you insight into how the relationship will go if you chose to accept the applicant as your tenant.
Credit & Background Reports & Information
As part of your rental standards and criteria, you will want to address considerations regarding income, length of employment, historical patterns in payment of their monetary obligations, (including whether they have ever been named as a defendant in an eviction) bankruptcies, NSF’s, revolving credit accounts, minimum FICO scores. What are your policies on these matters? Do you require a minimum amount of time at a current employer? How about a minimum FICO score? What is your policy regarding patterns of late payments or NSF checks? Credit and personal background reports are “must have” pieces of such information, and credit reporting agencies and employers are the most common sources for that information. However, while late payments on credit accounts can be gleaned from credit reports, NSF’s and late rental payments are generally only discovered by talking to prior landlords.
You should also develop a policy concerning guarantors and/or co-signors. Specifically, whether you will require or accept guarantors or co-signors for the “wobblers” who don’t quite meet your criteria, but appear that they might be worth taking a chance on. In such situations, will you require an increased security deposit? Whatever you decide, write it down and apply it evenly to everyone to avoid claims of discrimination.
What about criminal background checks? Are you legally required to conduct them? No. Should you? Maybe. Consider the stories you have heard or read concerning landlords who were sued and found liable for injuries to a tenant in their building resulting from the criminal behavior of another tenant on the property. If you decide that you are going to play it safe by requiring and conducting criminal background checks, here are some things to consider; determine in advance exactly what types of charges or convictions you will or will not accept, (e.g., trespassing or DUI versus felony assault and battery or drug dealing) and set and apply your criteria and decisions evenly to all applicants. Remember, you have no obligation to rent to an individual who poses a threat to your other tenants or the property at which they will be living. But don’t decide to run a criminal check on an applicant just because he or she has visible tattoos up their arms!
Does all of this sound like a lot of work? It is. What do you do if you are, (like most of my clients) simply too busy to really give this process 100%? Easy, utilize the services of a professional. Once you have distributed and collected the completed application, you can use a screening service to do a lot of the legwork. AOA has developed a service for landlords that pulls together the top two credit and background reporting agencies, providing you with a thorough applicant screening report, saving you time while allowing you to make informed decisions based on the information you want. All you have to do is submit the completed application to them for processing and they will provide you with highly detailed information. The value of such a service is almost incalculable.
The Personal Interview
Once you have collected the applications, investigated the truth of the information they provided, dug deep into the personal and credit history of your applicants, and applied your rental criteria in a non-discriminatory manner, you are ready to determine which of your applicants is best suited for your building. The final tool in your screening toolbox is the personal interview. What is your gut feeling about this applicant? There are always those people who can manage to provide you with a great looking bio on paper. Some of the more savvy professional tenants can provide you with incredibly convincing information and references. But what is your gut telling you? How did the interview go? Were there inconsistencies in their statements? Were you bold enough to ask about them? Is there something that “just doesn’t seem right”. If you are getting that feeling, you are likely on to something. Trust yourself and your feelings and dig a little deeper.
This is not a race. Don’t rush the system, or make a commitment to an applicant until your screening is completed. There will be times that everything “appears” to check out, but something seems off. There is no truth to the rumor that you must accept the first qualified applicant. In fact, you have an obligation to choose the best qualified applicant which may, or may not, be the “first” applicant to have submitted their application and met your criteria.
Conclusion
In conclusion, the development and patient implementation of a thorough applicant screening process is invaluable. Simply by establishing reasonable tenancy criteria, applying it to everyone fairly, and thoroughly verifying the information provided by the applicant, you can eliminate a lot of the headaches associated with tenancies. In the end, take it slow and use good business practices. Losing a few weeks of cash flow is cheaper in the long run than the emotional and mental drain of having to deal with a troublesome tenant, an eviction, or a destroyed unit.
If you haven’t attended one of AOA’s screening seminars, or you are not yet using their tenant screening and background check services, I strongly encourage you to do so. Thorough screening policies and procedures will weed out most of the troublesome applicants before they ever have an opportunity to cause you headaches. But the key to making your screening procedures work is to be extremely diligent in your follow up. It isn’t enough to have your applicants complete the application and pay the screening fee.
Landlords have to follow through with their commitment to calling all of the numbers listed on the application, asking the right questions, and digging deeper than the application itself. There is no doubt; it is a lot of work. But there are companies who provide services to assist you, and utilizing them will take a lot of the pain out of it.
The foregoing information is presented and intended to address the topic(s) covered above in a general nature, and not as specific legal advice. Specific situations and their facts should be presented to your attorney for review. The Brennan Law Firm is one of the premier landlord-tenant law firms in Southern California, representing landlords exclusively in evictions, judgment enforcement, and other landlord-tenant matters. Mr. Brennan is a frequent speaker and contributing author for various landlord publications, and may be reached at (626)294-0500, or toll free at (855)285-2230. Please visit our website at www.MBrennanLaw.com for more information.
Michael Brennan is speaking at the FREE Million Dollar Trade Show, May 14th in Long Beach. For more details visit. https://www.aoausa.com/trade_show.html