Any landlord’s most important job is to screen tenants and pick the best one for the property. Part of that screening process is always going to be denying applications. But, landlords who don’t know the laws and best practices can find themselves in trouble.
How to Deny Rental Applicants
Setting forth your process for screening and rejecting tenants is essential to the long-term health of your business. Not only for avoiding discrimination, but for also making sure you’re getting the best long-term tenants you can find.
- Determine Your Criteria
- Reject the Obvious ones
- Order Tenant Screening Reports
- Compare the Remaining Against Each Other
- Send Out Letters to All Who Get Rejected
1. Determine Your Criteria
Before you even field an application, it’s a good idea to create a document that spells out your minimum qualifications for renting your property. This could look like:
- Debt-to-income ratio can’t be worse than 40%
- Credit score of at least 600 (your ideal renter probably has a higher credit score, but these are just minimums for your first round of screening)
- No tolerance on prior evictions or violent felonies
- No pets
- No smoking
It’s always good practice to have this list of set criteria (and probably one more in-depth than outlined here) for a couple of reasons.
First, it’ll save you time when screening. If you have a desirable property, it’s possible that you’ll get dozens of applicants. If you can apply your minimum qualifications and scratch off most of the applicants, that’s a big win.
Second, it’ll help you avoid discrimination lawsuits. A rejected applicant may claim you discriminated against them. But, if they have a credit score of 580 and you can show this document detailing that you don’t accept applicants with credit below 600, the applicant likely won’t have a case.
Of course, it goes without saying that you must stick to this document. It undermines your attempts to avoid discrimination if you have a current tenant in another unit that has a prior eviction or owns a pet.
Always use the same criteria for all applicants. Don’t raise the requirements for an applicant that you didn’t like with the goal of an easy rejection. They’ll have a slam-dunk discrimination case in turn.
2. Reject the Obvious ones
Now that you’ve determined your criteria, it’s time to actually start your first round of weeding out the low-quality applicants. As mentioned previously, the first pass through should be to get rid of the ones that you won’t even consider.
Along with actively reviewing and rejecting these applicants, you should also use strategies to have applicants filter themselves out.
You can do this by:
- Mentioning your minimum qualifications on the application.
- Explain what is expected of your tenants (lawn care, utilities, landscaping, two year contracts, etc.).
- Tell them that you’ll be verifying all information, including talking to references, prior landlords, and their employer.
Spelling all this out on the application itself will have the effect of deterring many low quality applicants from even applying. This is a huge win for you, as it saves you time, money on screening costs, and from more opportunities to have discrimination cases filed against you.
3. Order Tenant Screening Reports
Now that you’ve auto-rejected many applicants, it’s time for you to actively screen the rest. Many landlords use tenant screening services that will pull all the necessary reports, such as credit history, eviction history, criminal background, and more.
In most cases, applicants will submit an application fee, which is often put towards tenant screening costs. However, there’s probably not a good reason to pay for screening for more than 3-4 qualified applicants.
Depending on how many applications you received, this may require denying some more applications before ordering screening reports. This also means more revenue from application fees in your pocket.
4. Compare the Remaining Applicants Against Each Other
In a perfect world, you would have valid reasons for rejecting all of your applicants except one—and you offer them the lease.
However, that often isn’t the case. First, you’re going to get back tenant screening reports, and then you’ll talk to their employer, landlord(s), and personal references.
At this point, you might still have two or three flawless candidates, or maybe all of them have only a single flaw in their history.
So what do you do? With all else equal, the best practice is to pick the one that submitted their application first. Deciding on candidates on a first-come, first-serve basis is a commonly recognized and accepted practice for deciding between qualified applicants.
Avoid the urge to pick the one that you like the best, because without a valid reason you could find yourself in a discrimination lawsuit.
Look at it from the applicant’s perspective:
Let’s say you’ve applied to the property right after the landlord began accepting applications. You have a stellar rental history and a good income. Later, you find out that your application got rejected and the person who got it applied after you did. You never got a rejection letter, or the letter you got didn’t have a great reason to deny your application.
That’s the basis of a discrimination lawsuit.
5. Send Out Letters to All Who Get Rejected
An often overlooked part of denying a rental applicant is notifying everyone who had their application ejected.
First, it’s important to note that if an applicant was rejected for a reason found on a consumer report (credit, rental, eviction, or criminal history, for example), the landlord must submit what’s called an adverse action notice.
According to the Fair Credit Reporting Act (FCRA), an adverse action refers to:
- Denying a rental application
- Not renewing a lease
- Requiring a co-signer
- Requiring a higher deposit (or any deposit if not required of other applicants)
- Charging higher rent
For example, let’s say that you found out the applicant’s credit score is 580, and you decide to reject their application. You must send them an adverse action notice that includes, either written or electronically:
- Contact info for the consumer reporting agency (CRA) that put together the report.
- A statement that the CRA was not the one that chose to take the adverse action against the applicant and cannot explain why the choice was made.
- Notice that the applicant can receive a free copy of their report and dispute the accuracy and completeness of the information.
- Their credit score.
These adverse action notices will often form a good chunk of the rejection letters you need to send. If an applicant is denied for a reason other than what was found on their tenant screening report, there is no legal requirement for notifying as to why they were rejected.
Send Letters to All Rejected Applicants
Whether required by the FCRA or not, landlords should still send letters to all applicants who have been rejected. The main reason for this, other than being polite, is to avoid discrimination lawsuits.
For example, someone may know that they have excellent credit, good income, and good rental history and believe they’re going to get the lease.
However, perhaps the landlord calls a reference and gets a bad review. Or a previous landlord says that they neglected to take care of the property somehow. Those won’t show up in a tenant screening report, but are still a legitimate basis for rejecting an applicant.
If this particular applicant is from another country, they may believe that’s the reason they were rejected and could be tempted to sue the landlord. A rejection letter explaining the bad reference will usually nip this in the bud.
Deny An Application Without Discriminating
The Fair Housing Act (FHA) lists protected classes that cannot be used as a basis for denying rental applications (or taking any adverse action). These classes are:
- Sex (including gender identity and sexual orientation)
- National origin
- Familial status
Implied in this list are things like health, marital status, age, number of children, and more. That’s far from a complete list, and you should consult an attorney if you’re unsure if discrimination could be at play.
The FHA is a federal regulation, but some states place a greater burden on the landlord. For example, some areas don’t allow you to deny an applicant for not submitting a social security number, even though that’s not found in the FHA. Other locales don’t let you take criminal history into account.
Now, here is a list of common reasons that a landlord CAN use to deny a rental application:
- Debt-to-income ratio
- Can’t verify information (income, employment, credit, criminal background, etc)
- Poor credit history (lots of debt, too many missed payments, bankruptcies, etc.)
- History of late payments
- Prior evictions
- History of damaging property
- Has pets
- No rental history
- Poor reviews
- Inconsistent/poor job history
- Moves frequently
Again, this is far from a complete list. The real answer is that a landlord can reject applications for anything not listed in a protected class, although that can be tricky to navigate. Consult with an attorney to make sure you’re protected.
Best Practices for Avoiding Discrimination
When denying applicants, landlords must understand not only the rules for discrimination, but also how to appear as to not be discriminating. It’s possible for landlords with the best intentions to still be sued for discrimination for not following all of these best practices:
- Treat everyone the same – An easy way to get in trouble is to treat your applicants differently. If you ask different questions or have different requirements for just one or two people, it’s easy to make a case they were singled out for discrimination.
- Have self-filtering mechanisms in place – Be sure that your application states your high standards and requirements. The fewer applications you have to field, the fewer opportunities there are for discrimination suits.
- Notify everyone the reason for denial – The FCRA requires notification for adverse actions taken because of a consumer report. Go above and beyond and send a rejection letter to everyone who applied.
- First come, first serve – When choosing between equally qualified candidates, pick the one who submitted their application first.