Landlords face a complex balancing act. On the one hand, they want to ensure the maximum income from the property or properties they manage. On the other, they also want to protect the safety of their investment—the home or apartment—and minimize the upkeep expenses. To strike the correct balance, tenant selection is the most important step in the rental process. Unsurprisingly, many corporate property management companies have chosen to automate the process, using algorithms to score candidates based on suitability.
Even individual landlords can afford to be choosy, especially with an ongoing housing crunch nationwide. The tenant background check has been a pillar of this process. Unfortunately, many landlords may use background check results that don’t reflect a 100% clean record as a reason to deny applicants. They may even conceal the real reason they turned down an individual.
Is the background check a necessary part of the rental process? Some fair housing advocates say that it is. Others, including a federal watchdog, prefer to warn landlords that criminal histories might not tell the whole story—or even the right story. At a time of shifting regulations and changing attitudes, it’s important to remain current on the latest changes.
California Landlords Face New Rules
By 2023, a new law will go into effect in California that allows those seeking housing to pay for their own background and credit check. This “reusable” report would remain valid for some time and free individuals from repeatedly paying $50 or more in application fees for every property they consider. However, landlords will not have to accept these reports—it is a voluntary program. The option to continue with the status quo remains for California landlords concerned about potential falsehoods or alterations to applicant-supplied reports.
Some Affordable Housing Providers Drop Screening Requirements
In Utah, one group of fair housing advocates has decided to demonstrate their commitment by creating a low-income housing community out of an old motel and requiring no background checks. The apartments are open for anyone to apply, and a needs-based assessment determines who can move in, not the results of a background check. Although a novel experiment, most landlords remain wary of dropping background check requirements. However, the Utah community has so far demonstrated that it’s still possible to foster a safe, friendly community without mandatory checks.
Considering Screening Reports Demands Care and Consistency
The Consumer Financial Protection Bureau warns landlords that they might make decisions based on faulty data provided by consumer reporting agencies. The CFPB cautioned that many of the procedures landlords use today could violate the law. Discrimination, improper refusals, and even violations of the FCRA are all on the table. For example, many landlords issue denials because of an item on the background report—but never notify applicants of the reason.
For a landlord, this might seem like the easy way out, but the CFPB noted that it could create legal exposure and potential future lawsuits. If you continue using tenant background checks, you’re mandated by law to provide “adverse action notices” to applicants and allow them to provide clarifying information or correct errors in their reports.
Operating rentals effectively today demands more than a rigorous approach to selecting tenants—you must also stay informed about local and federal laws. With more intense scrutiny on the way due to the housing crisis, many authorities will look for ways to expand access. For landlords, the key to continued profitability is staying ahead of the curve and understanding how to screen tenants effectively without artificially limiting opportunities.
About Michael Klazema The author
Michael Klazema is the lead author and editor for Dallas-based backgroundchecks.com with a focus on human resource and employment screening developments