Sometimes, getting a new tenant for your vacant rental is as easy as putting a "for rent" sign in the front yard, or placing advertisement in a local newspaper, the way it's been done for decades. But, in today's market, landlords are also using sophisticated tools and techniques to find and select new tenant, like tenant screening.
So, if you're trying to find new tenants, it's critical that you understand some of the legal issues that impact your search, such as:
- Restrictions and limitations on screening methods and fees
- State and federal fair housing and rental laws
- Restrictions and limitations on advertising tactics
Some of these matters can be complicated, so be careful to check the various federal and sate laws carefully, or get some help from an attorney with experience in real estate law.
Screening Potential Tenants
In almost all states, landlords can "screen" potential tenants, that is, gather various types of information about him or her, such as:
- Work and employment history
- References, especially from former landlords
- Current income
- Past evictions
- Credit history
When a potential tenant gives a landlord an application or request to rent a residential property, the landlord can charge the applicant a "screening fee" to cover the costs of obtaining information about the applicant, including a credit report.
The laws on tenant screening vary by state, but in general they provide that:
- If you know that no rental unit is available or will be available in a reasonable period of time, you can't charge an application screening fee unless the applicant agrees in writing
- A screening fee can't exceed the actual out-of-pocket costs of gathering information concerning the applicant, including, but not limited to, the cost of using a tenant screening service or a consumer credit reporting service, and the reasonable value of your time spent in obtaining information
- The fee can't exceed a set amount
- You have to give the applicant a receipt for the fee that was paid and it has to itemize how the how fee was used
- You have to refund any portion of the fee that was not used
- You have to give the applicant a copy of his or her credit report if you got a report and the applicant requests a copy
If you base your decision not to rent to an applicant based upon information contained in his or credit report, such as poor payment history, federal law requires that you give the applicant an "adverse action letter" stating:
- Why you denied the application
- The name, address, and telephone number of the credit reporting agency ("CRA") that provided you with the credit report that contained the negative information
- The applicant has the right to obtain a free credit report from that CRA if it's requested within 60 days after receiving the adverse action letter
You can deny an application based upon sound business decisions, such as a poor credit history, or employment that doesn't provide enough income to pay the rent.
Fair Housing Laws
A federal law, the Fair Housing Act (FHA), makes it illegal for you to deny an application for a rental based upon the prospective tenant's race or color, religion, national origin, sex, family status-such as when the applicant has children-or because the applicant, or his or her child, is disabled.
In addition, most states, and even some cities, have very similar laws, and some make it illegal to refuse to rent to persons based upon characteristics such as marital status and sexual orientation.
The key here is to be fair and consistent with all applicants. For instance, if you run a credit report or screening process for applicant, make sure you do it for all applicants. Make the rent and security deposits the same for all applicants, and let anyone interested complete an application.
The FHA also makes it illegal make, print, or publish any notice, statement, or advertisement on the sale or rental of a dwelling, that indicates any preference, limitation, or discrimination because of race, color, religion, sex, handicap, familial status or national origin. Some examples of words and phrases that might violate the FHA, if used, include:
- Words descriptive of dwelling, landlord, and tenants, such as "White private home," "Colored home," "Jewish home" and "adult building"
- Words indicating race, color, religion, sex, handicap, familial status, or national origin, like "Negro," "Caucasian," "Catholic" "Women," "Single" and "Native American"
- Descriptions of the area or neighborhood that include the names of facilities that cater to a particular racial, national origin, or religious group, such as country club, private school or single-sex clubs
So, it's critical that you're careful in how you screen and advertise your vacant rental: be fair and even with everyone. Otherwise, you might end up in court on a discrimination claim filed by a applicant that you rejected (or didn't even let apply) for what you thought were good and innocent reasons.
Questions for Your Attorney
- Do I need to use written application forms for rental vacancies? Should I?
- What can happen if I don't give a prospective tenant a copy of his credit report? I simply forgot to give it to him, but he hasn't asked for it ever since I rejected his application?
- Can you do a complete background check on my prospective tenants, and if so, how much will it cost? Is it worth doing, or is a credit report and employment history enough?
- I just received notice that an applicant who I refused to rent to is suing me for sexual discrimination. It's completely untrue. What does she have to prove to win, and what can I do to defend the claim?