Finding reliable, responsible and respectful tenants is no easy task, but it’s one of the most important aspects of managing a rental property. One way to help landlords find the right tenant and minimize liability is to perform a background check. Conducting a thorough screening as part of the application process can provide valuable insights into an applicant’s financial history, rental history, criminal record and more.
So if you’re thinking of leasing your rental properties, be sure you understand how to run a tenant background check and your legal obligations as a landlord.
— What is a tenant background check and why is it important?
— How to run a tenant background check.
— Can landlords perform their own tenant background checks?
[Smart Technology for Landlords]
What Is a Background Check and Why Is it Important?
A background check is commonly used to screen prospective tenants before signing a rental agreement. Landlords and property managers use professional background screening services to check a tenant’s credit, rental, eviction and criminal history as part of the rental application process.
A thorough background check gives landlords a better picture of who they’re renting to, which can help them identify trustworthy and reliable tenants who are likely to pay rent on time, take care of the property and comply with the lease agreement.
“Screening applications thoroughly is probably one of the most important aspects of property management,” says Jordan Davey, digital marketing manager at Victory Property Management, which operates in North Carolina, South Carolina, Virginia and Washington, D.C. “With today’s technology, it’s easier than ever to provide false documents. Don’t let the excitement of a quick move-in, upfront payment and the idealistic dream of the perfect tenant cloud your research.”
Last year, the Federal Bureau of Investigation warned of increases in rental and real estate scams. Nationwide, 11,578 people reported losing $350,328,166 due to rental scams in 2021 — a 64% increase from the previous year.
“One of the largest scams we saw in late 2022 was from underqualified applicants claiming they were recently hired by Wells Fargo in various ‘work-from-home’ positions,” Davey says. “All of these applicants oddly came in within two weeks of each other, were moving from different regions than the home was in and all supplied a very convincing offer letter. Every offer letter offered the same salary, $72,000, no matter the position, and all had the same HR representative’s name signed at the bottom.”
However, after doing some digging, it was clear that the letters were fabricated. “With a simple web search, you can find the Wells Fargo offer letter, doctor it and provide contact information for any personal associate to ‘verify’ employment,” Davey says.
[Read: The Rise of Built-for-Rent]
How to Run a Tenant Background Check
A tenant background check typically involves several steps:
Get Written Consent
Before running a background check, you need written consent from the tenant. The Fair Credit Reporting Act dictates that the personal information of consumers cannot be accessed unless for “permissible purposes” like housing. This may be included as part of the rental application or as a separate form.
Gather the Necessary Information
“The first key step is to have a comprehensive rental application which collects at minimum the name, date of birth, Social Security number, other proposed occupants, pets, previous addresses with landlord references, employer references, vehicle information and driver’s license or government-issued ID,” says Alexandra Alvarado, director of marketing and education at the American Apartment Owners Association. Proof of income is also necessary, such as pay stubs, bank statements or a W-2, and a copy of the applicant’s ID.
“The results of a background check will only be as good as the information that is input,” Alvarado adds. “And the more documentation landlords request, the less likely a tenant will be to forge them.”
Choose a Screening Service
Most landlords and property managers turn to a professional screening service to do the legwork. Make sure the company is approved by the Federal Trade Commission, as special permission is required to access this type of information. Tenant screening report fees can cost $25 to $75 per applicant, but this depends on your location and the service you choose.
A tenant screening report may include all or some of the following:
— Credit reports.
— Rental history information, including evictions and lawsuits.
— Employment verification.
— Criminal history.
— Sex offender registries.
— National terrorist watchlist.
— A risk score or recommendation based on criteria selected by the landlord.
“A criminal background check is another important factor and crucial component to ensure safety and reduce landlord liability, but landlords should note that records can be limited, restricted or even banned in certain areas,” Alvarado says. For instance, Oakland and Berkeley, California, prohibit landlords from asking prospective tenants about arrest or conviction records, while in Illinois only a record of the last three years may be considered.
Run a Credit Check
If a credit check isn’t offered by the tenant screening service, then landlords can request a credit report from the three major credit reporting bureaus — Equifax, TransUnion and Experian. While a credit report won’t tell you everything, Alvarado says it does reveal whether the applicant has been taken to collections for utility bills, unpaid rent or payday loans and whether they have recent late payments on their lines of credit.
However, Alvarado warns that tax liens and civil judgments, including evictions, are no longer reported on a credit report. “Unless the tenant has been taken to court and a collection agency is used to collect the judgment, there would be no effect on their credit,” she says.
Check References
Make sure to always check references, and if you don’t want to do it yourself, you can hire a company to do it for you.
“Anyone can fake a pay stub or get away with not getting taken to court by a landlord. Calling their employer’s HR directly and a previous landlord often reveals the truth that is not technically part of ‘public record’ offered on a background and credit check,” Alvarado says. “It may seem daunting, but bad tenants are hoping landlords won’t go through the extra effort.”
Know the Local Laws
There are certain laws that govern the landlord-tenant relationship and outline the rights and responsibilities of both parties. Without knowledge of tenant laws, landlords may unknowingly violate their tenants’ rights or fail to fulfill their own obligations under the law.
For example, telling someone not to apply because of their criminal record could be considered discrimination, which goes against Fair Housing laws. Also, if an applicant does not pass the background check, then the landlord is obligated to give notice of the action, provide the contact information of the company that supplied the report and the notice must explain the applicant’s right to correct inaccurate information and to receive a free copy of the report within 60 days of the landlord’s decision.
[Read: What to Consider Before Buying a Rental Property]
Can Landlords Perform Their Own Tenant Background Checks?
Landlords can perform their own tenant background checks, but they must comply with federal and state laws to avoid violating tenants’ rights. Landlords can perform tenant background checks themselves by using online screening services, contacting previous landlords or employers and checking public records. Remember that you’ll need consent from the applicant before running a background check.
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How to Run a Tenant Background Check originally appeared on usnews.com
