Tenant screening is well known as an integral part of a risk-based approach to property management. To maintain the highest standards and comply with all fair housing laws, read on to find out why developing a formal appraisal process, and consistently following it will benefit your property management business.
What is tenant screening?
Tenant appraisal examines someone’s background and history before starting a real estate transaction, such as signing a lease. A rigorous screening process identifies possible “warning signs” and offers opportunities to improve your customer service, essential to building beneficial long-term relationships with current and future tenants. The selection process can be informal, like a checklist of questions for potential tenants or a more formal collection of reports and an analysis of information to help you make the decision. The important thing is to ensure that you have a clear and well thought out policy, used consistently, and applied in the same way to each new candidate.
A risk-based approach to assessing the lease applicant
Risk-based management is a method of organizing the company’s processes and activities to control risk exposure and achieve the organization’s objectives, including financial goals. As part of the strategy, rigorous tenant assessment helps ensure that the company meets or exceeds compliance obligations while strengthening internal inefficiencies. The process allows the frontline leasing team to invest their time and energy in building relationships with highly qualified candidates.
A well-designed system, using data-based resources, allows an organization to approve legitimate applications more quickly, reduce the potential for bad debts, and mitigate losses due to fraud. It also provides access to housing for everyone in the community.
These are the main areas that inform decisions during the application review and approval process.
1. Credit profile report:
Tenant credit verification processes can be seen as a way to identify applicants with low credit scores based on past payment history or unbalanced debt credit relationships. Still, tenant credit reports also reveal new patterns that deserve more detailed analysis. These changes may indicate better financial management or show early warning signs of financial difficulties.
• Credit and identity theft reports:
The credit profile report offers another risk management tool that some may not immediately consider: fraud deterrence. According to 2018 data provided by LifeLock, a provider of identity theft protection services, “almost 60 million Americans have been affected by identity theft”. Organizations that have not yet dealt with a case of identity theft or fraud will experience this one day because cyber threats continue to evolve and expand.
When fraud is suspected, the National Apartment Association (NAA) carefully recommends approving or denying the decision-makers’ approach as a measure of compliance.
Victims of identity theft have privileges and protection under the Fair Credit Reporting Act. Apartment managers who find a frozen credit file can request documents that verify identities, such as state-issued identification, driver’s license, and local service bills sent to the current address. They can also request that the requester approve a release through the credit agency that maintains their data. A candidate who is unwilling to provide supporting documents or take steps to allow single access may be the fraudster and not the victim. Companies must take steps to determine the truth before approving an application, even all other aspects of an application appear “perfect.”
If in doubt, get more information on how to help NAA applicants and credit reporting agencies in your area. Helping a victim of identity theft to take proactive steps to recover their credit allows rental property managers to have the opportunity to expand customer service; It is a victory for the candidate and the property management team.
2. Criminal records and background checks:
Some states and even some cities have passed laws that prevent property managers from denying a rental application based only on negative criminal records.
As an example, Seattle recently passed laws that prevent homeowners from denying a lease based on any criminal conviction, except “convictions for sexual offenses that occurred when the perpetrator was an adult and that require that person to be included in the search for the national criminal record.
Check local and state laws (including any pending legislation), as well as any federal guidelines (for example, HUD Guidelines) before establishing any policies for accepting or rejecting candidates. It is essential to understand that the sector expects careful consideration of the need to protect current residents in a housing community while providing access to housing for all people in that community. Some states have taken a firmer stance on the applicant/consumer side. It is crucial to understand those that are relevant to you and create policies and procedures that follow these guidelines (it is always good to review them with your housing attorney) before proceeding).
Background checks provide application review teams with the opportunity to gather more information about current and past relationships: housing arrangements, work history, and other behavioral clues that generally affect financial responsibility.
Companies that perform internal background checks usually view the system records below that maintain legal records.
- Justice of the Peace Court (JP)
- Master Court
- County Court
- District Court
- Superior Court
- Circuit Court
An organization can spend hours, days, or even weeks, reviewing court records to create a single candidate profile. A more efficient way to collect these public records is to use an external provider or an integrated detection tool integrated with your administration software program to automate the process. You may need to check records in and out of the state to create a complete background profile.
3. Eviction reports:
The factors that influence the scale among applicants for the same credit score as the rental unit, stable work history, low debt/income ratio do not have the same weight in all market conditions. When the housing stock is high, property management teams can slightly adjust the income/ratio standards or marginally lower the minimum income requirement to make their property more attractive.
Accessing eviction reports as part of a risk-based management strategy is essential for verifying information in the application (again, check your status and location to see if there are legal restrictions on accessing and using eviction records). Anyone can check the “no” box next to the question that asks if it has ever been evicted. It’s good to trust, but it’s best to check, and that’s where eviction records come in handy.
A typical eviction summary includes valuable information about disputes between tenants and previous owners and helpful resolutions to determine the status of the application.
A complete summary will be displayed (where permitted by law):
- Records matched to name and addresses
- Judgments for Plaintiff or Defendant
- Default Judgment
- Writs of Possession
Thus, it is imperative to review the report with a critical eye with other vital metrics involved in assessing a candidate’s value. Eviction cases can potentially damage the reputation of the tenant and the landlord.
The following tips address some possible red flags and ways to avoid unnecessary eviction disputes.
- Carefully review the dates of each presentation and the resolution. Irresponsible and unscrupulous landlords earn a reputation for donating almost anyone who can raise enough money to cover their first and last month’s rent. This generally creates a weak agreement that neither party expects to honor. When case submission numbers for a specific address are high, proceed with caution.
- A single eviction case over a long history, since a tenant does not disqualify the candidate himself. A significant event in life, such as divorce, illness, job loss, or death in the family, can be the determining factor of non-compliance.
In some states, property managers may have a legal obligation to notify the authorities of any criminal activity carried out on their properties. In some cases, the lack of notification to residents and surrounding authorities deserves criminal charges, in addition to financial fines. Rigorous tenant assessment helps to reduce legal exposure, the cost of eviction processes, and the repair of damaged properties.
The real estate sector is a valuable asset class that entrepreneurs can use to expand their businesses and serve as another source of income through income. Regardless of your goal, having the right tenant can make or break the real estate experience of entrepreneurs. Therefore, it makes sense to use all possible resources, such as a tenant screening service, to ensure that each potential tenant is clean, financially sound, and respectful. Consider using one of the companies discussed here, as this is likely to avoid unforeseen consequences caused by bad tenants.