Need to Know!

July 17, 2014 4:48 pm

Tenant Screening – Credit Scores, Dodd-Frank & Risk Assessment Models

Tenant screening companies have long struggled with steps required by the three major credit bureaus and other consumer data providers to confirm the identity and permissible purpose landlords.  The site inspection requirement is particularly troublesome for private landlords – those with a small number of rental properties.  It is both expensive (arguably impractical) and intrusive – since the majority operate out of their homes. Some (tenant screening companies) attempt to circumvent the site inspection requirement by offering private landlords summary only, or score-based risk assessments (or recommendations) – by removing the credit detail and score from the tenant screening report.  But there is a problem.  Background The Fair Credit Reporting Act requires that landlords provide oral, written, or electronic Notice of Adverse Action to prospective residents when such action is based in whole or in part on the content of a tenant screening report.  The notice must inform the applicant... View Article

July 8, 2014 5:58 pm

Tenant Screening – Income Criteria

The majority of landlords include an income multiple component in their rental criteria.  Most look for gross income equal to 2.5-3.0 times the rental amount for a straight-up approval. Prospective residents who fall short of the gross income threshold may be approved conditionally or denied.  Landlords may set conditional approval ranges, within which the applicant is approved with an increased deposit or cosigner.  For example, if 3.0 times the rental amount is required for a straight up approval: 2.5 to 2.99 times the rental amount may be approved with an increased deposit; 2.0-2.49 times the rental amount may be approved with a cosigner; and <2.0 times the rental amount may result in a denial. Income Sources Landlords are called upon to consider income from many sources.  Some limit consideration to garnishable income.  Garnishable income is income employers can be ordered (by the courts) to pay directly to a creditor or... View Article

July 2, 2014 9:19 pm

HUD Discriminatory Effects Standard & Tenant Screening

The Department of Housing and Urban Development (HUD) is charged with enforcement of Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Act (Act) – which prohibits discrimination based on race, color, religion, sex, disability, familial status or national origin.  HUD has long held that the Act prohibits practices that have an unjustified discriminatory effect (commonly referred to as a disparate impact) on protected individuals, whether or not there is an intent to discriminate.  According to HUD, the eleven federal courts of appeal that have ruled on this issue ruled that “…liability under the Act may be established through proof of discriminatory effects. In its final rule, published in February, 2013, HUD formulated a three-part burden shifting test to determine whether a facially neutral business practice results in an unjustified discriminatory effect and represents a violation of Title VIII.  The stated goal is to... View Article

May 27, 2014 7:05 pm

Tenant Screening Reports & Management Company Changes

Tenant Screening Reports & Management Company Changes Residential rental property owners who rely on third party property management companies change companies from time to time.  When they do, questions arise as to the disposition of tenant screening reports procured under the existing management company’s tenant screening agreement. Tenant Screening Agreements generally include language similar to the following: “End User shall use each Consumer Report only for a one-time use and shall hold the report in strict confidence, and not disclose it to any third parties.” A strict reading of this provision would prohibit passing of tenant screening reports from one management company to another.  The Consumer Financial Protection Bureau’s Notice to Users of Consumer Reports (published as required by the Fair Credit Reporting Act (FCRA)) contains two provisions that apply: Users Must Provide Certifications Section 604(f) [of the FCRA] prohibits any person from obtaining a consumer report from a consumer... View Article

May 27, 2014 5:35 pm

Marijuana – Tenant Screening & the Lease

Changing laws and attitudes regarding possession and use of marijuana raise a number of questions for rental property owners and managers – the answers to which may impact tenant screening practices and the lease itself.  What we Know Washington State and Colorado now allow recreational use and possession of up to one ounce of marijuana by adults over the age of 21; 21 states (including Washington and Colorado) allow use of “medical marijuana”; and Possession and use of marijuana remain a crime under federal law. Complicating matters further: Use of medical marijuana may be associated with a disability, raising the question of “reasonable accommodations” under the Americans with Disabilities Act (ADA); and Marijuana can be ingested as well as smoked. What to Do? The easiest way to wrap your head around (and decide) this issue is to start with the options – which are pretty straight forward: Prohibit possession and... View Article

April 18, 2014 11:04 pm

FCRA Accuracy Requirement – Recent FTC Enforcement Activity

Section 607(b) of the Fair Credit Reporting Act [15 U.S.C. § 1681e] (FCRA) reads as follows: (b) Accuracy of report.—Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates. It is hard to argue with the spirit of this provision.  Tenant and employee screening reports impact individuals when they are most vulnerable – in their search for housing or employment.  That said, landlords and employers have the right (and duty) to thoroughly vet prospective tenants and employees – to protect themselves, residents, employees and clients. We rely on our screening company to provide the information needed to adequately screen prospective tenants and employees.  If that data is flawed – if it is either incomplete or inaccurate – someone gets hurt.  Landlords and employers are negatively impacted either way – whether... View Article

April 4, 2014 5:34 pm

Tenant Screening – Washington Legislature Further Limits Access to Juvenile Records

The Washington legislature passed (and the governor signed)HB 1651, further limiting access to juvenile records for tenant screening purposes. SB 1651 modifies RCW 13.50 by adding a section that requires the court to hold regular “sealing hearings” and to “administratively seal” juvenile court records at the first such meeting after “…the latest of the following events: The respondent’s eighteenth birthday; Anticipated completion of respondents probation, if ordered; <and> Anticipated release from confinement.” Under the new law, the court shall enter a written order sealing an individuals juvenile court record if one of the offenses is not at the time of the offense: A Most Serious Offense, as defined in RCW 9.94A.30;/li> A sex offense under chapter 9A.44 RCW; or A drug offense, as defined in RCW 9.94.030 – which in turn refers to RCW 69.50 (the Uniform Controlled Substances Act) RCW 9.94A.030 defines “Most Serious Offense” as any of the... View Article

March 14, 2014 7:21 pm

Consumer Financial Protection Bureau (CFPB) – Notice to Users of Consumer Reports

The Fair Credit Reporting Act (FCRA) imposes significant obligations on landlords and employers who use Consumer Reports, as defined by the FCRA.  Tenant and employee screening reports clearly fall within the definition of a Consumer Report.  The Consumer Financial Protection Bureau (CFPB) publishes a document titled “Notice to Users of Consumer Reports: Obligations of Users under the FCRA“.  It is a nicely organized summary of requirements imposed on landlords and employers (among others) who rely (in whole or in part) on tenant and employee screening reports to decide whether to hire or grant tenancy. The CFPB (and FTC) have become quite vigorous in their enforcement of the FCRA, so it pays to review the Notice to Users… from time to time.  Here are a few of the high points. Permissible Purpose Users must have a Permissible Purpose (as defined by Section 604 of the FCRA) before procuring a Consumer Report.  ... View Article

March 7, 2014 11:44 pm

Tenant Screening – Between a Rock and a Hard Place

Landlords are truly caught between a rock and a hard place when it comes to tenant screening. The Rock A failure to adequately screen prospective residents can have a devastating impact on the bottom line – NOI & equity. Further, there is a well-established duty to exercise care in screening prospective residents.  A failure to do so has resulted in disaster – followed by substantial civil penalties.  The Hard Place There has never been a more hostile legal and regulatory environment when it comes to tenant screening. First, there is a large and evolving body of law regulating consumer reporting (including tenant screening).  There is, of course, the federal Fair Credit Reporting Act (FCRA) as amended by the FACT Act.  States often have their own consumer reporting statutes – which may or may not align neatly with the FCRA.  Bottom line – these laws impose specific requirements on landlords (End-users... View Article

January 23, 2014 5:58 pm

Limits on Access to Juvenile Records – Washington State

Washington lawmakers are again considering limits on access to juvenile records.  House Bill 1651 (SB 1651), originally introduced in 2013, has been reintroduced in 2014. SB 1651 states the “The official juvenile court file of any alleged or proven juvenile offender shall be confidential unless the juvenile has been adjudicated of a sex offense… a serious violent offense as defined in RCW 9.94A.030, arson in the first degree or criminal solicitation of or criminal conspiracy to commit arson in the first degree, assault of a child in the second degree, kidnapping in the second degree, leading organized crime, or malicious placement of an explosive in the first degree….” “Serious violent offenses” is a subcategory of violent offense and means: Murder in the first degree; Homicide by abuse; Murder in the second degree; Manslaughter in the first degree; Assault in the first degree; Kidnapping in the first degree; Rape in the... View Article