SCREENING PROSPECTIVE TENANTS

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

Screening prospective tenants is the most important part of the rental process, whether you are renting residential or commercial property. If done properly, screening can save a landlord time, money, and headaches. Setting up a proper and legal screening process, which includes the drafting of a Rental Application and written Screening Criteria, can help reduce the need to evict a tenant, defend yourself against a claim that you violated the Wisconsin Administrative Code's Residential Rental Practices (ATCP 134), defend yourself against a claim for discrimination under the Fair Housing laws, and preserve your property from physical damage.

A good screening process has several steps. First, verify that the applicant is who they say they are. The best way to do this is to require each adult applicant to complete a rental application in full. Also ask each adult to provide a valid photo ID. Also request a copy of the applicant's prior utility or cable bill. Ensure the address on the bills matches the address on the photo ID and the rental application. Also obtain the applicant's date of birth and Social Security number. Require them to provide any prior names they have used in the past few years, such as maiden names if they were recently married, or married names if they were recently divorced. If you are renting to a business entity, verify its existence with the Secretary of State's Department of Financial Institutions. Getting this information early will greatly help you later in the screening process.

Second, establish written screening criteria before you start accepting rental applications, and apply them consistently. Your criteria should set forth the minimum requirements needed to rent your property, as well as what will cause an applicant to be denied. You can provide the written screening criteria to each prospective applicant with the application, or, at a minimum, memorialize the criteria in writing, date it, and keep it for at least 3 years. Remember: if you make an exception to your screening criteria for one applicant, you lose the protection of having the criteria in the first place, so avoid making exceptions.

Your screening criteria should not be subjective. Rejecting an applicant because they give you a "bad feeling" or because you did not "connect" with them will only run you afoul of Fair Housing laws. Your criteria need to be objective. Federal law protects seven (7) classes, and Wisconsin law protects twelve (12). You may not deny an applicant because they are a member of any of the following protected classes in Wisconsin: race, color, national origin, sex, religion, familial status, handicap, marital status, sexual orientation, lawful source of income, ancestry, and age (18 years old and over). Some local municipalities (the city of Madison comes to mind) have added additional protected classes. So it is important to check all local ordinances where your rental properties are located prior to drafting your screening criteria.

A common misconception is that you cannot reject an applicant because they smoke, have a money judgment against them, or were previously evicted. Smokers, debtors, and people with past evictions are not members of a protected class and therefore legal screening criteria can exclude them without violating Wisconsin or federal discrimination laws. Other examples of proper screening criteria include the following: (1) Applicant must have monthly income of 3 times the monthly rental amount; (2) Applicant must have no unsatisfied money judgments against them; (3) Applicant must have a credit score of at least 600; (4) Applicant must complete all questions on the rental application; failure to answer all questions or provide an acceptable reason for not answering all questions is grounds for denial of your application.

Third, you should run every applicant's name through Wisconsin's Consolidated Court Automation Program (CCAP). This website lists all criminal and civil legal actions filed throughout the state. By becoming adept with CCAP's search capabilities, you will be able to discover if a prior landlord has started an eviction action against your applicant, if your applicant has ever been charged with a crime, or if they have been sued for owing money to someone and whether or not they have satisfied that judgment. Best of all, CCAP is free and open to the public.

Fourth, you should obtain a credit check for an applicant that is still under consideration after checking CCAP. A landlord may require the applicant to pay the actual cost of the credit check up to $20 if they so wish. In order to charge this fee, however, you must obtain the credit report from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis (TransUnion, Experian, or Equifax), and you must notify the applicant of the cost before ordering the report and provide them with a copy after it is received.

These four steps for screening and qualifying a prospective applicant for your rental property are the bare minimum to protect your investment.

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.