A Guide for Landlords Who are Creating a Tenant Application Screening Process

Landlords can use this tenant screening guide to help create a tenant application screening process for their rental properties. A thorough tenant screening process is not only beneficial for landlords in finding high-quality tenants but also allows tenants to make sure they are a good fit for a rental property. If you choose to rent properties in North Carolina without screening tenants, then you are inviting a host of tenant problems and putting your rental real estate investments at risk.

Landlord’s Tenant Screening Guide – The Basics

What should your tenant screening process look like? At a minimum, landlords should perform the following: a full credit report that goes beyond simply determining a score, a thorough criminal background check, a check of the sex offender registry under Megan’s Law, and a review of civil records to learn whether an applicant has ever been involved in an eviction. We’ll go into these steps in more detail below.

Fair Housing and Tenant Screening

Landlords must be aware of all federal, state, and local laws and must always comply with certain legal responsibilities. Landlords who do not have a sound, legal understanding of the tenant application screening process can easily end up facing costly fines, tenant disputes, and lawsuits. One way to avoid these compliance issues is to work with an experienced North Carolina property management company.

Landlords must take the time to educate themselves on the Fair Housing Act and ADA issues. According to HUD.gov, “The Fair Housing Act protects people from discrimination when they are renting, buying, or securing financing for any housing. The prohibitions specifically cover discrimination because of race, color, national origin, religion, sex, disability and the presence of children.”

And remember, landlords cannot disqualify disabled tenants because the rental home does not have a wheelchair ramp or other necessities that a disabled applicant may need. Instead, landlords must accommodate the needs of disabled tenants, within reason, at the landlord’s own expense (42 U.S.C. § 3604(f)(3)(B)).

It is important to note that this article is simply an overview and not meant to serve as an exhaustive outline of all pertinent topics. Landlords who are preparing a tenant screening process for their rental homes should speak with an attorney or property manager who understands the legalities involved in tenant screening to avoid costly missteps.

Credit Reports for Tenant Screening

Landlords should avoid the trap of using credit scores to choose qualified tenants and instead, use a more detailed credit report. While a tenant’s credit score is a useful starting point, a credit report contains information detailing credit history and paints a more accurate picture of an individual’s financial history. For example, a low credit score may be solely attributable to a catastrophic medical issue that has nothing to do with how an applicant is likely to perform his or her duties as a tenant. To learn more about credit reports, visit the credit-reporting agencies: Equifax, Experian and TransUnion.

New, Important Information on Criminal Background Checks

As mentioned above, conducting a thorough criminal background check before renting a North Carolina home to a prospective tenant is another important step in the tenant application screening process. Based on a recent announcement (April 2016) by HUD, landlords should, however, be wary of turning down tenants based on their criminal records.

When discussing criminal background checks, NPR reported that, “HUD’s new guidance warns that landlords could be breaking the law when they refuse to rent to people with criminal records even if they have no intention to discriminate because such a policy would likely have a disproportionate impact on African-American and Hispanic applicants.”

HUD noted that individuals with criminal records are not a protected class under the Fair Housing Act and landlords can be legally justified in refusing to rent to individuals with a criminal record. If, however, landlords use a blanket policy to decline tenant applicants with criminal records, then they may be breaking the law. This new announcement from HUD is another reason landlords should turn tenant screening over to a property management company.

Other Tenant Screening Steps

Checking credit reports and performing criminal background checks are only a small part of a successful tenant screening process. Landlords should check the public sex offender registry to determine if the applicant is a registered sex offender. Other tenant screening steps include: reviewing civil records for evictions, verifying proof of income, contacting past landlords and references, and when possible, accessing information on late payments and security deposit deductions.

Denying Applicants After Completing Tenant Screening

This tenant screening guide for landlords would not be complete without covering what is required when you decide to deny a rental applicant based on your tenant screening report results. No matter whether a landlord rejects an individual’s rental application based on credit reports, past evictions, or other reasons, the landlord must provide the individual with an Adverse Action Letter. This notice is a legal requirement of the Fair Credit Reporting Act. Landlords should speak with their attorney or work with a property management company to ensure they are in compliance with this law.

If you have further questions about creating a tenant application screening process after reviewing this guide for landlords, do not hesitate to contact us at Red Door Company. Read more helpful articles in our Landlord’s Rental Guide and learn about our North Carolina Property Management services here.