How can you take a down payment on a home? Dodd-Frank says you can’t take payments unless meeting Dodd-Frank criteria.
Banks generally won’t lend on used mobile homes in my area thanks to Dodd-Frank SAFE Act so that is not a good screening tool for us. Few of our tenants wouldn’t qualify for bank loan. Used trailers are poor collateral.
Be careful of using no convictions or arrests ever. That can get you in trouble with discrimination under the fair housing act. See HUD recent post. Besides, a person who did something stupid 20 years ago when they were young may be a good tenant now.
We don’t take down payments. We take security deposits on our rent credit. If that deposit happens to be $1,500 on a home they are renting for $595, then so be it. It might be the thing that separates that applicant from the other applicants for that home. When the resident is ready to purchase, I usually offer to reduce their security deposit down to the amount of the lot rent so they can use the overage towards the home. In any event, down payment isn’t in our company’s vocabulary and I wasn’t the one who suggested it.
The credit/criminal/background is supposed to be used as a tool to form a total picture. This tool, along with the manager’s recommendation is what we generally use to form a decision about the potential resident. When an applicant is denied, there isn’t a reason given. Our managers don’t have access to the reports and they are only told that the application wasn’t accepted.
I was under the impression that the Fair Credit Reporting Act required anyone using a consumer credit report to make an adverse decision to report the reason for that decision.
You are correct. It’s something we should be probably do, but currently don’t. I’ll be looking into what I need to do now that you’ve brought that to my attention.
Landlords do not report because a adverse report is not the reason for rejection. Landlords never provide a reason.
The fact is that there are a multitude of reasons to reject a applicant and not informing the applicant of the reason avoids pointing at the credit report as the reason. Rejecting a applicant is a collection of adverse screening results.
If the credit report is the only reason a landlord is rejecting a applicant they need a more thorough criteria for rejection. Doubtful a landlord would ever be challenged but to be safe have multiple reasons in your pocket.
All good observations, but I’d like to add two of my own:
You can no longer deny a tenant based on just having a felony. The U.S. government has ruled that you have to base your decision on the type of crime, time since it occurred, etc. It’s a total mess. You can get sued simply by saying that anyone who committed a felony is denied. Here are some articles on it:
The sad truth is that, regardless of what you do, you will have a certain percentage of tenants blow out. Even the American middle class has only around $400 in total savings, and the slightest bump in the road will derail most anyone who lives in your park. Losing a job, breaking a leg, a car engine blowing – all of these will turn the good paying tenant into an eviction. So play the percentages. Every home has a logical perfect resident. You just have to churn through some to find that lifetime resident. If you have 10 homes to get out the door, you’ll have 5 that stick and 5 that blow out. You then re-fill those 5 and 3 will stick and 2 will blow out. Then you fill those 2 homes and 1 will stick and 1 will blow out, and then you fill that final home. Large deposits may not help to find that perfect tenant, but it will definitely ease the pain of the run-off, as it helps to put the home back into service. The larger the deposit the better – as long as it’s reasonable and allowable by law – and that’s the best way to both find a solid tenant as well as buffer the pain of the churn. BUT DON’T BE UNHAPPY WITH YOURSELF ABOUT TENANTS NOT ALL STICKING. It’s not your fault, it’s just a byproduct of living in America in 2016 and the plight of the average American household. You can never eliminate this, no matter how hard you try.
The reality is that nothing has essentially changed in regards to criminal records screening except for the fear factor. Landlords still retain the right to do criminal back ground checks as a part of their tenant screening process and may still legally reject based on criminal records…
What is being attempted is to insure the rejection is not racially motivated.
Landlords should insure that their screening practice does not state that all criminal records shall be grounds for eviction. The policy should read that “criminal convictions shall be assessed on a individual bases”.
Applicants should still never be informed as to why they are rejected and Landlords should still be able to evict any one they choose for what ever they choose as long as they protect themselves by having a comprehensive screening process.
Those landlords that fear the ramifications of rejecting applicants should assess whether they are qualified to be performing applicant screening.
This is the problem with the latest HUD guidance. It’s not just racially based, it’s expanding discrimination out further to include criminal history - a criteria that has never been protected before. Having a criminal history is supposed to be the cost of making bad decisions, but as a nation we’re getting further away from keeping people accountable for their actions and having to deal with the fallout from those actions. Where does this nonsense end? If the government doesn’t want criminal history to be a factor then they should adjust how criminal history is recorded on their record so that discrimination cannot be a factor. If it shouldn’t be a problem for housing, why isn’t it also being adjusted for employment? Another conversation, just annoying.
With the new guidance you cannot just reject someone (completely irrespective of race) because they were arrested, or convicted anymore - you have to show it has a specific and adverse impact on your community as a reasonable justification to deny their application. You don’t tell the applicant this, but you need it handy if they file an FHA violation against you and there is an investigation.
Many community owners make blanket generalizations that someone who has been convicted of a crime likely has an inherent disposition to have bad behavior which could cause problems in the future. It’s an easy way to ensure your tenant pool does not have riff raff. You cannot do this anymore in the US, or otherwise put yourself at risk for violating FHA regulations.
Just to be clear, there is a difference between someone who is rejected after applying for credit, versus someone who is rejected after applying for residency. AFAIK, a credit rejection DOES require a denial letter which includes the reason for denial. But this only applies if you are offering credit (e.g. for financing sales).
So park owners offering financing opens up new areas of concern if we believe we should turn them down and then provide reasons–ouch–liability. I wonder how long a time period we are on the hook if that party believes we discriminated–one–two years later or forever?? We definitely need some common sense from our over reaching government before we all decide why are we working our butts off to work for the government bureaucracy. I know of companies that have made lawn mower being sued 20 years later for some homeowner that maybe used the mower incorrectly and got hurt.
HUD guidelines have not changed. Criminals are not a protected class. Landlords could always choose to accept a applicant with a criminal record that they did not believe would pose a threat.
Being a landlord has always come with a serious responsibility to choose or reject applicants based on the landlords own criteria. I do not believe there is any more risk of negative ramifications today in being a landlord than there was 20 years ago. Responsible landlords do not need to change their criteria or fear charges if they are smart enough too know how to protect them selves through the process. Nothing has changed, the applicant you rejected in the past you will still be able to reject today, assuming it was not based on race.
I promise I am not making this up - this is from the attorneys at HUD…
“A housing provider must, however, be able to prove through reliable evidence that its policy or practice of making housing decisions based on criminal history actually assists in protecting resident safety and/or property. Bald assertions based on generalizations or stereotypes that any individual with an arrest or conviction record poses a greater risk than any individual without such a record are not sufficient to satisfy this burden.”
Jhutson, from a quick review of what you sent it appears white people do not have as much jail time (% of population) compared with blacks and Mexicans. So with that said I probably I reached a non PC correct conclusion. The bottom line after teaching schools in Florida and Michigan the family structure is ---------------- and after spending over 40 billions dollars on LBJ’s social programs the results is ------------------------- Sometimes money does not solve problems and times it looks like parts of our government are just trying to agitate one group against another be it ethic groups, gender, economic class etc. As park owners we are put into situation that 30 years ago we never even talked about–our first park did not need guidelines or rules–times are a changing.
Times are always changing but as landlords we simply need to be smarter in regards to who we do not rent to.
You know what they say, “if you can’t stand the heat get out of the kitchen”.
I think landlords that fear rejecting applicants will at some point down the road be selling due to the stress of dealing with low quality, maybe criminal, tenants. They will be the new turn around communities that those with stiffer back bones will be able to pick up at a steep discount.
Let’s be fair @Greg - the USA’s crime rates are a lot different than Canada.
When I advertise a listing if I get 10 applicants maybe one of them will be a convict - in Canada none of them would be until I got that 30th application. It’s easy to have idealistic values about this problem when your country has less than half our violent crime rate per capita. That’s the problem we should be addressing, but alas here we are.
I honestly would probably say the same thing you are if I was in your shoes, and I have full appreciation for your position and respect your opinion.
I don’t believe being Canadian has anything to do with the topic. This is not about crime rates it is about a landlords ability to screen applicants. My opinion will always be that the landlord will always have the last word on that topic.
I also do not believe I am being idealistic. This subject has simply generated the usual knee jerk negative reaction to media reports. The sky is always falling and in the end it is extremely rare that any change filters down to the grass roots level.
Politicians, government agencies and lawyers are always grandstanding and blowing smoke not to make change but rather to make political points.
There are many, many ways experienced landlords have to legally avoid accepting any applicant.
It’s just another day in the business.
Greg, from years of experience we are in a very nice niche market–retires. We have owned family parks and just like you try to help others on their journey in the park business. Being tough is really the easy part going to court is the way some learn how to be tough. Having guidelines that have real teeth with enforcement help. My wife is the smiling part and I am the nasty cop. We determined 25 years ago retires are a really nice class of people who pay on time and want a great place to live. Jhutson owning parks in some areas are very troublesome but we have a choice what we buy. We have in the last 8 months wrote 4 contracts on parks and doing DD bought none If my family is uncomfortable in the area or the park we move on–we have LIVED in four of our parks and enjoyed it–how many other park owners have had the experience???
Carl, my community is also primarily retirees although as a “adult only” community I do have a few still working. All 50 years or older.
As a small landlord I set my rules and easily operate under the radar being able to completely control my screening process in a extremely pro tenant environment. I have learned over the years that government rules are primarily only a guideline and surprisingly grey in nature. In addition my tenant base being financially better off is also socially more responsible and far more in tune with my goals and support my prejudices regarding quality of residents. Lower income individuals tend to be more troublesome due to a irrational scenes of entitlement. Those I screen out.
Any applicants I reject have no leverage to file complaints, although some have fought me, without success.
Informed landlords that know and understand the rules also know how to successfully work around or manipulate them to their advantage. I prefer to take minor risks and bend the rules to be able to stay in control of my investments. Business owners can be in control or under the control of others.
I am present looking at a lower end community that if I buy will need serious attention. There are a few residents that would require a attitude adjustment or be forced out. This will require some serious manipulation and rule bending but this is the part of my job I find most challenging.
Greg 100% agree. Most of the questions are coming from non owner-operators and we both agree NEVER, NEVER rental homes–usually a Pandora subset of problems and really a poor return WHEN money and time is figured. Hopefully the learning curve with rental homes is quick and most buyers of those former rentals are _______________________???
