Having a highly sought-after property can seem like a good problem to have if you’re a landlord. However, competing applicants can create a property management nightmare if you're not careful.
According to the Fair Housing Act (FHA), it is illegal to refuse a prospective tenant based on national origin, race, color, religion, sex, family status, or disability. You can avoid Fair Housing Act issues if you establish a clear application policy and use it with every tenant application.
Can a landlord choose among prospective tenants?
Yes, landlords and property managers have the right to choose the most qualified tenant for their property. This decision should be based strictly on their application and application policy and needs to comply with fair housing laws.
1) First come, first served basis - Review applications in the order you receive them.
While there is no law stating you need to accept applications based on the order in which they came in, it is one good way to ensure you accept all applications fairly. It’s a recommended practice by real estate attorneys for landlords and property managers to accept the first qualified applicant.
Accepting an application out of sequence could indicate discrimination. When there are multiple applicants, it is a good idea to take backup applications in case you find disqualifying information about the first applicant during the tenant screening process –or the first applicant changes their mind.
Limiting the number of backup applications you keep will simplify your administration and make it easier to remember individual applicants. Hold off screening next-in-line applicants until you have reason to disqualify the first applicant.
When applicants apply, be clear about your process. This way, the tenants will know their status in line, and you can avoid any perceptions of f possible discrimination.
2) Follow a tenant screening process and screen prospective tenants properly.
It is a good rental business practice to screen every application. This way, if you choose to deny or accept an applicant, the decision will be based on your application policy. Screening tenants thoroughly using your policies and procedures allows you to determine if they are likely to pay rent on time, can afford the rent amount, have a track record as a good tenants, and are all evaluated on their own merit.
To screen properly:
- Run a credit and background check - Request proof of income through pay stubs, bank statements, and possibly tax returns for self-employed applicants. Stating income and credit score requirements in your application policy can ensure you comply with all state and federal landlord laws. The credit check can be processed through a third-party company, such as RentSpree, that will pull credit reports from all three credit bureaus. The credit report and credit score will help you determine if the tenant has a history of paying bills on time and is, therefore, likely to do the same with rent.
- Check the criminal history and for evictions - While an eviction or criminal history doesn’t mean you should automatically deny an applicant from the tenancy, it can move them down your list if another applicant has a clear history. Your application policy should state how you evaluate evictions and criminal history.
- Check references - Contact personal, professional, and previous landlord references to get a good idea of the applicant's character. If the applicant receives endorsements for good character traits like trustworthiness and responsibility, these qualities can help you decide if you want them as tenants. However, if references tell you the applicant goes back on their word, fails to show up for work on time, or leaves their previous rental in need of repair, this information might move them down your list. Spell out these considerations in your application policy.
3) Understand any legal restrictions for rental applications.
You can set rental standards that don’t allow smoking or pets on your property. FHA regulations don’t cover smoking because it is considered a lifestyle choice, so that you can prohibit smoking on the property. You can add lease addendums to the main lease to cover other rental restrictions, such as no pets except for service animals. Service animals are protected under the FHA and are exempt from standard pet fees like extra rent or deposits.
According to the FHA, it’s also illegal for landlords to:
- Refuse to provide reasonable accommodations for tenants with disabilities or service animals
- Terminate tenancy for a discriminatory reason
- Claim a unit is unavailable to certain applicants
- Refuse to show or rent the property to a protected class
- Set more restrictive screening standards for certain applicants, such as requiring a higher income
- Set different terms for specific tenants, like an inconsistent policy for handling late rent payments or fees
- Advertise based on group characteristics like skin color
4) Document your process.
Documenting your decision-making standards is the key to avoiding discrimination claims. When you follow the same policy and procedure for all applications, you can ensure that you’re applying the standards equally to choose the best tenant. With the proper documentation and policies in place, you’ll be able to defend yourself in court if you’re accused of a fair housing violation.
What to do when you accept a new tenant
When you accept a new tenant, record why you selected one tenant over the other to protect yourself from discrimination accusations, and document the day and time of all of the reference calls you make, along with their responses to your questions.
Keeping track of your reasoning will make you less likely to be accused of discrimination. For example, if an applicant’s previous landlord notes they had noise complaints, several late payments, or created property damage, you want to record that information. Use the same process for employers and personal references.
What to do when you deny a rental application
Whenever you deny a rental application, you need to send a letter or email to the applicant detailing why they were rejected and the criteria for that decision. If it is credit related, the Fair Credit Reporting Act requires landlords to write a letter to applicants that details the negative information on a credit report that caused their denial. The letter must include the name and address of the agency that reported the negative information. Landlords must also make it clear to the applicant that they have the right to request a free copy of the report from the agency within 60 days.
You may choose to have an attorney review your denial letter to ensure it includes all the necessary information. By following proper policies and procedures and keeping good documentation, you can confidently choose the best tenant for your property when you have multiple applicants.
RentSpree has an all-in-one property management platform to simplify the property management process. The platform allows you to set your tenant screening and application criteria and perform background and credit checks to maintain your rental business in compliance with all state and federal laws.
Once you accept a tenant, they can sign the lease online and pay rent through an online payment processor. The RentSpree property management platform helps landlords streamline their rental and property management activities – and keep all their documentation and processes in one place for easy access.