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5 steps to stop sloppy screening

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Texas REALTOR® magazine, Jan./Feb. 2014

Choosing a bad tenant isn’t the only trouble you’ll face if you don’t follow the rules.

If you handle lease applicants for rental properties, you should know the important steps to follow that ensure your compliance with applicable rules and regulations. Following these measures to the letter will make your job—and your client’s life—as stress-free as possible.

The Texas Association of REALTORS® has a Model Tenant-Selection Criteria Form that satisfies the Property Code requirement. If you are managing a property on behalf of the property owner, you should talk with your client before adopting this form.

The Texas Association of REALTORS® also created a Model Privacy Policy that can be used to comply with state and federal requirements. 

What to have in place before you accept applications

The Texas Property Code requires that two items be made available to applicants:

  1. The landlord’s tenant-selection criteria
  2. A list of reasons for which an application may be denied.

The tenant-selection criteria may include the applicant’s criminal history, previous rental history, current income, or credit history—any of which may be grounds for rejection if a negative outcome is found. The Texas Property Code also states that an applicant’s failure to provide accurate or complete information on the application form can result in rejection.

In addition, state law requires that a real estate brokerage office that performs leasing or property management services must have a privacy policy in place and must make the policy available to prospective tenants upon request.

Application basics
When a prospective tenant is interested in leasing a landlord’s rental property, give the applicant a copy of the Residential Lease Application (TAR form 2003) to complete, sign, and return.

Use the information gathered from the application to determine whether the applicant meets the landlord’s tenant requirements and whether the applicant poses any risk (e.g., criminal history or poor rental history).

A signed application authorizes you as the landlord’s agent to obtain certain types of background information, such as credit reports or employment history.

The applicant should also sign an acknowledgement indicating that you made the printed tenant-selection criteria available. The Residential Lease Application contains the necessary language to meet this requirement and a place for the applicant’s signature acknowledging that he has had the opportunity to review the tenant-selection criteria.

You may collect an application fee from potential tenants to offset the cost of conducting a screening. Applicants should understand that this money will not be refunded, even if their application is rejected.

The landlord may also require an application deposit from a prospective tenant in connection with a rental application. Under the Texas Property Code, this money is refundable to the applicant if he is rejected as a tenant.

Play fair when screening applicants
The application process is a common area for fair-housing complaints, so it’s important that you understand related rules to avoid accusations of violating state or federal fair-housing laws.

For instance, no one (whether a real estate licensee or not) may refuse to rent housing or falsely deny that housing is available for rent based on race, color, national origin, religion, sex, familial status, or handicap.

In addition, the REALTOR® Code of Ethics includes sexual orientation and gender identity as protected classes, and the Real Estate License Act and TREC rules also have fair-housing provisions you should review.

Checking an applicant’s credit
Once a prospective tenant has provided a signed lease application, you may wish to check his credit to determine if he meets the tenant-selection criteria. The federal Fair Credit Reporting Act (FCRA) requires you to have an applicant’s written permission to run a credit report. The Residential Lease Application (TAR form 2003) gives you this permission.

If the applicant’s credit check turns up an unfavorable result, the landlord may wish to reject his application or may instruct you to take steps to guard against potential risk. Any action that is unfavorable to the interests of an applicant is known as an “adverse action.” Examples of adverse actions include:

  • Denying an application
  • Requiring a co-signer on the lease
  • Requiring a deposit that wouldn’t be required for another applicant
  • Requiring a larger deposit that might not be required for another applicant
  • Raising the rent to a higher amount than for another applicant.

If the landlord rejects an applicant because of information in his credit report, including his credit score, you must provide certain information to him as required by the Fair Credit Reporting Act. The Adverse Action Notice and Credit Score Disclosure (TAR form 2212) meets the FCRA’s requirements.

Background-check don’ts
You should discuss the findings of any background check generally with the landlord; however, you should be aware of two don’ts:

  • Don’t give the applicant’s credit report to the landlord without permission from the applicant and the credit-reporting agency that furnished the report.
  • Don’t give the application to the landlord without either removing the applicant’s Social Security number or ensuring that the landlord has a privacy policy in place and that the landlord is aware of the required disposal method.

An applicant must be notified of whether he has been accepted or rejected within seven days from the time the completed application is received or from the time a deposit is received if an application wasn’t provided. According to the Texas Property Code, an applicant will be deemed rejected if he isn’t notified of his status within this seven-day period.

Background checks made easy
TransUnion’s SmartMove, a TAR benefits partner, is an online system that provides same-day results of credit and criminal screenings for prospective tenants.

Approving or rejecting an applicant
If the applicant is accepted as a tenant, he may be notified within the seven-day period by phone or mail. Notices sent by mail must be postmarked on or before the end of the seven-day period. If the date of required notice of acceptance is a Saturday, Sunday, or federal holiday, this deadline is extended to the next business day.

Once the prospective tenant is notified, he and the landlord can enter into a lease agreement, such as the Residential Lease (TAR form 2001).

If a prospective tenant is rejected because of his credit report or credit score, you should use the Adverse Action Notice and Credit Score Disclosure (TAR form 2212) to notify the applicant of the decision. If a prospective tenant is rejected because he failed to meet one or more of the tenant-selection criteria, you may use this form as well.

If you manage properties,you’ll want this resource
The Texas Association of REALTORS® created the Residential Property Management Resource as a reference tool for Texas REALTORS® who engage in residential leasing and property management. The guide covers some of the most important aspects of leasing and property management, including the tenant application process. 

Remember that you may have to refund the applicant’s application fee, depending on whether you made the tenant-selection criteria available. In either case, refund any application deposit to a rejected applicant.

If the applicant is rejected for any other lawful purpose, you or the landlord may notify him in writing or orally. However, if you or the landlord do not give him notice of acceptance on or before the seventh day after he submits a completed rental application or the seventh day after the landlord accepts an application deposit, the applicant will be considered rejected.