Friday, May 16, 2014
USING RENTAL CRITERIA TO AVOID FAIR HOUSING VIOLATIONS
The violation of Federal Fair Housing laws can result in the loss of thousands of dollars in both civil and punitive fines, in addition to the repercussive expense of legal fees and the phenomenal expenditure of time and effort that is required of any court process.
Fair housing claims occur commonly as a result of the resident screening process, but that need not be the case. One easy way to avoid Fair Housing violations is to establish clear (written) rental criteria and then to consistently follow those criteria.
TIPS FOR ESTABLISHING RENTAL CRITERIA:
-Occupancy guidelines: In general most follow the 2 people per bedroom or the 2 people per bedroom plus 1 rule. This is not a hard rule, however, and the layout of your property may mean that it is appropriate to allow fewer (or more) occupants.
-Income to rent ratio: The industry standard is that an applicant must make 3 times the asking rent amount. This ratio is considered to offer good assurance that there are enough funds available to pay rent and live comfortably. This ratio may be adjusted depending on the area in which you are renting and what you feel is a reasonable expected income. RSI also recommends using an income to rent ratio which includes debt. Applicants should have at least ¼ of their income remaining after accounting for any monthly debt and your rent.
-Credit history: Consider credit scores (averages are available for specific states), bankruptcy records (for example, you may want to deny tenancy if they have had a bankruptcy in the last 2 years), amount of delinquency or collection accounts. RSI offers a pass or fail product that streamlines this whole process for you; providing a clear outline of your specific requirements for you to present to your applicants.
-Criminal history: This is not a protected class, however, given recent discussion around disparate impact, we recommend that you be as clear and consistent as possible when establishing criminal history criteria. You may want to utilize a general statement such as “tenancy will be denied for any criminal history which, had it been conducted on the property, would have been a threat to the property, its residents, or the community”. Other options include, denying based on the severity of the conviction (no felony convictions, for example) or the amount of time that has passed since the conviction. Bear in mind that each state has its own limitations on reportable criminal history, and you may be limited as to how far back you are legally allowed to consider convictions. Also, note that you should never base your decision on arrest records but convictions alone.
-Rental history: You may require that the applicant provide rental history for a given period of time (2 years). Generally, we would recommend verifying rental history with the past 2 property owners in addition to checking for any evictions. It is a known fact in the industry that once a person has had one eviction they are more likely to have another. Consider a rental criterion that denies tenancy for balances left owing, judgments, or evictions.
-Pets: Establish if pets are allowed on the property and if there are limitations on the type, number or size. Any additional deposits or fees should also be noted. Service and companion animals fall into a separate category and are exempt from these additional fees.
-Smoking policy: This has become a very popular (and important) issue in the rental industry given recent legislation. Be very clear about your smoking policy. A no smoking property would mean no smoking (of any kind).
-You should outline the application process, application fees, deposits, and required identification. Some states have fee caps in place or require that you charge only the actual amount of the background screening. Be sure to confirm what regulations are in place for your specific location.
-Clearly state that you adhere to all applicable fair housing laws.
It is important that you keep good records on each inquiry from prospective residents. Implement a log or system with utilizes guest cards to track relevant information such as date/time of showing, property shown, prospective move-in date, etc. in addition to any calls received or made. Also, keep records on any changes to property availability.
Applications received need to be kept for a minimum of 60 months, even if that applicant is denied tenancy or does not end up renting the property. Adverse action letters should be sent to any applicant denied tenancy. These letters are available on our website.
RSI is happy to discuss any questions you may have about establishing best resident screening practices. Call us at 1-800-628-6414 or visit our website www.erentalservicesinc.com for more information.