You’ve listed your property and have gotten several leads. They all went through a thorough screening process. Now you have the results and need to choose the most qualified applicant. How do you go about doing that in a way that’s both legal and fair?
Factors You Can Screen For
Before you compare applicants, you need to know what you’re looking for. Since your decision should be based on how well this applicant will protect your investment, you should base your decision on financial factors such as an applicant’s income, job stability, and credit score. You can also look at criminal background, prior landlord references, and rental history.
Essentially, you want a candidate who will pay the rent on time, who is not crushed with exorbitant debt, who has not been evicted, and who does not have a record of damaging property or committing violent crimes. These are factors that will affect your business; as such, you have the right to reject a candidate based on these criteria.
Factors You Cannot Screen For
The reason it’s important to understand the objective, financial factors that can weigh into your decision is because there are some factors that you are legally not permitted to consider. According to federal law, you are not allowed to consider any of the following during the application process:
- National Origin
- Familial Status
These categories fall into what is known as federally protected classes. If you base your decision on any of the factors above, you risk having the applicant accuse you of discrimination. If they file a Fair Housing complaint, you could be involved in an expensive lawsuit.
Discrimination doesn’t have to be overt to be illegal. If you say the unit isn’t available when it is, if you require more thorough screening from applicants of a certain demographic, if you require a larger deposit from certain protected classes, or even if you unfairly target or eliminate certain groups in your advertising, this is considered illegal discrimination and a violation of Fair Housing Laws.
Similarly, even if a certain group isn’t on the list of federally protected classes, your state laws may still protect them. For example, some states prohibit discrimination based on sexual orientation or gender identity, while others prohibit discrimination based on marital status. In California and New York City, landlords and managers are not legally permitted to ask for an applicant’s immigration or citizenship status.
Most landlords aren’t actively trying to discriminate against tenants, but good intentions are not enough to protect you in court. You need to ensure your application and screening process is as fair as possible.
When choosing a new tenant, remember that you must base your decision on objective, business-related factors. For example, if someone has a low credit score and a significant amount of debt, you have legal grounds to reject their application. On the other hand, if your last property was trashed by a group of young men, you can’t discriminate against young male applicants for fear it will happen again.
The most important way to avoid discrimination (and subsequent Fair Housing complaints) is to know your requirements and apply them evenly across the board. This means you need to know what you will require from renters before they apply. During the application process, you must stick to these requirements for all applicants.
For example, if you’re a landlord in California, you can’t require social security numbers only for people you suspect are in the country illegally. You can require all applicants to submit a social security number as part of their application, but choosing certain people to go through extra screening is both discriminatory and illegal.
This applies to all aspects of the application. If a landlord only requires credit checks for a certain demographic, but not from everyone, this is illegal discrimination.
Again, know your requirements beforehand, and apply the same criteria to all applicants.
Choosing an Applicant
When you’re choosing your next tenant, you always need to be thinking about how to demonstrate you made your choice fairly. This starts with your advertising. If you publish your requirements for income, credit score, and rental references ahead of time, you can point back to the ad for any applicant who doesn’t meet your criteria. Similarly, when you review applications, document your reasons for rejecting someone. Assuming your rejection is based on legitimate business reasons, you’ll have a defense against any Fair Housing complaints.
“Applicant has a credit score of 540 and $5,000 of credit card debt.” – Valid reason
“Applicant has been evicted twice. Previous landlord said there was significant property damage.” – Valid reason
“Didn’t like the look of applicant. Had a messy appearance.” – Not valid
“Applicant seems too old to live independently.” – Not valid
Even if you have concerns about an applicant, you cannot reject them unless you have a valid, business-related reason. Usually, any reasonable concern you may have will be backed up by objective information found in the screening report.
Should you take the first qualified applicant? While you are not legally required to do so in most states, it helps avoid the appearance of discrimination. If questioned in court, you should be able to defend your process for picking applicants and justify your choices.
How to Reject an Applicant
It’s best to do it in writing. This way, you avoid a verbal confrontation and have documentation of all communication. If information from an applicant’s credit report played a role in the rejection, you are legally required to inform them of this fact, as well as provide them with written notice of the following:
- Where you obtained the credit report
- That there was information in the report that resulted in their application being rejected
- That the tenant has the right to obtain a copy of the report from the company that issued the report
Other than rejecting an applicant based on their credit report, you are not legally required to give them a reason for rejecting them; however, it’s a good idea to do so, at least when you are asked. First, it helps avoid the appearance of discrimination. If they have a valid reason for rejection, applicants are less likely to file a Fair Housing complaint. Second, giving them a reason is the classy thing to do, as it can help applicants understand problem areas in their application. This doesn’t have to be a lengthy process; a checkbox form is sufficient.
Legally, there are some exceptions to federally protected classes. Fair Housing Laws may not always apply to:
- Housing run by religious organizations that require their occupants to be members
- Single family homes, so long as the owner does not have more than three homes
- Senior housing (only pertaining to age discrimination)
- Owner-occupied properties with four or fewer units (Mrs. Murphy exemption)
The Mrs. Murphy exemption assumes an owner is living on the property (rather than living elsewhere and renting an investment property). As such, this exemption allows owners more leeway in determining who they would like to be sharing their space.
For senior housing, you are allowed to turn away applicants who do not meet age requirements so long as your community meets one of two requirements:
- 80% of your residents are 55 or older; or,
- 100% of your residents are 62 or older
While a landlord may be exempt from federal Fair Housing Laws if their property fits into one of the above categories, individual states may have different requirements. Be sure to check your state laws.
Similarly, the Civil Rights Act prohibits racially-based discrimination across the board, even if a landlord is exempt from Fair Housing laws.
Landlords can take several steps to ensure their screening process is both legal and fair.
- When choosing a tenant, base your decision on legitimate business-related factors, such as financial data and past rental history.
- Be thorough about your screening process and apply the same criteria to all applicants.
- Take thorough notes when you compare applicants and be prepared to justify your reasons if questioned.
Although screening can be a lengthy process, finding a good tenant makes it all worth it.