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Mar. 18, 2013

The Art of Screening

By Jessica Fiur, News Editor

The best defense when it comes to making sure you won’t have to evict your residents because they fail to pay rent is a good offense. Do you know who your residents are before they sign that lease? What is their credit history? Is there a criminal record you need to be aware of? With a good resident screening system at your community, all these questions can be easily answered before it’s too late.

“Resident screening procedures are necessary to ensure that residents meet a criteria that is suitable for that particular apartment community in regards to historical credit checks, background checks, employment verification and resident history,” Matt Mundy, development manager, Estates Management Co., tells MHN.

Furthermore, non-payment of rent can lead to high resident turnover and low occupancy in the community.

“Moving in ‘unscreened’ or ‘improperly screened’ residents leads to low occupancy,” says William Guessford, head of Greystone’s Property Management Division. “No one wants to live next to the guy who’s been evicted twice for loud music. Also, poor screening will cause the move in of residents who have previously treated their homes poorly and will incur costs to ready the apartment for the next resident.”

One of the main reasons a resident may not be able to keep up with rent payments is personal debt, which is one of the key indicators a screening process should flag.

“Similar to a mortgage, you don’t want a prospect to get overleveraged in their debt and take on an apartment rent that they clearly cannot manage,” says Elaine Williams, vice president of property operations at UDR. “You want to make sure that you’re screening customers to make sure that they can properly pay for that debt.”

Beyond the fear of non-payment and the lengthy and costly eviction process, a good resident screening program can help weed out applicants with a criminal history, which will ultimately make your community safer for other residents.

“The safety of your residents is very important,” Williams says.

Take it online

It is now possible to screen residents online, which makes the process easier and faster than it has been in the past.

“One of the values of having an electronic measurement and means that we didn’t have before is that we can actually get instant criminal backgrounds and credit screening,” Williams says.

“The government is posting all this information, which is public record, and we’re able to instantaneously approve a customer in just a few minutes,” adds Williams.

Online resident screening programs also allow property managers to incorporate their programs with other building systems.

“Our company is currently integrating our resident screening into our online leasing platform, which will allow a resident to apply, be approved, pay their related application fees and deposits, and sign their lease—all online,” Mundy says. “This is particularly important when having online applications and online lease execution, as we live in a society that desires to go through the entire leasing process in just one sitting.”

An online screening process also appeals to Millennial renters, who make up a large percentage of the renter market. However, appealing to Millennials brings its own set of problems.

“The younger generation just entering the work force may not have a credit history, which will limit your ability to assess their qualifications,” Mundy says. “If you take a risk on approving a potential resident with a lack of credit history, you may ‘lose.’ To limit a potential resident with little or partially negative credit history, sometimes guarantors may be required.”

New challenges

One concern that is surfacing during screenings are people who are applying for an apartment using a fake social security number—or who don’t have one at all.

“Any time you run a credit or background check, it is almost always referenced to that potential resident’s social security number,” Mundy says. “On very rare occurrences, we have seen individuals supply a social security number that did not belong to that individual. The management company will most likely never realize that the social security number was really that of an identity theft victim, unless that resident is eventually caught by police.”

However, there are ways to identify someone who is misrepresenting him or herself.

“The approval process has always presented this particular challenge, but the large influx of undocumented individuals has created a far more difficult situation when trying to determine if the person applying is who he or she represents themselves to be,” Guessford says. “Luckily, most of the industry software reacted quickly to the issue and added additional screening features for those with I-9 documents, foreign gift income, etc.”

In addition to computer programs being able to catch identity theft, property managers can do their own part.

“It is very important that the management company takes the necessary precautions when verifying the identity of potential residents,” Mundy says. “They often pertain to having the individual produce more than one document to prove their identity.”

Another issue that can arise when screening potential renters stems from the recent economic downturn.

“The most frequently encountered issue we find in today’s market is the large number of applicants coming from an unfortunate single-family foreclosure experience,” Guessford says.

Mundy also finds that people are defaulting on previous mortgages; however, this might not necessarily exclude someone as a renter.

“A few years back, resident screening criteria may not have allowed for any mortgage defaults on a credit report, but today you really have to take a deeper look at the credit report rather than just if the potential resident has had a mortgage default, as this has affected a lot of good people across the country who still make quality residents,” explains Mundy.

But even if some flags go up about debt during the screening process, it is important to look at the person as a whole and not just a credit score.

“A lot of the debt-screening models we have today are what I call the ‘gotcha’ models,” Williams says. “In the multifamily industry, we look for things to catch our customers to make sure we’re not moving in bad customers. But credit is something that people are always going to have challenges with, especially as the economy changes.”

Williams adds, “I think that we as an industry should look more to what the car industry does. We need to find a way to approve customers so they can still afford us, as opposed to finding ways that they can’t. I think we need to look into taking more risk with debt.”

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