Property Management Blog - Tips, Articles and Advice from RentingYourHome.com

The best way to deny an applicant is to be short, sweet, and to the point. If the decision was based in part or in whole on their credit score, then you are required to provide them with the recourse to obtain a free copy of their credit report. Prepare a standard letter or find someone who can provide one to you. You are only required to information them:

1. Their rental application has been denied,
2. A notice that the decision was in part, or in whole, made based on their credit score,
3. As such, they are entitled to a free credit report, and
4. The contact information for the credit agency used.

This protects your legal liability, establishes clear and appropriate records, and effectively resolves your problem.

You should never get into a protracted conversation with someone about why they were denied. Nothing good will come from having a detailed discussion about why you think they are not good enough. Denied tenants can be defensive, aggressive, and difficult. If you do have a discussion with the denied tenant, and they feel your decision was based upon discrimination, they'll get ready help from the local tenant advocacy groups. Your only defense in court will be documentation proving that the decision was made on non-discriminatory grounds, and the only reliable proof of that is your letter stating the decision was made in part, or in whole, because of their credit! And your decision is ALWAYS based at least partly on credit…

After all, I wouldn't rent to an obviously dangerous crack cocaine dealer even if they had a 700 credit score…my threshold for dangerous criminals is an absolute perfect 800 credit score and no lower! So, it's always in part, or in whole, about their credit score.

Many landlords keep sloppy records or don't get the tenant's signed authorization to run credit checks. The rules are getting more strict about when you can run credit, who is authorized to run credit, and how that information can be used:

When You Can — You may only run reports on potential tenants that you are currently screening for a valid vacancy in a rental property that you own, manage, or are the agent for. You are also required to get that potential tenant's written authorization to run a credit report.

When You Cannot — It is illegal to run credit reports on yourself, family members, friends, or for any fraudulent purpose. Your account with the credit-checking agency will be immediately terminated in accordance with the Fair Credit Report Act (FCRA) guidelines if you do so. Failure to comply with the FCRA can result in very serious state or federal enforcement actions, as well as private lawsuits. In addition, any person who knowingly and willfully obtains a consumer report under false pretenses may face criminal prosecution.

Once you have the credit report, you are not allowed to provide that report to the tenant. In practice, most landlords let the tenant see the report but I think that's a bad practice. The report is yours - you bought it - and you're using for a business purpose. Do that business and make a rental decision. Let the tenant know the outcome of the decision and leave it at that.

Finally, once you've approved or denied that tenant's application, since 2006, you're required to destroy that credit report immediately. But, don't forget to retain the rental application and record of running a credit check to protect against Fair Housing claims. You gotta love regulation!

For more information, see the:

• Fair Credit Reporting Act (FCRA) http://www.ftc.gov/os/statutes/fcradoc.pdf;
• Federal Trade Commission website http://www.ftc.gov/os/statutes/fcrajump.shtm

As a general rule, you should ask questions that establish the ability and likelihood of that prospect to pay rent on time, every time, and not cause damage to the rental.

Stay clear of questions that focus on marital status, age, sex, religion, race, or any other protected class, as they may violate Fair Housing Law. The best practice is to establish a written list of questions that you ask of every single applicant so that everyone is treated fairly and you gather the information necessary to compare apples to apples.

Good topics to ask about include:

Many landlords don't know that Federal Fair Housing law applies to them. What may seem to you as an innocent ad posted up on Craigslist can turn into a real disaster if you accidentally discriminate against a "protected class". Fortunately, the rules of the road are fairly simple and once you know them, you shouldn't have any problems.

When advertising a rental property anywhere (including online, street signs, newspapers…), the general rule of thumb is to talk only of the attributes, amenities, and perks of the property itself in an advertisement and do not discuss the potential tenants, their preferences, the local demographics, or anything else that may indicate a preference for or against any protected class. Case law regarding advertisements is ever evolving and different courts may interpret the same advertisement in different ways. The following list is not at all exhaustive but may prove illustrative and provide guidance about things you should not say:

1. Race- "Come enjoy our Hispanic neighborhood!" Or," Local area has Indian foods, culture centers, and clubs that are very welcoming."
2. Color- "Black neighborhood." Or, "Predominantly white, middle class, suburban town."
3. Religion- "Only 3 blocks from a synagogue." Or, "Muslim culture center around the corner."
4. Sex- "Condominium is mostly professional women who commute."
5. National origin- "Highly immigrant neighborhood." Or, "Owners are Nigerian and would like to help other Nigerians get into a good home."
6. Handicapped- "Sorry, no handicapped access available."
7. Familial status- "Sorry, no children please." Or, "Community of singles with a fun atmosphere."

If an advertisement uses pictures of people, those pictures must basically represent the current

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In short, yes they do.

One of the exceptions is for private individual owners, provided that they:

1. Own no more than three rental properties at any one time,
2. Do not sell a single-family home any more often than once every two years,
3. Do not use a real estate agent, and
4. Do not use discriminatory advertising.

If you fall into all four categories, you may be exempt from federal fair housing laws. Again, check with your state because it may have additional, more restrictive rules. In addition, the prohibition on using real estate agents for transactions introduces additional risks for investors that could often benefit from using a professional individual's experience, guidance, and connections during a real estate purchase or sale. The safest bet is to comply with the fair housing standards.

A second exemption is for owner-occupied units. If you rent out a room in your house, or live in one unit of a multi-unit property, you may be exempt from the federal and state laws. This exemption exists so that if you are a single woman, for example, looking for a roommate, you can seek out another woman if you so desire, at the exclusion of any male applicants, without violating the fair housing laws.

Here are some general guidelines for applying the exemptions:

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First of all, yes these do apply to you as a landlord! While there are sometimes exceptions for owner-occupied rentals, it's a touchy, inexact science and it's best to play it safe.

There are a number of federal and state laws designed to prevent discrimination in real estate transactions. In addition to covering real estate companies, realtors, and property management companies, these laws also apply to individual owners like you. There are some exceptions. The following pieces of information are intended only as an initial guide and if you have detailed questions, we recommend that you visit the Department of Housing and Urban Development (HUD) website on fair housing, as well as the state laws for each state in which you own rental property. In short, federal fair housing laws come from three primary sources: the Civil Rights Act of 1866, the Federal Fair Housing Act (FHA) of 1968, and the Fair Housing Amendments Act of 1988.

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A lot of landlords — and potential landlords — are under the impression that you need to live close to a rental property. While that helps you manage showings and maintenance, there is a flip side, too. Restricting yourself to buying and managing rentals within close proximity greatly reduces your investment options, e.g. the best rental deals may not be in downtown NYC or in cow country in Superior, WI (my hometown). If you go where the best deals are, instead of limiting yourself to whatever's closest, you're more likely to find cash flow positive rental properties. But how do you do it?

Many landlords live in different cities or states from their rentals; if you do, then know you are not alone! With a little preparation you can assemble a quality team, deliver a great rental service, and cut costs at the same time.

In general, this is a tradeoff between cost and convenience. Anything is possible if you have only a few rentals but if you're managing 100 or more, then you'll need a system with full time professionals.

You can use any of the following solutions…

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