Rejecting A Rental Applicant: The Do's and Dont's

UPDATE - APRIL 15, 2016 ---- Please review my April 15, 2016 blog post on HUD's new guidance regarding the consideration of a rental applicant's criminal history in the screening process, as it may impact or alter the information in this blog post.

Let's face it, most landlords would prefer never to have to reject a rental applicant. It would be great if every application we received from a potential tenant passed muster—great credit, no prior evictions, strong job history, etc. Unfortunately, that is not the case most of the time. Depending on how tough your screening criteria are, some of you may be rejecting a lot of applicants. It is not fun to reject a rental applicant, but it is part of the job of being a landlord—it needs to be done.

I would strongly suggest that if you have not read my prior post on written rental screening criteria, you do so before reading the rest of this post. Understanding what written screening criteria are and how to use them properly will be very helpful in getting the most out of this post.

So how does a landlord go about giving an applicant the ol' rejection? In most areas of Wisconsin, a landlord is not required to provide a reason for denying a rental applicant. While this may not seem "fair,” it is legal -- in most areas of Wisconsin.

CAVEAT: Those of you who have read my prior posts know of my fondness for the city of Madison and Dane County -- sarcasm intended. Well, you guessed it, Dane County and "Mad-Town" are a little different in that they require landlords to provide a rejected applicant with an explanation for denying them rental -- and the explanation must be in writing. So if you own or manage rental property in either of these liberal bastions, I would suggest that you spend some time reviewing the Dane County ordinances and the city of Madison ordinances . .. . then reconsider owning rental property in these areas : )

All kidding aside, there is not one correct way to deny a rental applicant. All landlords handle this situation differently depending on the specific facts. Each of my landlord clients handles the rejection of a rental applicant differently. For instance, some landlords choose to explain to applicants why they were denied, while others refuse to do so. Both ways are legally acceptable (except in Dane County and the City of Madison)

I would encourage any landlord who wants to provide a reason for the denial to the applicant to ensure that the reason they are denying the applicant complies with the landlord's written screening criteria, that the screening criteria used does not run afoul of any fair housing laws, and that the reason for the denial is not discriminatory. If you are not sure that your screening criteria are legally valid -- or you have never heard of the term screening criteria before now -- then you should probably avoid giving a reason for the denial.

I know of several landlords who require applicants to submit their request in writing to receive a reason for the denial. If they receive the written request, then the landlord will provide a written explanation. Often, the applicant does not take the time to submit a written request, and the landlord avoids providing an explanation.

There is one specific context in which all landlords MUST provide an applicant with a written document—not a written explanation for why they were denied—but a written document referred to as an "adverse action letter."

If a landlord rejects a rental applicant because of something obtained from the applicant's credit report, the federal Fair Credit Reporting Act requires that the landlord send the applicant an "adverse action notice" advising them that they have been denied rental in part due to information obtained from their credit report.

An adverse action notice must include the following information:

1. The name, address, and telephone number of the credit reporting agency that supplied the credit report.

2. A statement that the credit reporting agency that supplied the report did not influence the landlord's decision to reject the application.

3. Advise the rejected applicant of his/her right to dispute the correctness or completeness of the information from the credit reporting agency and the applicant's right to obtain a free copy of their credit report from the agency within 60 days, if requested.

An adverse action notice does not require a landlord to state the reason a rental applicant was denied, but it does inform the rejected applicant that the decision to deny their application was, at least in part, based on information from the applicant's credit report.

Personally, I provide any applicant whom I reject with an explanation. My reasons for doing so are threefold:

1. If I were being rejected for housing, I would like to know why, so I could see if the reason is something that could be corrected in the future. This is NOT a legal reason for providing the applicant with an explanation, but rather a personal one—a variation on the concept of treating others as you would like to be treated.

2. I believe that if I provide a rental applicant with the truthful (and legally valid) explanation as to why I will not be renting to them, they will be less inclined to incorrectly assume that I denied them based on discriminatory factors.

3. I'm well-versed in fair housing law and am confident that the basis for my decision to deny a rental applicant is not in violation of federal or state fair housing laws and that my decision can be legally supported.

As mentioned previously, if you do not know if your reason for denial is legally justifiable, then you need to be cautious in what you tell an applicant. You certainly don't want to end up providing the applicant with the only evidence that they need to file -- and win -- a fair housing claim. If you find yourself in this situation, I recommend seeking legal advice before deciding to deny the rental application.

Whether you have decided to provide an applicant with an explanation as to why they were denied rental or not, all landlords and property managers should memorialize the reason that they rejected the applicant in writing for their own records. If you are using written screening criteria—which I hope everyone is—then a copy of the criteria is the perfect place to record the reason for denial. Simply circle the specific criteria that the applicant failed to meet. You should also attach any supporting documentation -- such as a copy of the applicant's credit report, CCAP printout showing a prior eviction, or notes from your conversation with the applicant's current or past landlord where s/he told you the applicant was always late with paying the rent etc. etc. Finally, be sure and notate when you made the decision to deny the applicant and when that was communicated to the applicant. You should retain this paperwork for at least three years as this is the statute of limitations for the majority of fair housing claims.

Rejecting a rental applicant can be an uncomfortable situation and even an anxious one if you are not educated about written screening criteria and when you can legally reject an applicant. If you would like to learn more about these topics, you should consider attending the AASEW's Landlord Boot Camp, which will focus on these topics more in-depth.

UPDATE - APRIL 15, 2016 ---- Please review my April 15, 2016 blog post on HUD's new guidance regarding the consideration of a rental applicant's criminal history in the screening process, as it may impact or alter the information in this blog post.