Whether you’re a real estate agent, landlord, or property manager, denying applicants is unavoidable when working with rentals. And like all real estate professionals, you probably have a few questions about the proper way to deny rental applicants. You’ll likely want a rental application denial letter to make sure you’re checking all the boxes when you deny applicants. Failure to do things the right way can land you in hot water with the FTC (Federal Trade Commission) based on the FCRA (Fair Credit Reporting Act).
- When can you deny rental applicants?
- Do you have to tell rental applicants they are denied?
- How can you deny rental applicants?
- What should be included on a rental application denial letter?
Luckily for you, we’ve answered all these questions below so you can get the information you need.
When can you deny rental applicants?
Before we get onto the subject of how you should deny an applicant, we will first discuss when you can send a rental application denial letter. It is important to make sure you are treating applicants fairly and not engaging in any discriminatory practices.
Common reasons to deny rental applicants:
- Income-to-rent ratio
- Unverifiable income
- Credit score or credit report
- Unfavorable residence history
- Incomplete rental application or lied on application
- Co-applicant/guarantor was denied
There are other reasons you can use to deny applicants such as criminal history. But you need to be extremely careful to ensure you’re using the information properly. For example, most states prohibit the use of non-convictions (arrests) in screening.
Setting rejection parameters
Now that you have an idea of the information you can use as the basis for your rental application denial letter, you need to make sure you’re applying the same denial system equally to all applicants. Here are some example steps of a screening system:
- Document your acceptance/rejection ranges. For all the factors you will evaluate when screening, it is a great practice to set an internal policy for how applicants will be judged. For example, you may want to use 1) Credit score, 2) Income-to-rent ratio, and 3) Previous evictions as your criteria when evaluating applicants.
Using those factors, your rejection ranges might look something like:
- Credit score less than 600 = reject
- Income-to-rent ratio less than 3x = reject
- Previous evictions more than 1 = reject
This is a very simplistic example, so you might want to add more factors and have a middle range in which you would “accept on condition” (we will cover this later). The more detail the better. But the main purpose is for you to document the you are 1) making decisions based on legal criteria and 2) applying the same criteria indiscriminately across all applicants.
- Evaluate applicants in the order in which you receive their information. Part of treating all applicants equally means you are not showing any favor to applicants aside from the rejection parameters you’ve set up. So, when you receive a completed application package from an applicant, you should document the time you received it and apply your rejection policy before moving onto the next person who applies. You would ideally accept the first applicant that meets your minimum criteria and stop looking at subsequent applicants.
Now that you’ve figured out when you can deny or accept applicants based on your rejection parameters, we will learn how to break the news to your applicants.
Do you have to tell rental applicants they are denied?
In addition to being courteous, letting applicants know when they are rejected can be a really important step required to avoid legal issues. According to the FCRA, you must provide a rental application denial letter if you take an adverse action against an applicant based in whole or in part on any consumer reports. Put simply, if a credit report, credit score, background, or eviction report factored into your adverse action decision (even a little bit), then you must notify the applicant.
An adverse action is when you either 1) deny an applicant, or 2) increase your requirements for applicants based on their applicant profile. The latter is known as an “accept on condition”.
You can accept applicants on condition by:
- Requiring a co-signer/guarantor
- Increasing the security deposit
- Increasing the rent amount
Remember that even if your decision is not based upon any consumer reports, you still might want to consider sending a rental application denial letter so that you are being transparent with your applicants and establishing a paper trail for how your decision was made.
How can you deny rental applicants?
When the time comes for you to deny rental applicants, there are two really important things to keep in mind so you do it the right way:
- Make sure you deliver a rental application denial letter if your adverse action notice involves consumer reports. And even if it doesn’t, you might still want to deliver formal notice to applicants about your decision.
- According to the FCRA, your adverse action must be delivered orally, in writing or electronically. Please keep in mind that even though oral notice is allowed, written notice has the advantage of providing proof that notice was given. That means applicants won’t be able to claim they didn’t receive notice.
What should be included on your rental application denial letter?
Regardless of the rental application denial letter you use, there are a few required pieces of information you must include according to the Fair Credit Reporting Act.
Requirements for rental application denial letters:
- The name, address, and phone number of the reporting agency who supplied the report.
- A statement that the agency who supplied the report did not make the decision and can’t give reasons for why the decision was made.
- A notice that the applicant can dispute the accuracy/completeness of any reports.
- A disclosure that the applicant can get a free copy of their report from the company if he or she requests it within 60 days.
Giving a rental application denial letter is often the last step of the screening process. But it is extremely important that any adverse actions you take be based upon legal reasons. From there, it is your responsibility to provide applicants with notice when required.
Click here to get your free adverse action notice letter: Get a Free Rental Application Denial Letter
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