With just 23,000,000 landlords serving over 110,000 renters in the United States, one thing is clear- the rental market is doing really well. As a matter of fact, there are more than 2600 new renters every day. Going by these figures, you’re pretty much guaranteed to receive tons of tenancy applications for a good, strategically priced piece of property. Unfortunately, this presents a challenge, combing through all the applications to weed out the ne’er do wells. Of course no one would want to deal with a troublesome tenant, right?
Well, strangely, 23% of landlords do not even bother to conduct credit checks on their applicants, and 49% do not get in touch with past landlords or other references provided. If you thought that’s bad enough, 66% don’t conduct Sex Offender Registry checks. Of course this is great news to shady characters, but potentially detrimental to landlords and other tenants. While a couple of landlords claim that they fail to conduct comprehensive checks because they simply don’t have the time and resources, many of them admit that they just don’t know how to do it.
So, how do you effectively screen your tenants legally?
Federal Laws on Discrimination
We agree that sometimes tenant screening may feel like some form of discrimination, especially to prospective tenants who are eliminated. It’s actually an elimination process, which can only be described as “discrimination” when a landlord breaks any of the discrimination laws. At a time when “discrimination” is progressively gaining a bad flavor in American mouths, it’s critically important for landlords and property managers to acquaint themselves with the laws. Otherwise, you risk having charges filed against you, and possibly losing the good business reputation you’ve struggled to build all along.
- Physical or mental disability
- Family status
- Age (with an exception for senior-citizen communities)
- National origin
While it’s not really illegal to have a personal preference, acting on any of these grounds is considered punishable by law. To further streamline the process and eliminate any ambiguities, the law prohibits landlords from:
- Terminating tenancies on discriminatory grounds.
- Before or during tenancy, setting different privileges, conditions, terms for tenancy, like requiring a certain group of tenants to pay more rent than the rest.
- Implementing inconsistent rental policies
- Setting more restrictive tenant screening standards on an isolated group of prospects
- Refuse to rent property to a specific group of applicants
- Falsely deny that a vacant unit is available
- Advertise or make any statement that expresses preference based on race, gender, religion, age, family status, national origin, or any other protected groups.
Additionally, although you can eliminate alcoholics and drug addicts during tenancy screening, it’s illegal to discriminate against former drug addicts and recovering alcoholics. Federal laws protect even individuals with prior drug use convictions, and applicants who use drugs or alcohol for medical reasons. Of course this alone presents a challenge in determining whether an applicant is actually a reformed drug addict or not. As a matter of fact, a bulk of drug addicts, especially ones who have been through rehabilitation programs in the past, shield themselves by falsely claiming that they have reformed.
Properties Excluded From Federal Antidiscrimination Legislation
Interestingly, there are a couple of properties exempted from these laws. Senior citizen communities, for instance, are allowed to discriminate applicants according to their age. And this pretty much applies only to communities where 80% of the units are occupied by at least one person who is 55 year or older, plus areas where every tenant is more than 62 years of age.
Units operated and managed by religious organizations are allowed to vet tenants according to religion and belief. A Catholic managed property for instance, can screen tenants according to religion and proceed to admit only Catholics. This however, should apply across the board, to all applicants.
The only group of landlords exempted from all the antidiscrimination laws are ones who live within their buildings, provided that they have four or fewer rental units. It’s also not illegal to discriminate if you’re renting out a single-family unit without using the services of a professional property manager, as long as you don’t own more than three such units.
State Laws on Discrimination
While some state antidiscrimination laws offer additional guidelines, others are seemingly contradicting federal laws. In the state of California for instance, owner-occupied buildings with four or fewer units are not exempted from the discrimination law. The tenant screening process should not discriminate against any of the groups as identified in the federal laws.
Some states, on the other hand, further protect applicants from discrimination based on:
- Source of income, as long as it’s legal
- Gender identity or sexual orientation
- Marital status
What You Can Legally Discriminate Against During Tenant Screening
As you conduct your tenant screening, the law allows you to eliminate applicants with potentially destructive habits like smoking and cooking meth, plus individuals with bad behavior, as proven by criminal regards or bad reference reports. And speaking of references, you can also disqualify a prospect who declines to provide references for background checking. While it’s illegal to discriminate according to source of money in some states, it’s completely legal eliminate applicants who fail to demonstrate sufficient financial capability.
Of course the entire process of screening tenants could be cumbersome, especially if you rely on a manual system. To efficiently sail through it, regardless of the number of applicants, it’s advisable to adopt an effective property management software, like Property Matrix, which comes with additional tenant screening tools. It’ll further help you generate reports, which are particularly critical in informing unsuccessful applicants their respective grounds for disqualification, to prove that you indeed abided by all antidiscrimination laws.