As a property manager in Nevada, one of your responsibilities is to qualify tenants to rent your properties. We know we are prohibited by both state and federal Fair Housing laws from discriminating against a potential tenant because of his race, skin color, national origin, religion, gender, familial status (presence of children under 18), disability, or ancestry. Yet, is “discrimination” always illegal?
As humans, we discriminate on a daily basis.
In its most basic definition, to discriminate “is the process by which two stimuli differing in some aspect are responded to differently.” There are legal ways in which landlords determine the qualifications of prospective tenants.
Show me the money.
As property managers, our owner/clients expect us to verify prospective tenants’ income, employment and credit. We need to know whether the prospect pays his rent and other bills on time. We want to know whether he’s been evicted before. These factors are essential in determining whether a prospect is qualified to enter into a rental contract.
First things first.
Before running a credit check on a prospect, be sure you obtain the prospect’s written permission. You must disclose your intent to run a credit report, and the prospective tenant must agree to it.
If, because of something you see on the credit report, you either decline to rent to the prospect, or require a higher security deposit, or request a co-signer, your obligations under the Federal Fair Credit Reporting Act are to:
- Provide notice to the prospect of your decision.
- Provide the name, address, and phone number of the credit reporting agency who provided the report.
- Inform the prospect of his right to obtain a free copy of the report by requesting it from the credit reporting agency.
In the property management industry, we typically call this notification an “Adverse Action Letter.”
Adding up the score.
It is vitally important for landlords to select tenants in an objective matter – only employing quantifiable criteria as a basis for decision. In the interest of objectivity, many property managers use some sort of scoring method to arrive at a decision. You can find a sample of such a scoring method here.
Remember that, when your rental market changes, so will your criteria for accepting tenants in rental property. The more vacant properties you have, the lower the qualifying standard will be. When the market tightens, so will your qualification criteria.
TIP: Be sure to date your tenant qualification criteria, and carefully track any changes you make to that criteria. If challenged, you must be able to prove you are selecting tenants in an objective manner, using the same criteria for all applicants for a given property, at a given time.
Do you have a tenant qualification process you’d like to share with us? Please do so by leaving a comment on this blog.