tenant screening laws

Understanding Tenant Screening Laws

Chapter 02

Tenant Screening Laws For Landlords and Tenants

It’s pretty common for a tenant to get upset about something is written in their lease. That’s because they didn’t actually pay attention or read it, to begin with, and they feel blindsided.

Most landlords tend not to have sympathy for the tenant who uses ignorance as an excuse.

The same is true for a judge when a landlord says they weren’t aware of tenant screening laws.

tenant screening laws

It only takes one bad experience with a problematic renter for landlords to look into tenant screening laws.

One innocent mistake where tenant screening laws are ignored can cost tens of thousands of dollars in fines and legal fees.

That’s why it’s imperative to take the time to read this page in its entirety. One ounce of prevention could be worth $10,000 of cure.

We’ll educate you on exactly what you need to know so you’re within your legal rights when screening tenant applicants.

What are Tenant Screening Laws?

Landlord-tenant laws and regulations govern the business dealings and interactions between landlords and tenants. There are laws that regulate everything from keeping a property habitable to the steps needed to evict a tenant.

The tenant screening process is no exception.

The laws are in place to protect both landlords and applicants during the fact-finding part of identifying the applicants with the most potential to meet the rental standards you’ve set for your property.

Landlords need to understand the laws regulating the process so they can stay compliant. Even if you didn’t discriminate intentionally, you are still subject to the laws.

Federal and state laws can differ, and it’s crucial you understand both.

This is a great question that came up in our private Facebook Group.

tenant screening regulations

Harry Heist is an active member of our community and an attorney in Florida who represents large property management clients.

It’s important that you understand the federal laws and then how your state and local municipalities interact with those laws.

Let’s get started with the federal laws…

Understanding Federal Fair Housing Laws

The vast majority of landlords are governed by the laws of the FHA. There are some exemptions but it’s best that you follow these laws regardless of your situation —you and many other landlords in the United States of America are subject to the Fair Housing Act of 1968.

7 Protected Classes FHA

This comprehensive federal legal protection covers rights and protections for applicants and tenants to ensure they get fair consideration. The Department of Housing and Urban Development, or HUD, administers and enforces the Fair Housing Act.

The seven protected classes listed in the Fair Housing Act are:

  1. Race
  2. Color
  3. Religion
  4. National Origin/Ethnic Background
  5. Gender
  6. Familial Status
  7. Mental/Physical Disability

Unfortunately, thousands of fair housing claims center on the application and screening process.

Landlords may show a preference for a particular type of applicant and put others at a disadvantage.

Another example is when landlords set different terms for one applicant over another. When some landlords have stricter standards for certain applicants than others, it can get them into trouble with the law.

The Fair Housing Act applies to millions of properties across the country with few exceptions.

But how can you find out whether or not the Fair Housing Act applies to your rental properties and your tenant screening practices?

One notable exception to federal fair housing laws include buildings with fewer than five units where one is occupied by the property owner.

This is known as the “Mrs. Murphy” exemption and is covered later in this chapter.

mrs murphy exemption

Other exemptions include religious organizations, private clubs, senior housing and single-family homes where a broker is not involved in the sale or rental.

However, even if your property is exempt from the Fair Housing Act, many state and municipal fair housing laws may apply to your property.

If you want to manage your rental property business successfully, you need to understand and be compliant with the federal fair housing laws, especially as they apply to tenant screening.

The law states that landlords cannot discriminate against an applicant in a protected class. In other words, the Fair Housing Act prohibits landlords from gathering and using certain information as a basis for selecting a tenant.

What Is The Mrs. Murphy Exemption?

We hear this from landlords many times as an excuse to discriminate in their screening practices because they are in an owner-occupied rental.

“Mrs. Murphy” is not a real person but a hypothetical character. She is painted as an elderly landlord that lives in an owner-occupied rental.

The FHA exemption states that if a dwelling has four or fewer rental units and the owner lives in one of those units, that home is exempt from the FHA.

This is not true in every state, and state laws take precedence over national laws.

Take a look at this map on Mrs. Murphy at the state level.

mrs. murphy exemption by stateIf you’re in a red state, this means that the exemption does not apply in your state whatsoever.

If you’re in a yellow/orange state, there are extra conditions added to the FHA exemption.

If you’re in a green state, this means that the state laws mimic that of the FHA.

For detailed information on your state, you can visit this resource from foxrothschild.com

We would caution you to still look up your state laws as that link above is dated 2013 and some states may have changed their status on the exemption.

Can Landlords Discriminate Against Felons?

One area of tenant screening law that is confusing to many landlords centers on the applicant’s criminal background check.

The Fair Housing Act doesn’t include criminal history as a protected class, and therefore applicants with such a background are not safe from discrimination.

However, HUD recognizes the growing discriminatory practices of landlords making decisions based on an applicant’s criminal background.

The graphic below shows that the US makes up about 4% of the world’s population but around 22% of the world’s prisoners. This according to Wikipedia as of October 2013.

us prison population copy

This next image shows the likelihood of a male being incarcerated based on ethnicity in 2009.

incarceration by ethnicity 2009

These types of statistics are why HUD has enacted new guidelines in 2016 to limit the disparate impact.

Disparate impact refers to practices in employment, housing, and other areas that adversely affect one group of people of a protected characteristic more than another, even though rules applied by employers or landlords are formally neutral (source Wikipedia).

Basically… if a landlord has a blanket policy of no criminal history it is much more likely to punish a Hispanic or black male than a white male.

HUD has enacted new guidelines in 2016 to help landlords navigate this tricky area and stop them from issuing blanket policies about a criminal record.

Landlords may be breaking the law when they refuse to rent to applicants with criminal records.

tenant screening reports

To determine whether or not a landlord’s criminal history policy is discriminatory, HUD looks at several different criteria:

  • Does the landlord’s criminal history policy have a discriminatory effect?
  • Is the landlord using the same criminal history criteria for every applicant?
  • Has the landlord made exceptions for some tenants with a criminal history?
  • Does the criminal history policy legitimately protect other tenants and the property?
  • Does the landlord include specific examples of criminal behavior that threatens the safety and not just rely on blanket statements about arrests and convictions?
  • Does the criminal history policy make a distinction between arrests versus convictions?
  • Has the landlord included specific requirements for the type of crime, history of criminal activity, how long since the criminal activity and evidence of rehabilitation efforts?

tenant screening reports

Landlords have the right to deny an application based on a person’s criminal history, in accordance with the federal law.

Many of the guidelines support landlords in refusing to rent to those with specific criminal backgrounds such as drug manufacturing and dealing, sex crimes and violent crimes.

This way, landlords can rely on their comprehensive rental policies that deny housing to applicants with these specific criminal convictions to keep other tenants and their property safe and secure.

Of course, different states and municipalities may have more strict laws in place concerning discrimination against those with a criminal background.

The bottom line for you and your rental property business with regards to tenant screening laws and criminal history is just a person’s arrest record is no longer a valid reason to deny an applicant.

You are not allowed to include a blanket statement that all applicants with a criminal history will be denied.

HUD wants to work with landlords to ensure that they are able to prove why they deny an applicant based on criminal convictions (drugs, sex crimes, etc.) for safety and security reasons.

Ignorance is No Excuse For Tenant Screening Laws

When discovering what constitutes discriminatory behavior during tenant screening, landlords, owners and property managers often don’t know or don’t care about the laws that regulate the process.

Some landlords who discriminate have aggressive political or social agendas and willfully deny housing to qualified applicants.

While this does happen, there are also thousands of cases where landlords are just not aware of the federal, state and municipal tenant screening laws.

tenant screening reportsHere are some examples of how landlords break the law during the tenant screening process, whether willfully or inadvertently:

  • Holding some applicants to stricter standards than others, such as a higher credit score for single mothers.
  • Asking questions that allude to an applicant’s marital status or familial status, such as whether their kids are excited about the upcoming holidays.
  • Querying what an applicant’s first language is.
  • Including discriminatory questions on the rental application.
  • Asking an applicant’s references about their background, such as what country they came from or if they are gay.
  • Trying to guess the ethnicity of an applicant, such as whether they are Korean or Japanese or what Native American tribe they are from.
  • Asking in what country an applicant was born.
  • Mentioning that there is a church or synagogue nearby that the applicant might like to attend.
  • Advertising for a specific type of applicant or against others, such as saying that the property is in a good Christian community or it’s for single people only.
  • Refusing a service dog because of your no pets policy.
  • Discreetly asking an applicant if they are gay.
  • Asking for a higher security deposit from applicants with kids.

tenant screening reports

Even if you don’t ask questions of the applicant directly, you can still get into trouble if your rental application form includes certain types of questions.

You must ensure that your rental application form in no way includes questions about things like a person’s disabilities, marital status or race.

A rental application should only ask for information on things like bankruptcies, prior evictions, work status, references and similar issues that reflect whether or not they would be a good tenant and able to pay the rent on time and in full.

Create a Rental Policy for Fair Tenant Screening

The best way for you to stay compliant with the Federal Fair Housing Act when it comes to tenant screening is to create a written rental policy (we refer to this as a tenant screening criteria in the next chapter).

This document outlines the acceptable criteria that are necessary for any landlord to approve an applicant for their rental property.

Think of tenant screening like a Math vs. Art Teacher grading your work

create guidelines for tenant screening

 

With an art teacher, it’s a little vague as to why your project was better or worse than the next.

You don’t want to grade tenants like an art teacher. You want to have an answer key as a Math teacher would and you do this by creating a tenant screening criteria.

Landlords must treat every applicant exactly the same way and apply the criteria to everyone equally.

You can use your tenant screening criteria as the legal standard for selecting your next tenant.

FCRA Laws for Tenant Screening

The provisions outlined by the Fair Credit Reporting Act, or FCRA, protect every consumer’s information and ensure as much accuracy as possible.

Doing a background check on someone reveals all kinds of information about their consumer habits and life skills and experiences.

It helps lenders, employers and landlords determine if the applicant is going to be able to fulfill the requirements of the loan, job or rental agreement.

People or companies are only allowed to access this information when they have a permissible purpose.

The report can only be used for the stated purpose, which is to qualify for renting a unit, and for nothing else.

When landlords use background checks that include credit reports to assess rental property applicants, they must follow the laws that regulate use as well as reporting information.

When a landlord is using a consumer report to make a decision about an applicant, there are several essential compliance steps outlined by the FCRA.

Collect a Completed Rental Application

Landlords need to start the process by collecting a completed rental application form from the applicant.

This document is the starting point for running a background check and provides the landlord with vital information like a Social Security number, full name, birthday and more.

A completed rental application shows that the person is interested in becoming a tenant and provides the landlord with a reason to start a background check.

signed rental applicationsVerify an Applicant’s Signature

The FCRA is extremely protective of every consumer’s information, therefore not just anyone has access to the report. A landlord must obtain written permission from the applicant to show that they are allowing their background information to be shared.

Most landlords and property management companies include a signature line on the rental application that grants permission for them to move forward.

 

landlord verificationComplete a Credit Access Application

Landlords, investment property owners, and property managers are approved by the FCRA to legally access an applicant’s credit report as long as they have consent. However, they must complete a credit access application that establishes their legitimacy.

The application generally requires a signed rental application and sometimes a copy of a business license or property management agreement. If landlords use a credit reporting agency, this step is often part of opening an account with them.

adverse action letter generic SAMPLEAdverse Action Notice, If Applicable

If the landlord makes a decision that is not favorable toward the applicant based on information found in the consumer report, it is an adverse action.

Adverse action includes requiring a co-signer, requiring a larger deposit, raising the rent or outright denying the application.

If any action is taken, the landlord must provide the applicant with an adverse action notice. This is written documentation of what the landlord is doing and why.

Landlords must provide information about the consumer reporting company that created the report and the applicant’s right to dispute any information on the report, among other things.

We recommend using a generic adverse action letter because you’re not required to give specific details of why you denied the applicant. Less is more when it comes to issuing adverse action to a denied applicant.

shred tenant screening reportsProperly Dispose of a Consumer Report

The FCRA requires anyone that has requested a consumer report to securely dispose of the information when they are finished. For paper reports, shredding or burning is sufficient.

Electronic reports must be deleted and not stored on any backups.

At RentPrep we store all reports digitally and handle all compliance. If you were to print your screen to keep a copy of the report, you are opening yourself up to unnecessary issues. Some landlords like to have a hard copy of the report, but we strongly urge against this.

Landlords can also choose to report information to a reporting agency under the FCRA Furnisher Rule.

However, they are not under any obligation to do so. Your responsibilities as a furnisher are clearly spelled out.

They include working to ensure the accuracy of the information you are providing.

The most common thing that landlords do as furnishers are to report delinquent accounts.

You must provide accurate information and include the month and the year of the delinquency.

There are other rules regarding what happens if the consumer disputes the information landlords provide. In that case, you take an active role in the investigation.

 

Federal vs. State Tenant Screening Laws

The federal fair housing laws confer many rights onto renters that belong to one or more protected classes.

Many state and municipal laws go beyond the federal fair housing laws to confer additional rights to applicants.

Every state has fair housing laws that either meet or exceed the federal standards set by the Fair Housing Act. It is up to you to know about your own state and municipality when it comes to tenant screening laws.

State laws typically oversee that of the FHA. Usually, this means additional regulations or restrictions placed on the landlord.

The protected classes under the federal law include race, religion, sex, color, national origin, familial status and mental/physical disability. State laws must consist of these protected classes, but they can add additional protections to specific groups.

Here are some of the most common state and municipal protections that you might encounter:

  • Age
  • Sexual orientation
  • Gender identity and expression
  • Citizenship
  • Veteran status
  • Source of income
  • Medical condition

Just as with federal fair housing laws, there are properties that don’t qualify for state fair housing laws as well.

As a landlord, you need to also look at additional tenant screening laws and discrimination laws on the county or city level.

In many areas, counties, cities, and municipalities also have tenant screening and rental discrimination laws that cover additional protected classes beyond what the federal and state law cover.

To do more research on the laws and regulations of your state, you can follow links from this HUD website. https://www.hud.gov/states

You can also enter your state and the words “fair housing” into a search engine to find websites that provide details on your state laws. For example, a landlord in Oregon would simply type “Oregon fair housing” to find links to state government websites that outline the laws and regulations.

To find more about your county, city, and municipality, the best thing to do is conduct an online search.

Just enter the name of your state, city, county, and municipality along with “fair housing.” For example, a landlord could enter “Miami-Dade County fair housing” into a search engine to learn more about the laws in that area.