By YouCheckCredit.com
Tenant Screening –
The First Defense in Collecting Rent
Without a doubt, the biggest headaches that a landlord can experience come from problem tenants: Not paying rent on time, never paying, harassing neighbors, damaging your property.
One bad tenant in a rental unit can cost much more than all costs associated with a vacancy. Inadequate tenant screening will likely result in having tenants who pay late, don't pay at all, damage the property, and cause other problems for the landlord and/or neighboring tenants.
Tenant screening is the investigation and verification of information provided by the applicant to determine if the applicant is qualified under the landlord’s selection standards. Of particular interest is the applicant’s history of credit use, evictions, and criminal activity. Past behavior tends to be indicative of future behavior, which is why the landlord must do adequate tenant screening. A prospective tenant that pays the majority of his or her bills late will likely pay the rent late.
With tenant screening, the landlord is helping himself to protect his investment. By doing everything he can in the first place to adequately screen applicants and select a good tenant, a landlord will save himself headaches, time, and money.
Landlords must not only select tenants who are good credit risks, but also choose people who will coexist peacefully with their neighbors. Middle of the night calls are much more likely to be concerned with some kind of tenant disturbance than with leaky plumbing.
The application form itself or, preferably, a separate form signed by each applicant must contain statements that authorize the landlord to verify information provided on the application form and to obtain information about the applicant from creditors and credit bureaus, current and previous landlords, employers, financial institutions, and personal references. The form should also specifically allow the landlord to do eviction and criminal record searches. There should be a statement that permission survives the expiration of tenancy, and can be used for any permissible purpose associated with the tenancy.
Typically, tenant screening for each adult applicant includes:
o Identity verification
o Social Security Number verification
o Credit report – including bankruptcy, liens, judgments
o National and state criminal history and sex offender searches
o Eviction records checks
o Terrorist list check
o Employment & Income verification
o Credit grantors and financial institutions verifications
o Previous landlord references
o Prior Address Verifications
There are many criminals, some potentially dangerous, who have good credit, have never been evicted, and can provide excellent verifiable personal references. There are many very nice people who have never been evicted and pose no physical danger to society, but have, in one way or another, caused significant financial losses to previous landlords and other creditors. Suffice it to say here that it is extremely foolish to rent without obtaining multiple types of screening reports on all applicants. We’ll further discuss some of the screening items listed above.
Identity Verifications
Because of the rapidly increasing occurrences of identity theft, identity verification is of utmost importance. To avoid wasting time, verify identity before proceeding with any other screening tasks. Obtaining a satisfactory credit report, finding no eviction or criminal records, or getting good reports on the wrong person can be worse than not obtaining the reports at all.
You may legally ask for proof of identity, but make sure you do not selectively request such information. If you ask one applicant for such proof, you must ask all applicants for such proof. Remember that it is illegal to discriminate.
As a part of identity verification, confirm that the applicants are legal adults, either because of being at least 18 years of age or due to having been legally emancipated.
Social Security Number Verifications
Although SSN verification can be obtained as a separate product from some tenant screening service vendors, it is most commonly found as a separate section of a full credit report.
Credit Reports
A credit report is the most valuable of all screening tools and should always be run on each applicant, no matter what other screening might be done. The recommendation is to run a credit report as soon as possible after receiving the application.
Landlords may obtain credit reports under the permissible purpose guidelines of the Fair Credit Reporting Act (FCRA).
The credit report will provide the landlord with information regarding the applicant's credit history and credit management. Information about the individual's bill paying history, the number and types of credit accounts, late payments, collection actions, outstanding debt, ages of the accounts, bankruptcies, judgments, and liens can be found in the individual's credit report.
Although a credit report is one of the more important screening tools, it should not be the only one.
Criminal Record Searches
While credit records are, by their nature, national, such is not the case for criminal records. Criminal records, including convicted sex offender records, usually provide state level information. However, some matters only appear at the county level. Unfortunately, absence of a record in the county of previous residence doesn't mean there wasn't a conviction in an adjacent county or some other county in that state or in any other state. Landlords must choose which jurisdictions are important to investigate by considering information available to them. Sources of information include application forms, credit reports, driver licenses, vehicle license plates, and comments made by applicant.
Eviction Records
Eviction records are not national or even state level records. Evictions take place in county level Courts. Accordingly, while a previous eviction is a very important piece of information when evaluating a potential tenant, you must be sure that you are checking counties where the tenant actually rented out of the hundreds of counties in the United States or you are wasting your money. This is another reason why correct previous addresses are important. The same sources for jurisdictions as mentioned above for criminal checks should be considered. Obviously, it is also important to know that the applicant was actually a tenant on a lease in that county before conducting a search.
Employment & Income
As a landlord, you want to determine whether or not the applicant has sufficient income to afford the rental property. In general, a landlord can request whatever financial information is desired in order to confirm the applicant's ability to pay under whatever legal, reasonable, and logical criteria the landlord uses, so long as the same requirements are demanded of all applicants.
Employment and income documentation can consist of requiring the applicant to produce the last several paycheck stubs. Note that last year's W-2 provides no certain information regarding current income, although it might be useful as additional verification if other items are questionable.
Self-employed individuals can be asked to provide copies of their tax returns (as can employee applicants).
If another source of income will be used for rent payment, a verifiable document, appropriate to the source of income, should be requested.
Verification of non-earned income, including interest, dividends, and other investment cash flow and entitlement items, including disability, social security, and private retirement, are all relatively easily verified because the recipients are provided official statements of the amounts.
Credit Grantors & Financial Institutions
Verifications can be made of the tenant's checking, savings, loan, and credit card accounts listed on his application.
Previous Landlords
In contacting previous landlords, what you are trying to find out is whether the applicant paid the rent on time, kept the rental property in good condition, was considered a good neighbor, and otherwise materially adhered to the lease agreement.
Some applicants may try to use friends as a landlord reference. Make sure that you are speaking with a valid and appropriate party to verify past rental history. Verifying the name of the owner from County records and comparing phone numbers with those found in public directories can be of value in verification.
Some landlords will be forthcoming about giving out information while some will be reluctant. Some current landlords may be upset enough with the tenant to say nothing bad about them in order to allow them to move to your vacant unit. For this reason, rather than depending solely upon the current landlord's responses, a better source of information, possibly more objective, would be the tenant's landlords prior to the current one.
Prior Address Verifications
Although a credit report will often include information regarding prior addresses, a separate prior address verifications report is available from most screening service vendors.
In Conclusion
Adequately screening of applicants costs time, effort, and money. However, these are negligible compared to the potential costs of dealing with bad tenants.
About the Author
YouCheckCredit.com has been providing online credit reports and background checks since 2000. If you have any questions, we can be contacted at YouCheckCredit.com, 4667 MacArthur Blvc #220, Newport Beach California, Toll Free number 1-866-666-8833 or info@YouCheckCredit.com
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