Every landlord's legal guide

Screening Tenants: Your Most Important Decision A. Avoiding Fair Housing Complaints and Lawsuits 1/2 B. How to Advertise Rental Property 1/2 C. Renting Property That's Still Occupied 1/4 D. Dealing With Prospective Tenants 1/4 1. Take Phone Calls From Prospective Tenants 1/5 2. Have Interested Tenants Complete a Rental Application 1/5 E. Checking References, Credit History and More 1/10 1. Check With Previous Landlords and Other References 1/13 2. Verify Income and Employment 1/13 3. Obtain a Credit Report 1/14 4. Verify Bank Account Information 1/16 5. Review Court Records 1/17 6. Use Megan's Law to Check State Databases 1/17 F. Choosing-And Rejecting-An Applicant 1/18 1. What Information Should You Keep on Rejected Applicants? 1/18 2. How to Reject an Applicant 1/18 G. Finder's Fees and Holding Deposits 1/20 1. Finder's Fees 1/20 2. Holding Deposits 1/21 Choosing tenants is the most important decision any landlord makes, and to do it well you need a reliable system. Follow the steps in this chapter to maximize your chances of selecting tenants who will pay their rent on time, keep their units in good condition and not cause you any legal or practical problems later. Before you advertise your property for rent, make a number of basic decisions -including how much rent to charge, whether to offer a fixed-term lease or a month-to-month tenancy, how many tenants can occupy each rental unit, how big a security deposit to require and whether you'll allow pets. Making these important decisions should dovetail with writing your lease or rental agreement (see Chapter 2). A. Avoiding Fair Housing Complaints and Lawsuits Federal and state antidiscrimination laws limit what you can say and do in the tenant selection process. Because the topic of discrimination is so important we devote a whole chapter to it later in the book (Chapter 5), including legal reasons for refusing to rent to a tenant and how to avoid discrimination in your tenant selection process. You should read Chapter 5 before you run an ad or interview prospective tenants. For now, keep in mind four important points: 1. You are legally free to choose among prospective tenants as long as your decisions are based on legitimate business criteria. You are entitled to reject applicants with bad credit histories, income that you reasonably regard as insufficient to pay the rent, or past behavior-such as property damage or consistent late rent payments-that makes someone a bad risk. A valid occupancy limit that is clearly tied to health and safety or legitimate business needs can also be a legal basis for refusing tenants. It goes without saying that you may legally refuse to rent to someone who can't come up with the security deposit or meet some other condition of the tenancy. 2. Fair housing laws specify clearly illegal reasons to refuse to rent to a tenant. Federal law prohibits discrimination on the basis of race, religion, national origin, gender, age, familial status, physical or mental disability (including recovering alcoholics and people with a past drug addiction). Many states and cities also prohibit discrimination based on marital status or sexual orientation. 3. Anybody who deals with prospective tenants must follow fair housing laws. This includes owners, landlords, managers and real estate agents, and all of their employees. As the property owner, you may be held legally responsible for your employees' discriminatory statements or conduct, including sexual harassment. (Chapter 6, Section E, explains how to protect yourself from your employee's illegal acts.) 4. Consistency is crucial when dealing with prospective tenants. If you don't treat all tenants more or less equally-for example, if you arbitrarily set tougher standards for renting to a member of a racial minority-you are violating federal laws and opening yourself up to lawsuits. B. How to Advertise Rental Property You can advertise rental property in many ways: • putting an "Apartment for Rent" sign in front of the building or in one of the windows • taking out newspaper ads • posting flyers on neighborhood bulletin boards, such as the local laundromat or coffee shop • listing with a homefinders' or apartment-finding service that provides a centralized listing of rental units for a particular geographic area • listing with a local real estate office that handles rentals • hiring a property management company which will advertise your rentals as part of the management fee • posting a notice with a university, alumni or corporate housing office • buying ads in apartment rental guides or magazines, or • posting a notice with an online service such as Homestore (http://www.homestore.com) which represents millions of apartment units in the United States. The kind of advertising that will work best depends on a number of factors, including the characteristics of the particular property, its location, your budget and whether you are in a hurry to rent. Many smaller landlords find that instead of advertising widely and having to screen many potential tenants in an effort to sort the good from the bad, it makes better sense to market their rentals through word-of-mouth-telling friends, colleagues, neighbors and current tenants. After all, people who already live in your property will want decent neighbors. For example, if you know a vacancy is coming up, you might visit or send a note to all tenants whom you or your manager think well of. Ask them to tell friends or relatives about the available apartment. If you do advertise your units, try to target your ads as narrowly as possible to produce the pool of prospective tenants you want. For example, if you rent primarily to college students, your best bet is the campus newspaper or housing office. To stay out of legal hot water when you advertise, just follow these simple rules: Describe the rental unit accurately. Your ad should be easy to understand and scrupulously honest. Also, as a practical matter, you should avoid abbreviations and real estate jargon in your ad. Include basic details, such as: • rent • size-particularly number of bedrooms and baths • location-either the general neighborhood or street address • lease or month-to-month rental agreement • special features-such as fenced-in yard, view, washer/dryer, fireplace, remodeled kitchen, furnished, garage parking, doorman, hardwood floors or wall-to-wall carpeting • phone number or email for more details (unless you're going to show the unit only at an open house and don't want to take calls), and • date and time of any open house. Read other ads to get good ideas. Some landlords find that writing a very detailed ad cuts down on the time they spend answering questions on the phone or taking calls from inappropriate tenants. If you have any important rules (legal and nondiscriminatory), such as no pets, put them in your ad. Letting prospective tenants know about your important policies can save you or your manager from talking to a lot of unsuitable people. For example, your ad might say you require credit checks in order to discourage applicants who have a history of paying rent late. However, it's optional, because the wording of your ad does not legally obligate you to rent on any particular terms. In other words, just because your ad doesn't specify "no pets," you are not obligated to rent to someone with two Dobermans. Be sure your ad can't be construed as discriminatory. The best way to do this is to focus only on the rental property-not on any particular type of tenant. Specifically, ads should never mention sex, race, religion, disability or age (unless yours is really legally sanctioned senior citizens housing). And ads should never imply through words, photographs or illustrations that you prefer to rent to people because of their age, sex or race. For example, an ad in an environmental or church newsletter that contains a drawing of a recognizably white (or black or Asian) couple with no children might open you to an accusation of discrimination based on race, age and familial status (prohibiting children). Quote an honest price in your ad. If a tenant who is otherwise acceptable (has a good credit history, impeccable references and meets all the criteria laid out in Section E, below), shows up promptly and agrees to all the terms set out in your ad, you may violate false advertising laws if you arbitrarily raise the price. This doesn't mean you are always legally required to rent at your advertised price, however. If a tenant asks for more services or different lease terms that you feel require more rent, it's fine to bargain and raise your price, as long as your proposed increase doesn't violate local rent control laws. Don't advertise something you don't have. Some large landlords, management companies and rental services have advertised units that weren't really available in order to produce a large number of prospective tenants who could then be directed to higher priced or inferior units. Such bait-and-switch advertising is clearly illegal under consumer fraud laws, and many property owners have been prosecuted for such practices. So if you advertise a sunny two-bedroom apartment next to a rose garden for $500 a month, make sure that the second bedroom isn't a closet, the rose garden isn't a beetle-infested bush and the $500 isn't the first week's rent. Keep in mind that even if you aren't prosecuted for breaking fraud laws, your advertising promises can still come back to haunt you. A tenant who is robbed or attacked in what you advertised as a "high-security building" may sue you for medical bills, lost earnings and pain and suffering. (See Chapter 12 for details.) C. Renting Property That's Still Occupied Often, you can wait until the old tenant moves out to show a rental unit to prospective tenants. This gives you the chance to refurbish the unit and avoids problems such as promising the place to a new tenant, only to have the existing tenant not move out on time or leave the place a mess. To eliminate any gap in rent, however, you may want to show a rental unit while its current tenants are still there. This can create a conflict; in most states, you have a right to show the still-occupied property to prospective tenants, but your current tenants are still entitled to their privacy. (For details on access rules, see Chapter 13.) To minimize disturbing your current tenant, follow these guidelines: • Before implementing your plans to find a new tenant discuss them with outgoing tenants, so you can be as accommodating as possible. • Give current tenants as much notice as possible before entering and showing a rental unit to prospective tenants. State law usually requires at least one or two days. (See Chapter 13 for details.) • Try to limit the number of times you show the unit in a given week, and make sure your current tenants agree to any evening and weekend visits. • Consider reducing the rent slightly for the existing tenant if showing the unit really will be an imposition. • If possible, avoid putting a sign on the rental property itself, since this almost guarantees that your existing tenants will be bothered by strangers. Or, if you can't avoid putting up a sign, make sure any sign clearly warns against disturbing the occupant and includes a telephone number for information. Something on the order of "For Rent: Shown by Appointment Only. Call 555-1700. DO NOT DISTURB OCCUPANTS" should work fine. If, despite your best efforts to protect their privacy, the current tenants are uncooperative or hostile, wait until they leave before showing the unit. Also, if the current tenant is a complete slob or has damaged the place, you'll be far better off to apply paint and elbow grease before trying to re-rent it. D. Dealing With Prospective Tenants It's good business, as well as a sound way to protect yourself from future legal problems, to carefully screen prospective tenants. 1. Take Phone Calls From Prospective Tenants If you show rental property only at open houses and don't list a phone number in your ads, skip ahead to Section 2. Continue... Excerpted from Every Landlord's Legal Guide by Marcia Stewart & Attorneys Ralph Warner & Janet Portman Copyright (c) 2001 by Nolo Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.