Property Management: Can You Afford Not to Screen Residents?

By Keat Foong, Executive EditorBefore a resident will be accepted at an apartment community, he or she needs to be background checked. But for what information? Indeed, resident screening can be a tricky process, as it is an area that is laden with potential pitfalls. What aspects of an applicant’s background are relevant? What are the ways to screen residents? What should you do or not do if you do not want to be sued? These are all questions to address.  Apartment companies can try to investigate any of the following questions before accepting the applicant into the community: Can the prospect afford to pay the rent; will they fulfill their lease term; and will they make a good renter and neighbor? All these are valid questions to ask, according to industry consultant, trainer and veteran Anne Sadovsky. To obtain answers to those sorts of questions, prospects’ employment status and income can be checked. Also, apartment companies can conduct a criminal record check, and explore prospects’ rental history in terms of whether they have had complaints or evictions filed against them. Indeed, one of the most important items to look into is the applicant’s track record in paying his rent, argues Eric Hartz, president and CEO of RentBureau. Hartz says rental history is a “predictor” of how the applicant will rent in the future. “It is very important to examine the rental history of the applicant,” he says. Hartz advises that apartment managers examine a number of different metrics in an applicant’s record. For example, it may not be enough to check just credit history, and not the rental payment record. “Someone may have a positive credit history, but in reality they may not have paid their rent very well. They may pay their cell phones first, then pay the rent,” he says. It is important to check beyond credit history also because many people without credit history may be great renters, he adds.  Public information—such as court, eviction and criminal records—is important to look up, but Hartz cautions that if they are “aged,” they may not be very helpful. “Often, public information is 180 days old. A lot can happen in that time. You want the freshest information.” Hartz’s company, RentBureau, supplies the technology that updates rental payment data and other renter information on a daily basis. Questioning AssumptionsWhere resident screening is concerned, it may be imperative to identify what the apartment company hopes to achieve in conducting the searches. “The first thing for the company, owner or management company to ask is ‘Why?’ What are they trying to accomplish?” says Nadeen Green, senior counsel at For Rent Media Solutions. “‘Why do you care if my credit is good or bad, or if I have a felony conviction?’” Green explains that companies frequently duplicate the resident screening techniques used by other companies. But including certain criteria in the background checks may not be necessary to meet the company’s objectives of making sure the resident will pay rent on time and will make a good neighbor. For example, apartment companies routinely will exclude felons from their rolls, even if they have served their sentences and the infraction may have happened in the past. “Martha Stewart is a felon,” she points out. Indeed, Green has argued that the industry’s routine tendency to exclude ex-felons from the community may be counterproductive and may in the long run invite government action to, for example, add felons to the legally protected categories of renters. Ways to Screen ResidentsHaving determined what aspects of an applicant’s background they want to run a check on, there are several ways to get there. Today, companies can use a resident screening service, perform the resident screening themselves, or automate their resident approval systems. Sadovsky recommends that apartment companies obtain a screening service, although it may cost more money. “Personally, I think [apartment companies] should all use a screening service and there are many out there,” says Sadovsky. Sadovksy says there is a greater risk of complaints or lawsuits when apartment companies perform the function themselves. “A screening service has no personal or visual experience with the prospective resident. The catch is that it costs money to use a screening service, but it can save [the apartment owner] possible millions,” Sadvosky argues. Plus, apartment companies charge an application fee, she notes, which should be used for screening, “not just additional income.”  PitfallsIn any resident screening program, apartment owners should be sure, first and foremost, that the policies they establish meet city, state and/or federal laws, stresses Sadovsky. “Remember that there are different laws regarding this in different cities or states. One size does not fit all,” Sadovsky says.For example, one of the liabilities of resident screening is violating the federal Fair Housing law by discriminating applicants on the basis of one of the protected categories of race, color, national origin, religion, sex, familial status and/or disability. To guard against incurring such a liability, apartment companies need to be consistent across the board in their selection criteria and processes. “It is important to treat everyone the same way,” says Hartz. Companies can establish a minimum income ratio to rent and other criteria, but “they must be consistent in enforcement,” Sadovsky notes. Also, keep the information as objective as possible, says Hartz. Reference calls carry a potential for liability as they leave the most room for subjectivity. “If you say in your reference check, ‘How is x as a renter for you?,’ that is subjective and carries a huge liability,” says Hartz. “Make sure when you are doing a reference check that the information is one, objective information, and two, can be verified by a source,” he says. For example, the manager can ask the reference whether the information is sourced from the accounting system, or is his or her “best guess,” he says. There are also laws to follow if the application is rejected. For example, the prospect may have to be told the reason the application was denied and be given the chance to correct it, even if the application was denied on the grounds of bad credit. “You cannot say, ‘we cannot tell you why the application was denied.’ You have to tell why,” warns Green.