Nothing in this presentation is meant to constitute either legal or business advice. All of the opinions expressed in this presentation are those of the presenters and may not reflect the position of the NCRA. Please consult an attorney which is competent in FCRA and other laws governing the business of tenant screening before relying on any information contained in this presentation.

NCRA Annual Conference

Tenant Screening A to Z

Presented byJeannie Baker, ACUTRAQBill Bower, CIC

What we will cover today…

• Why tenant screening and who we serve

• What are the basic elements of a tenant screening report

• Steps in a tenant screening process including: - Applications and leasing agent due diligence - Differences between applicants, co-applicants, spouses, students, retired applicants, and self employed

• Express (instant) reports vs. verified reports

• Questions to ask when compiling rental and employment verifications

• Validation of potential clients

• Adverse Action

• Consumer Disputes

• Other integrated services…

Why Tenant Screening and who we serve…

Effective Tenant Screening assists the property manager or landlord by:

• Reducing slow paying residents by selecting residents which have a positive credit history and do not have outstanding bad checks

• Reducing evictions, bad debt and property damage by selecting residents which have a positive payment history and rental history

• Reducing crime and creating a safer living environment for all their tenants by selecting residents which do not have a history of violent crime, sex offenses or drug related crimes

• Creation of a standardized and objective application process which helps to create better overall decisions as well as helping our clients meet Fair Housing standards

• Expediting the decision making process for the manager or landlord

Tenant Screening companies serve a wide range of clientele which include:

• Governmental Housing Authorities (PHA’s)

• Apartment Associations

• Real Estate Investment Trusts (REITs)

• Corporate Housing / College / Military Campus Housing

• Property management companies (both directly managed and fee based)

• Individual Landlords

• Real Estate Agents Involved in Property Rental

What are the basic elements of a Tenant Screening report?

1. Credit reports for determining the character of the person who has applied. Credit reports can verify the following information:

• Identity• Date of Birth• Social Security Number• Addresses (including previous addresses) • Employment• Any Liens, Judgments or Bankruptcies• Trade Lines and Debt • If They Owe Utilities or Another Property• Inquiries to See if They are Trying to Get Credit From Many Other Sources• Credit scores as developed by FICO and the bureaus give a quantitative view of the applicant’s credit:

Experian – Fair Isaac Score (FICO) & National Risk Score Equifax – Beacon TransUnion - FICO

2. Criminal (both national and local level) Background and Sex Offender Checks: Tells if they are a sex offender or have a criminal conviction

3. Social Trace• Determines if they are stealing identities • Can assist in compliance of the Red Flag Rule

4. Eviction Report• Determines if the applicant has prior evictions within the past 7 years• Evictions are also known as unlawful or forcible detainers depending on jurisdiction

5. Rental Verifications: Determines past rental history and if they paid rent on time, left the unit damaged, gave proper notice, followed the rules, were evicted or given warning notices and if they were a good tenant.

What are the basic elements of a Tenant Screening report Cont.

What are the basic elements of a Tenant Screening report Cont.

6. Employment verifications: Determines if they are in fact employed there, how long, how much they earn and their chances for continued employment.

7. Bad check searches: May determine if they have any outstanding / unpaid bad checks

8. Rent Bureau reports Rent Bureau is a consumer reporting agency that specializes in the collection and reporting of tenant payment data (both positive and negative)

9. Tenant Screening Decision Scoring Models: Many firms use a decision scoring model which applies the end user’s rental criteria to the overall report to create a decision such as “approved, conditional, or decline.” These scores are software driven and take into account all of the aspects (not just credit) of the tenant screening report.

10. Rental Policy: Every Owner/Landlord must have a written rental policy to describe what they look for when determining who to rent to and make sure they are within Fair Housing requirements.

Steps in a Tenant Screening process including:

- Applications and leasing agent due diligence

The rental application is really the first screening tool. While state laws vary as to what may or may not be included on a rental application, there are several items which should be included on every rental application. CRA’s should use the 3 applications given by the client during the credentialing process to determine if all of these items are included. As a rule of thumb, the most current applications offered through the local apartment association are usually acceptable and many CRA’s offer rental applications for their client’s usage. Property managers and landlords should be discouraged from using applications purchased from stationary stores or online as they may not include all of the necessary information and/or may not conform to local laws.

Steps in a Tenant Screening process including: Cont.

The rental application should include at least the following:

• Full and complete legal name - Cannot obtain a criminal background without the legal name.• Date of birth• Social Security Number (SSN)• Driver’s license number and state• Addresses for at least the past 5 years plus landlord’s name, address and phone number, dates at different addresses, and reason for leaving, for each address• Whether the applicant owned or rented at each of the addresses• Employer information for at least the past 5 years plus addresses and phone contact numbers• Income amount• Job title and dates of employment• Emergency contact information – Also helps with collections • Vehicle information• Pet and water filled furniture information

Qualifying questions such as:

• Have you ever been evicted? If so when and from what address?

• Have you ever filed bankruptcy? If so when and in what state / county?

• Have you ever defaulted on a lease? If so when and from what address?

• Have you ever been convicted of a felony that involved an offense against property, persons, government officials, or that involved firearms, weapons, illegal drugs, sex or sexually related crimes?

• Names and ages of other residents anticipated to live there. All applicants 18 years or older must be screened.

• This information can be vital to both the screening process as well as to property management aspects.

Steps in a Tenant Screening process including: Cont.

Steps in a Tenant Screening process including: Cont.

EVERY rental application must include an authorization for file disclosure statement which specifically names the applicant, the property management company / landlord and the screening company and grants permission to check the applicant’s credit, eviction and criminal history as well as to perform the necessary verifications.

Please note that under FACTA all applications (both accepted and declined) should be retained for 6 years. It is also considered best practices to have every adult (18 years or older) resident of the property submit an application.

At the time of accepting an application for rental, the property manager or landlord should check a minimum of 2 forms of ID to make sure that the personal (photo, description, DOB, etc…) and address information on the ID matches the application. If it doesn’t the landlord should either decline the application at that point or ask for additional identifying documents such as utility bills, other forms of identification, leases, etc… to establish the person’s identity. This step will help the property manager / landlord comply with the Red Flag Rule.

Differences between applicants, co-applicants, spouses, students, retired applicants, and self employed

• An applicant is the term for anyone which is making application for a residential rental. • A co-applicant refers to more than one person that is making application for a rental unit, which will be jointly responsible for the rent and any other stipulations and will reside in the unit. • A co-signer is another person, usually a parent or other interested party that is financially responsible for the rental but doesn’t intend to reside in the premises. • A spouse can indicate a married couple which are cohabitating and are making application together. Married couples (and others) must make applications separately as “joint” reports are a violation of Fair Housing, the ECOA as well as other state laws.

Differences between applicants, co-applicants, spouses, students, retired applicants, and self employed Cont.

• Students often do not have credit history (or employment) and will often require a co-signer.

• Retired applicants may require other sources of income to be verified and the property manager / landlord may request that bank statements or other documentation be provided by the applicant to demonstrate financial worthiness. Credit information is a critical assessment tool for retired applicants.

• Like retired applicants, self employed applicants may be required to submit additional documentation to demonstrate financial worthiness. However, this documentation needs to be carefully examined and considered secondary to the credit report and other factors. Unfortunately many self employed applicants submit ‘doctored’ or fraudulent documentation since, in many cases, this paperwork cannot be sufficiently verified.

Express (instant) reports vs. verified reports

• Reports are delivered either on-line (express or instant reports), by phone or by fax. Online (express or instant reports) customers must comply with additional security requirements set by the credit bureaus.

• Online users run their own instant (credit, national criminal, social trace) reports. These reports are often called instant or express reports in that the client receives the data very quickly. There are several software providers which offer tenant screening packages. If Experian is offered, the software provider and the end user must be RI3PA compliant. Online users usually have discounted prices since there is little to no CRA staff time involved in reviewing the results.

• Verified reports involve the calling of the references of the applicant such as present and previous landlord and employment. These applications are often sent to the CRA by phone or fax but many software packages support this function as an “add on” feature. These reports are usually more expensive (due to the verification process and CRA staff time) and take longer.

• If reports are faxed to the client (end user), their fax must be reasonably secure (not a public accessible fax, not in an area where people other than the client may view or retrieve the report).

Express (instant) reports vs. verified reports Cont.

Questions to ask when compiling rental verifications…

• The two major types of verifications in tenant screening are rental references (present and past landlords) and employment:

• Rental Verifications – Verification of the present and past rental references are crucial as they tell what sort of tenant the applicant has been in the past from the landlord’s perspective. Performing at least two verifications is important as it will give a better overall picture of the applicant’s tenancy history. Often, if the landlord wants to get rid of a poor applicant, they will give an incorrect or incomplete reference for the applicant.

Prior landlords will often give more accurate information.

Verifications from friends or relatives are difficult to determine truthfulness. Develop questions where they have to talk and you listen to see if the person you are talking to is in fact the person you need to talk with and if they are a relative or friend.

Questions like “do you own other rental property?” “Do they live in the same house with you?”

You may ask the applicant who they rented from when they lived at an addressthat appears on the credit report or social trace and they failed to list it onthe application.

Questions to ask when compiling rental verifications…Cont.

Questions to ask when compiling rental verifications…Cont.

It’s critical to document thoroughly each of the answers in a systematic fashion and also to verify the following:

• The apartment name / address / phone number• The manager or landlord’s name and title• Anything else that would be pertinent to the verification

Remember… you may NOT ask about race, religion, political affiliation, gender, handicap, or anything concerning the type of company that they keep. Reporting of this type of information may be considered a violation of Fair Housing laws. The key to a good verification is summed up by Sgt. Joe Friday “Just the facts ma‘am.” Document everything that takes place on each verification call.

Questions to ask when compiling employment verifications

Employment Verifications – Verification of at least the present employment reference is a critical portion of the rental decision as it determines the capacity to pay the rent. These references are somewhat different than when done for employment purposes. The concern is that the applicant is employed and able to pay the rental amount while their work performance and suitability is secondary (providing, of course, that they aren’t performing so poorly as to be terminated).

Employment verification questions for rental decisions may include the following:

• Applicant’s job title or position• Length of employment (either in time or by dates)• Their present income (be very specific)• Any bonuses, additional income or overtime expected• Hours worked per week• Employment outlook

Questions to ask when compiling employment verifications…Cont.

It’s critical to document thoroughly each of the answers in a systematic fashion and also to verify the following:

• Company name• Address• phone where employed• Person’s name / position which verified the reference• Anything else that would be pertinent to the verification

As with rental verifications, make sure NOT to ask anything that may be construed as being prejudicial and document everything!

Validation of Potential Clients

Validation or credentialing of potential clients is a critical process in that it protects the consumer as well as the CRA from fraudsters and ID thieves. This process usually requires that a complete client application and agreement is completed and signed (including a section defining the end user’s permissible purpose), the validation of the entity to substantiate that they are a bona fide business with a commercial need for the information provided, as well as several other factors as listed below:

• The CRA/reseller must have a separate tenant screening account number (different from credit granting / mortgage / employment screening). This account number would be used for tenant screening applications only. (i.e. Experian T-29)

• If scores are delivered (such as FICO), additional language must be incorporated in user / client agreement.

• Copies of at least 3 rental applications are usually required

• A physical inspection of the client’s place of business is required

• Other requirements vary by the bureau requested as indicated by the client

Adverse Action

What is considered adverse action in rental transactions?

• Denying the application• Requiring a co-signer• Requiring a larger security deposit• Charging a higher rent• Any terms or conditions which would be different than usually offered for that rental unit

Who makes the decision? Who sends out the adverse action letter or notice?

The landlord or property manager sends out the adverse action notice and best practices suggest that it should be either given to the applicant or mailed to the applicant the same day as the decision.

Adverse Action Cont.

Can the notice be delivered verbally?

The FCRA doesn’t currently require written notification but many states do (California for example).

Is notice required if the information listed in the report is only a portion of the decision for adverse action?

Yes. If any information contained in the tenant screening report influenced in any way the decision for adverse action a notice must be given to the applicant

What does this notice contain?

• Contact information for the CRA which provided the report including the CRA’s name, address, phone number and a toll free number if the CRA maintains files nationwide.• If credit was used, it may contain the consumer contact information for the credit bureau.• A statement that the CRA did not make the decision which resulted in the adverse action and cannot give the specific reasons for that decision.• It may contain areas which indicate the information which influenced the decision on the part of the landlord or property manager.• A summary of the applicant’s rights under the FCRA and other state laws.• A notice of the applicant’s right to dispute the accuracy or completeness of any information furnished by the CRA.• A notice of the applicant’s right to request a free copy of their credit report from the CRA within 60 days of the notice of adverse action.

For more information see the FTC website “Using Consumer Reports: What Landlords Need to Know”http://www.ftc.gov/bcp/edu/pubs/business/credit/bus49.shtm

Adverse Action Cont.

Consumer Disputes

Consumers have the right under FCRA (as well as other states laws) to dispute the accuracy and completeness of the information furnished in a tenant screening report. CRA’s which perform the tenant screening must have personnel and procedures in place to effectively handle these disputes. The CRA’s consumer dispute procedures must be in writing and all aspects of the dispute must be documented.

What can the consumer dispute?

• Anything contained in the report that was furnished by the CRA to the landlord or property manager.• Common items that are disputed include: credit, criminal information, evictions, verified information such as landlord references.

Consumer Disputes Cont.

How long does CRA have to respond to the dispute?

• 30 calendar days total

Does the CRA handle credit disputes or refer them back to the credit bureau?

• Under FACTA, the CRA is responsible for handling the credit related consumer disputes with the appropriate credit bureau.

What happens at the end of the dispute?

• The consumer is notified in writing by the CRA of the outcome of their dispute and a new report is issued to both the consumer and the end user.

Please remember this section is overly simplified. Please check with your legal counsel to assist in establishing a comprehensive consumer dispute policy.

Other Integrated Services

Tenant screening firms may also wish to integrate additional services which bring more ‘value added’ features to their customers. These additional services may include:

• Automatic forms and applicant tracking systems (ATS)These can be as simple as auto populated property management forms (leases, adverse action notices, receipts, etc…) or more complete systems which track the application from initial interest to lease.

• Online deposit or SureDeposit programsThere are several programs available that allow for the deposit to be underwritten by either a bond or an insurance program which is beneficial to the property manager as well as the resident. Several of these can be integrated within the context of tenant screening delivery platforms.

• Renter’s insurance

• Property management software integration such as Yardi, MRI and others…

For any added information, please stay and ask questions . . .