SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Tenant Screening

Do You Now Have To Rent To Felons?

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HUD recently announced some new guidelines that have been causing quite a stir in the landlording world.   You might think the stir was all caused by the catchy title, “Guidance on Application of Fair Housing Standards to the Use of Criminal Records by Providers of Housing and Real Estate Related Transactions.”  Instead the stir was caused by the misconception that HUD was telling landlords they could no longer discriminate against those with felony convictions. That those with murder, rape or child pornography convictions could no longer be denied housing on that basis alone.

That would certainly cause quite a stir, but it is not the case.

However, these new guidelines from HUD do mean that landlords will have to rethink and retool their rental standards.

Vena Jones-Cox over at regoddess.com did a nice job of explaining the new guidelines and what they mean to us landlords. With permission, I reprint her analysis below.

“So Now I Have to Rent to FELONS?” What the new HUD rule actually says about applicants with criminal records

On April 4th, HUD released a statement entitled “Guidance on Application of Fair Housing Standards to the Use of Criminal Records by Providers of Housing and Real Estate Related Transactions” that immediately set the landlording world abuzz with the news that we could no longer “discriminate” against felons.

Like most incursions by the government into our private property rights, this one spawned a great deal of wrath, and a lot of angry speculation and half-truths regarding what the statement actually “means”.

First, to be clear, this is NOT a new “law”.

It’s what is euphemistically called “guidance” by HUD, which, in this case, is acting as the arbiter and policing force behind fair housing law. So while no actual change to federal law has occurred, we can assume that, going forward, this “guidance” has the force of law, at least insofar as fair housing testing and enforcement is concerned.

In other words, while congress has made no law, and the courts have made no decision in regards to this new policy, it IS one that HUD will use to prosecute housing providers that “break” it.

Second, in order to understand why HUD thinks that whether or not you rent to felons is a discrimination issue AT ALL, it’s important to understand the “Doctrine of Disparate Impact”.

Back in 1968, when the Civil Rights Act defined housing discrimination as the “refusal to sell or rent a dwelling to any person because of his race, color, religion, or national origin” (other categories of “protected classes” were added later in both the Federal and State and Local laws), discrimination was understood to be an intentional, if not overt, act.

It was widely recognized that housing providers, sellers, agents, and lenders who intended to keep members of certain classes out of housing didn’t always just say “No Chinese Allowed”—instead, they engaged in subtle behaviors like “steering” (“I think you’d be happier in this neighborhood over here than in the one you said you wanted”), claiming units were rented when members of one class called but available when others did, and other discriminatory conduct.

What these had in common with more run-of-the-mill “We don’t rent to your kind”  acts was that they were all intentional efforts to keep certain people out of certain neighborhoods or properties based on their membership in a protected class. As such, they clearly fit into the definition of “discrimination”, and thus were violations of the law.

However, as time passed (and both overt and covert real discrimination lessened in the U.S.), fair housing “thinking” began to evolve to include the idea that even completely unintentional acts, if the effects of those acts served to limit the housing choices of protected classes, could be discriminatory, illegal, and punishable by law.

One of the early situations to which the disparate impact doctrine was applied was in occupancy limits. Landlords who created policies that limited the number of people allowed in a unit—for instance, “I won’t rent my 2 bedroom apartment to more than 3 people”, were accused of discriminating against families with children because, obviously, such families would be more impacted by such a policy than families without children

The fact that the reason behind these policies has to do with the economics of owning rentals (more occupants use more utilities and do more damage) does not stop them, under the Doctrine of Disparate Impact, from being illegal.

While the idea that you can be prosecuted for unknowingly and unintentionally discriminating might seem dangerous and unfair, the Supreme Court did uphold it in a 2015 decision, saying that the Civil Rights Act does govern any and all policies that create “artificial, arbitrary, and unnecessary barriers” to housing based on “statistical disparities”.

So what has disparate impact and statistical disparities got to do with felons?

Please read the rest here.

Do You Search Your Applicant’s Social Media?

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Do you check your applicants on social media sites to see what they have been up too?

Perhaps you should.

Remember that one of the most important things you do as a landlord is find tenants who will pay, stay and take care of your property. And sometimes you need just a bit more than a criminal and work history background check to do that. Especially if a potential red flag begins to wave. Searching an applicant’s social media can help determine if those red flags are genuine concerns.

Here is an example. Suppose you have an otherwise decent applicant who claims to have been unfairly treated by a previous landlord that has dinged her rental history. You applicant claims the landlord never made necessary repairs so she moved out. The landlord claims the applicant failed to pay the rent on the last month of her lease and just left in the middle of the night. Who to believe? Both sides to the story have been known to happen.

You decide to Google your applicant’s name. Her Facebook account pops up and you take a look. On her Facebook page are pictures of a beach vacation with comments stating that she was in effect having fun on her landlord’s account. You now know which side is telling the truth.

Here is another example. Perhaps an applicant claims to have only “one small” dog. A quick search however turns up pictures of your applicant with several rather angry looking German shepherds.

The point is you can find out all sorts of things by looking at your applicant’s social media. Just by Googling their name or e-mail address you can get past the “best face façade” and develop an idea of what they are really like. People post all kinds of things. We have seen drug use, criminal activity and just plain sloppiness and stupidity.

On the other hand, not everything posted on social media is bad. Searching social media can reinforce the good things that an applicant states and help you determine that you are likely to have a good tenant. A search can show they have a steady job and steady family life and are just normal folks posting normal things.

If you find searching an applicant’s social media a bit creepy, I honestly have to agree with you a bit. But social media today is a fact of life and everyone has to have the expectation that whatever they post on the interest will not remain private. So, word to the wise, be careful what you post.

Is it legal? Yes, as long as you are not discriminatory and consistent in the way you use it. Just Google everyone and document what you find. There really is no right to privacy when you post something on a public website like Facebook. It is up to the applicant to use the privacy tools found on social media websites to keep things they do not wish to be seen private. Or to simply not post those pics of them doing bong hits at all.

Making a few extra clicks when screening your applicants is definitely worth the effort. Searching social media can really back up or completely destroy what an applicant has told you on your application. You never know what you might find and you just might save yourself from some real headaches.

Do you search social media with your applicants? Let me know with your comments.

The Top 6 Tenant Secrets

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All of us keep secrets. We do this for a variety of reasons. Some things should in fact be kept a secret as they are personal or you may be breaking a social norm, rule or perhaps even a law.   We may also keep something secret because we feel that we will only get into more trouble by saying something, or we will be perceived as ignorant. All of this just seems to be human nature.

Tenants, being human of course, are no exception. But some of the secrets they keep are from us, their landlords. These secrets can be insignificant or quite harmful. Some secrets are a simple flaunting of the rules. But others are more serious and they can put us, our property and our other tenants at risk.

Over the past dozen years I have uncovered a lot of tenant secrets. There do however seem to be some common themes to the secrets that tenants keep from us landlords. Here are my top 6 “Tenant Secrets.”

1.  My Boyfriend/Girlfriend Has Moved In – This is one of the biggest secrets tenants have and can be one of the most difficult to confirm and control. As a landlord you want everyone who is residing in your property to have gone through your screening process. Otherwise, you really have no idea who is living there. Are they a deadbeat? Do they have a criminal record? Is there something even worse they are hiding? Thing is, you just do not know.

On the flip side, how can you prove that they have actually moved in? Are you there every day to see who comes and goes? And even if you are, a significant other is likely to be around fairly often. How often is too often? Who are you to judge? But if there is evidence, such as a closet full of clothes, two cars or words from another tattle-tale tenant, you should confront your tenant.

Don’t be harsh when you do this, just ask if so and so is living there and remind them that it is a major violation of their lease to have an unauthorized roommate. Offer to get the person approved and on the lease, so there will not need to be anymore secrets. I find that most tenants prefer this option and will come in from the cold.

2.  I Got a New Kitten/Puppy – We more experienced landlords have seen this again and again. We go to do a repair or an inspection and see an animal or evidence of one when none was mentioned at move in. Perhaps the pet is new. Perhaps the pet is one that you do not allow. Perhaps you do not allow pets all together. If the last statement applies to you, you must give the tenant the choice; either you or the pet goes. If you allow pets, offer again to let them come in from the cold, pay the pet fees, meet your requirements and stop keeping secrets.

3.  I’m a Bit of a Slob – Sometimes this is an understatement. I have walked into some tenant’s apartments and wondered when the hurricane came through. Clothes strewn about everywhere, dishes piled up in the sink and on the counters. Frankly I can’t understand how people live like that. The problem is that it is very difficult to tell that someone is a slob on the front end. They can hide it pretty well for the interviews. It is only later when you get calls about a sudden bug or vermin problem that you find out. Needless to say “clean you place up!” letters are sent pretty quickly.

4.  I Like To Party – This is one of the worst kept secrets. There is nothing wrong with a little bit of fun. Having a few beers and friends over from time to time is as American as apple pie. But too much of a good thing gets a little old. Little did you know that you rented to Mr. Popular who likes to have friends over every other evening.

Other tenants can be as quiet as a church mouse, and when you go over to repair and inspect you find out why when you notice the bong sitting out on the coffee table. I realize a lot of people smoke weed, but in most places it is still illegal, so put away the bong when you are done and be a bit more discrete with your smoking habits! And believe it or not that smoke does creep out into the hallway and you are not fooling anyone with your patchouli.

5.  The ______ Is Broken – As landlords, we are responsible for maintaining the property. I actually want to fix things because my property is valuable to me. I want it to last a long time. So PLEASE, PLEASE, do not keep it a secret when something breaks. I have found more leaks that were let go to become major problems when they should not have. I have found heating systems with safety features bypassed. I have found holes in places they should not be like in roofs and floors. Why did the tenant keep these things a secret from me? I have never figured it out. Perhaps it has to do with number 3 or they think they will get in trouble, but who really knows?

6.  I’m Unhappy With ______ – Whatever it happens to be so I am just going to go through the expense and hassle of moving rather than speaking up and resolving the situation. Many tenants, if the feel like their needs are not being attended to or feel in some way hurt, will simply clam up and keep that fact a secret from us. I understand you may not like confrontation, but if you had just talked to us about things, we could have likely worked them out. After all, we are human and make mistakes, plus we are pretty nice people. Let us know when something is wrong. How else can we fix it?

So there you have my top 6 tenant secrets. Every year I see a few of these again and again. I guess it is just part of the business.

What do your tenants keep from you? Please share with your comments.

Watch Out For “Professional Tenants”

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I have run across a few “professional tenants” in my time as a landlord trying to rent from me and heard even more horror stories from others who have unfortunately let them into their properties. Trust me, the professional tenant is something you as a landlord want to avoid at all costs. An effective screening process is a good place to start. But also knowing what to look for goes a long way.

 

Richard D. Vetstein, Esq. writing in a real estate column at aol.com has some good advice on what to look for and tips for avoiding the “professional tenant.”

He notes:

“Most tenants are problem-free, yet there is a certain type who make even an experienced landlord cringe with fear: The Professional Tenant.

Let me give you the profile of what I mean by a typical Professional Tenant.”

Read the rest here.

If They Legalize It Do I Have To Allow It?

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Social norms regarding the use of marijuana are rapidly changing.  Legalization would have been considered impossible just a few years ago, but it is now occurring to varying degrees all over the country.  To us landlords it brings up an interesting question; if pot is legalized do we have to allow people to use it in our properties?

The answer to that is no.

There are lots of things that are legal to do and or own that we do not have to allow, such as tobacco, pets even waterbeds.  Marijuana, if legalized, would fall into this same type category.

Why is that?

For one thing marijuana is still illegal on the federal level.  Until that gets resolved there are still legal implications.

Secondly, our property is just that, our property.  It is private and we can regulate, within certain limits, what we as private property owners will allow on our properties.

Thirdly, marijuana users are not a protected class.  Nor are tobacco smokers or users of alcohol.  Many a landlord, including yours truly, has banned tobacco use in our properties and we could ban alcohol use as well if we wanted to.

Remember, you as a landlord are not allowed to discriminate against who you allow to live in your properties based upon the seven federally protected classes.  Those classes are age, sex, race, color, religion, national origin and familial status.  But you can and are even encouraged to discriminate in other ways.  Everything else, such as marijuana smokers, tobacco users, motorcycle owners, truck drivers, lawyers and deadbeats is fair game.  You just have to be consistent in your application of those discriminating standards.  Meaning if you discriminate and say no once, you better say no all the time, every time.

But who knows.  As laws and norms continue to change, it may be advantageous and profitable to some landlords to allow marijuana use on their properties.  For other landlords, it will be not so much.  That however is the beauty of the free enterprise system.   There will likely be something for everyone, tokers and non-tokers alike.

No Candles Allowed

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This is why there are no candles allowed in our apartments.

“An apartment tenant told firefighters that he was burning candles in his bedroom and then went to another area of his apartment. The candle was sitting on a table and caught nearby combustibles on fire.

The estimated damage to the building is about $75,000, according to the battalion chief.”

We place the restriction in our “House Rules” which is attached to, and thus a part of, the lease.

Yeah, I know, it can be hard to police but we have to try to protect our property and tenants.

 

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Pet’s Only Please!

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Here is a wonderful example of how you can discriminate against potential tenants.  The local CBS station in Los Angeles reports:

“Judy Guth owns a 12-unit building in North Hollywood.  Not only is Guth pet-friendly, she doesn’t want a tenant who doesn’t have a pet.  All pets welcome — cats, dogs, birds.”

Many think that you cannot discriminate against anyone for any reason. But that is simply not true.  While landlords cannot in most cases discriminate against the seven federally protected classes, race, color, religion, national origin, sex, disability and familial status, many other items are in play.  And you should be discriminatory in who you choose to rent your properties to.

You may not want folks with an eviction or bankruptcy in their past.  If you do not want to rent to lawyers, you do not have to rent to lawyers.  If you do not want to rent to people who own motorcycles, you do not have to.  If you do not like pets, then there are no pets.  Or if you like pets, it can be all pets as in the story above.

They key is to be consistent.  You cannot pick and choose which lawyers you will rent to for example or let some in with a bankruptcy while keeping others under the same circumstances out.  It has to be all or none.  Whatever you decide, be sure to write your rental standards down and keep them in a handy file just in case someone, like a fair housing officer, asks to see them.

5 Screening Techniques When Using Credit Reports

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You may think when you are reviewing a credit report as part of your tenant application and screening process that the credit score is the most important piece of information.  If you do I have to gently tell you that you are mistaken.  There is much more to a credit report that a smarter landlord should be looking at when trying to determine if they should hand over the keys to one of their properties.

The first thing you want to check when you pull an applicant’s credit report is their personal information.  Does their name, date of birth and social security number all match up to what you were told on the application?  Is their last known address the same as they reported on your application?  Are they being upfront about who they are or are they lying to you?  Also check to make sure there is not a Jr. or Sr. in the name as that is sometimes easily confused and abused.

Second, examine their payment history.  Are they late with payments every month or is there only one or two over the course of their history?  Obviously you want someone who pays their bills in a timely manner.  If they do not pay everyone else on time they are not going to pay you on time either.

Third, examine how much has been charged off as well.  A charge off is debt that the applicant owned that was written off as .  If you see a lot of these charge offs, the applicant may not be a good risk as they tend to skip out on their debts.

Fourth, determine if your applicant can afford your property.  The credit report will estimate the total monthly amount of all of the applicant’s debt payments.  You can then use that number to determine if they can afford their debts, their proposed rent and other necessities like food and utilities.  If their debt level is too high, they will have trouble and will have to make a cut somewhere.  That cut could be your rental payment.

Finally, you want to look and see if someone had a life altering circumstance.  Things like a cancer diagnosis or a divorce can really side track things to say the least.  This is why the credit score is not as relevant as the rest of the report.  Their credit score is going to reflect these past circumstances but it may not tell you if they are in the process of getting back on track.  The applicant will have to be truthful about what has happened and note that they are getting things back together.  The credit report should demonstrate these items with recent on-time payments, etc.

The credit report is a must use tool for screening potential tenants.  Learn how to use all of it to get the most accurate picture of your applicant.  Don’t just rely on the score.

Does Bad Credit Mean No?

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One thing you need to examine when screening potential tenants is their credit report.  A credit report will give you an insightful history of just about everyone.  But should the credit report be the only thing you consider?  No.  There are numerous other factors to consider as well like criminal history.  But let’s take it one step further.  What if an applicant has bad credit?  Should that be an automatic case for rejection?  I think again the answer is no.

There are certain situations where you may want to consider renting to someone with bad credit.  For some landlords, their potential tenant base will determine if credit is an issue.  Everyone belonging to certain tenant bases may have bad credit.  Other potential tenants may have had their credit destroyed due to extenuating circumstances.  Let’s look at some examples.

If your rental properties are in marginal neighborhoods, you may not be able to find any applicants with good credit.  You may have to rent to people with bad or at least not so good credit. 

So what to do if everyone has bad credit?

  • Look to see that they are telling the truth.  Any false statements on an application should be immediate grounds for non-acceptance.
  • Look for a steady job history.  Look for someone who stays employed.  Hopefully at the same job.
  • Look to see that they pay most of their bills.  These tenants are likely living paycheck to paycheck and a bit beyond their means.  So look to see if they pay most of their bills. 
  • Get good references from the two previous landlords.  Did the tenant leave owning them any money?
  • Look for a steady rental history.  You do not want someone who moves every year.  You want stability.

In other instances, someone’s credit may have been ruined because of forces beyond their control.  Someone may have been through a nasty divorce or they may have been diagnosed with cancer or been in a terrible accident.  These types of situations can easily drain all available funds and bankrupt a person. 

So what do you look for if someone has had their credit destroyed?

  • Again, look to see that they have told the truth.  Your application should have questions about their credit, work, and criminal history.  If they are upfront with you about what you will see and why, that should carry some weight.
  • Look to see if the credit report supports the story you are being told.  We once had a cancer survivor apply for one of our apartments and their credit was devastated from the medical bills.  This person was honest about it and it was obvious from the report what had happened. 
  • Look to see that they are trying to get back on their feet.  Are they trying to pay off the bad debt or the bills?  Are they trying to get a fresh start?  It will be obvious from the report.
  • Check references.  These references should confirm what you have been told and vouch for their character.

So there you go.  Having bad credit may not necessarily be a show stopper.  As an example, our former tenant who is a cancer survivor was one of our best tenants ever.  There was never a missed payment and the property was kept in excellent condition.

You can of course try to reduce your risk a bit with bad credit tenants by asking for higher security deposits or increasing the rent a bit.  Just be sure that you have everything spelled out on paper in your application review policies.