Every Real Estate Investor Can Screen Tenants, not Just Corporations
Many small real estate investors are afraid to screen tenants for a list of reasons. Some are afraid that they will be brought to court based on fair housing and anti-discrimination laws. The Fair Credit Reporting Act (FCRA) also applies restrictions on running a credit check for specific entities and permissible purposes. Small landlords don’t want to have to worry about whether they are FCRA compliant or not, so to avoid this problem, they simply don’t look at the tenant’s history across the board. Others simply don’t feel they need the extra cost or think that screening doesn’t significantly contribute to a better community and a higher ROI.
Have Fair Housing and Anti-Discrimination Concerns?
As we’ve discussed in previous articles, you don’t need to worry about anti-discrimination laws when making determinations based on criminal behavior or previous rental history. This is true as long as you follow proper procedures in using the same screening criteria for every prospective tenant and as long as you accept the first tenant that meets these criteria. FCRA compliant landlords are well within their right to run a credit report and use it as criteria for choosing to lease to a prospective tenant. The bottom line is that a landlord must remain consistent in their screening and leasing procedures.
Tenant screening reports are relatively inexpensive. Some reports through The RRD can be as little as $16 per report or even less if you use a few of our A La Carte options. The risks of not screening a prospective tenant are high because this increases your liability and decreases the quality of your community. Meanwhile the benefits are numerous; often contributing to longer lease periods and better income on the property.
What is the Fair Credit Reporting Act and is my Business Compliant?
The FCRA is federal law written specifically on proper access and storage of credit information. To obtain a detailed credit report on a prospective tenant, the FCRA requires that a landlord both have permissible purpose for running the report and that the landlord be a business entity. The landlord must have a place of business that can be inspected and verified before they run their first report. Landlords are required to run their reports from their place of business. They also can only run credit reports for their permissible purpose of tenant screening. They cannot run a credit report on themselves, friends, and relatives and for any other purpose that is not for screening a prospective tenant.
What if my Place of Business is my Home?
Some small landlords have their home as their place of business. This is often still OK. While there are some other restrictions that apply, as long as you follow those criteria and as long as you are a business entity, you can run the credit report from that location.
For a landlord that has less than 20 units, it may not be cost effective to have an inspection for tenant screening as inspection fees range from $55 or more. This type of landlord just needs a quick summary of information to make an informed decision. There are alternative options for these types of landlords which are discussed below.
What if I’m not a Business Entity?
While landlords always need to obtain permission to run a background check, there are many things that landlords can look at that aren’t affected by the FCRA. This can include:
- Criminal History
- Basic Rental History
- Evictions and Judgments
- Some Basic Credit Summaries and Soft Pulls on Credit
RRD Instant Tenant Screening Service
Perfect for small landlords, The RRD created its instant tenant screening service. This service does not provide the level of detail that you would normally get after a property inspection, but it is sufficient information for making an informed decision. Included in the instant tenant screening summary is:
- FICO Score
- Open Debt
- Monthly Debt Payment
- Number of Late Payments Within the Last Year
- Number of Criminal Records Found
- Rental History Report
- Number of Accounts Currently Delinquent
- Number of Judgments
- Number of Write Offs
- Other Hits
If landlords are consistent in their leasing procedures, landlords are within their right to run background checks on their prospective tenants. Whether you’re a big corporation that needs to run a lot of reports run quickly and efficiently or a small landlord with only a few units and in need of some basic information, there is a FCRA compliant tenant screening option that exists for your needs. Tenant screening is affordable and invaluable to protecting a landlord’s investment.
** Always be sure to follow all proper procedures when handling a tenant. Please be sure that any metric you use in review of an application must be applied to all applications to rent. A comprehensive view of F.C.R.A. law and procedures can be found here. Also be sure to follow all fair housing laws and not to discriminate based on race, gender, minority group, etc. Please also observe local ordinances, which may supersede some federal laws. **