All properties aim to find quality residents, but few take the time create detailed property guidance and invest in screening. By fleshing out your rental policies and training your staff on proper pre-screening and tenant screening, your commitment can help you increase your net operating income (NOI), decrease future resident problems, and maximize a property’s potential.

Pre-Screening Guidance

Applicant screening is a two-tiered process: pre-screening and screening. Pre-screening begins the moment you establish contact with an applicant, whether it be in person, through email, or on the phone. When you pre-screen applicants, you check for “warning flags”, like if an applicant wants to pay their rent or security deposit in cash. While (in this case) you might think the end result is the same and might be pressured to bend your policies to applicants who are in a hurry, ultimately you want to ensure your process is consistent for all your applicants.

Unlike pre-screening, which allows you to look out for “warning flags”, screening helps you determine “red flags”. The purpose of proper applicant screening is simple, to avoid the problems that arise if an unqualified resident moves in. When processing a consumer background check, it may consist of:

1. A consumer credit report from either Experian, TransUnion, or Equifax
2. An Identity Verification (Social Security Number Search)
3. An eviction report
4. A criminal report
5. A bad check search

Creating Credit Criteria

When creating your credit criteria, there are a few things you should consider. First and foremost, you should create guidelines as to income requirements, the length of employment, length of residency (don’t forget to check for gaps), debt to income percentage and income to rent ratio, and if there are any unpaid collection accounts (from apartments or utility companies). Numerically define what “good credit” and “bad credit” are within your rental policy, and then decide on what credit score is good enough.

Additional scenarios you should consider are: will you make an exception for applicants with past due payments on medical bills or a home foreclosure? Will you take into consideration the number of inquiries completed prior to yours? How will you handle applicants who are immigrants, resident workers or foreign exchange students, who have no conventional credit track record? Which income sources will you accept (bank records, offer of employment, tax returns, etc.)? And finally, under what conditional circumstances will you accept a guarantor or cosigner?

Processing the Rental Application

In addition to creating credit criteria, you should also generate a general checklist for how to process rental applications. For example, when staff members are handing out applications they should make sure that they’re giving everyone over 18 an application and requesting that every adult sign a separate application. After the applications are submitted, not only should the time and date received be recorded, but non-discriminatory (non-coded) notes should be clipped to the application. Finally, and most importantly, your established written criteria must be consistently followed. Do not accept incomplete applications under any circumstance.

Verification

Check all of the information they’ve given you carefully. Look for whether the signature matches the name, if their date of birth, name, address and ID numbers match their photo ID, and if their documents appear genuine. Remember, paystubs can be forged, so double check if the information on their paystubs matches both the rental application and photo ID. If you’re unsure about whether or not an applicant’s Social Security number is fake, check the number at www.SSA.gov.

Some additional tips to ensure your applicant isn’t committing fraud are verifying online that the employer or previous address is legitimate. Perform a verbal verification with the previous landlord or property management company and ask open ended questions, like “When did the tenancy start and end?” or “How much was the rent and is the rent current?” Ask if the applicant has any pets, if any three-day notices were served, and if the resident gave any notice of intent to vacate. Finally, find out whether the property owner would rent to the applicant again.

Criminal Background Guidance

Unfortunately right now racial disparities in incarceration rates tend to result in certain races being denied more often due to tight rental policies regarding criminal screening. To meet discrimination and Fair Housing laws, the U.S. Department of Housing and Urban Development (HUD) states that housing providers must support the use of background checks with “substantial, legitimate, nondiscriminatory interests” such as the safety of your residents, employees, and property. A housing provider who denies housing on the basis of arrests not resulting in conviction cannot prove that the exclusion actually assists in protecting resident safety and/or property.

Your criminal background policy should not automatically exclude any and all individuals on the basis of the existence of a criminal conviction record or felony, also known as “Bright Line Standards.” Instead, create a detailed, written criteria based on property type, unit type and size. Consider what types of offenses pose the greatest threat to the other residents of the community and their peaceful enjoyment of the property. This can be the difference between, for example, convictions for violent offenses against people or property versus convictions for public intoxication, misdemeanor drug possession, trespassing, or tax fraud.

With those standards in mind, do an individual assessment of each rental applicant. Look at the nature and severity of the offense, when it occurred, and if the offense provides a basis for exclusion under your screening policy. You should consider mitigating factors and evidence of rehabilitation as well as the amount of time since conviction. If you want your screening policy to be effective, provide detailed training to management and staff so they know how to communicate the policy effectively and can apply it in a consistent and unbiased manner.

Red Flags

As we addressed earlier, with screening you can further determine “red flags”, which is a warning of the possible existence of Identity Theft. According to the Federal Trade Commission (FTC), those who access credit information must have in place “reasonable policies and procedures for detecting, preventing and mitigating identity theft.” If any “red flag” should appear on the credit report, you should contact the applicant for further clarification. Supporting documentation like a Drivers License or photo ID, Social Security Card for confirmation of name and number, and current utility or insurance bill for verification of current address can help eliminate “red flags” on your applicant’s background check.

Some red flags to look out for are:

• No rental history or gaps in their rental history
• Incomplete or illegible application
• The information doesn’t match provided documentation or that the documentation is torn, faded or altered
• Negative information from prior landlords
• Landlords who are members of the applicant’s family
• Eviction filings and/or judgments
• Unverifiable addresses

If you can’t work out the discrepancy with the applicant and/or you still have reasons to suspect identity theft, you should not rent to the applicant in question. Under the Fair and Accurate Credit Transaction Act of 2003 (FACTA), you are under no obligation to report the potential fraud to law enforcement. If you deny the applicant, you will need to furnish them with an adverse action letter. From there, they can dispute any discrepancies directly with the credit bureau. Avoid discussing the reasons for denial with the applicant.

Required Notices (Denial, Conditional, and Adverse Action)

Adverse action occurs when you deny the applicant or conditionally accept them (with the requirement of a cosigner or guarantor, or larger deposit). For conditional and denial decisions, a written notice is required to be sent to the applicant.

The adverse action notice must include:

1. The name, address, and telephone number of the agency that supplied the consumer report, including a toll-free number if the agency maintains files nationwide.
2. A notice of the individual’s right to dispute and the consumer’s right to a free report from the agency upon request within 60 days.
3. A copy of the FCRA Summary of rights
4. The credit score associated with the applicant.

In order to increase your net operating income (NOI), decrease future resident problems, and maximize a property’s potential, investing some time into creating your policy and training your staff into following your guidelines is essential. In order to make your screening guidelines effective, it’s equally just as important to utilize a quality tenant screening vendor that provides legitimate, comprehensive eviction and criminal data, a credit report from at least one of the three major bureaus, and scans each applicant through multiple databases (like the sex offender registry). Finally, don’t forget to continually check for new pending and passed housing legislation to stay compliant locally, statewide, and federally.

Please consult an attorney which is competent in FCRA and other laws governing the business of tenant, employment, and background screening before relying on any information contained in this article.