Tenant Screening

What Are the Rules Landlords Should Know About Rental Applications and Can I Charge a Tenant Application Fee?

When talking to landlords, two common questions they ask are what rules should I be aware of regarding the rental application form I use and can I charge the prospective tenant an application fee?

There are laws in place regarding both of these issues that you should be aware of to ensure that you handle this process correctly. We’ll walk you through the pitfalls to help you avoid any legal issues.

First and foremost you have to be clear in your application if you are going to be screening the tenant and you will need to list the type of information that will be accessed to conduct the screening (i.e., credit report, public records, eviction filings).  Free Tenant Application

In regards to charging an application fee, you can only charge your applicants for your cost of the screening fees and you can only charge the applicant these fees if you provide written notice that you will be conducting screening (such as on the application the tenant signs).  It’s important to note that the law states that you cannot profit from application fees. You can only change what the processing of screening information costs you.

Most landlords pay tenant screening companies to research tenant applicants. The tenant screening company can conduct criminal background checks, eviction history, court records, employment verification, landlord reference checks, history of late payments and bankruptcies.

The law also requires that if you wish to deny the tenant’s rental application that you must provide a written adverse action notice stating the specific reasons and consumer report or information that led to the denial. If you as the landlord fail to provide the prospective tenant with a written notice before screening or a written adverse action notice if denied, then the landlord may be liable to the tenant for legal damages.  Free Denial Letter

You are also required by law to provide the rejected applicant the contact information for the consumer reporting agency (if you are using a screening company). You must also notify the applicant that they have the right to request a free copy of the consumer report if they are denied and that they have the right to dispute the accuracy of the consumer report.  Free Denial Letter

 

How will collections affect my credit score?

Any collections item, medical or not, can lower a person’s FICO credit score by as much as 100 points. The degree to which a collection hurts your credit score is directly correlated with how high your credit score is when the collection agency reports the debt. The higher your score, the more points you can lose.

Generally accounts which go into collections will appear on your credit report for up to 7 years. Once you pay a collection account in its entirety the collection accounts status should change to “Paid, Paid Collection, or Closed”. If you settle with the collection agency for less than the full amount, your credit report should list the account as “settled, settled for less, or settled for less than full balance”.

Paying off the collection account sooner doesn’t mean it is deleted from your credit report immediately, instead it is just listed as paid. It is smart to pay your debts to reduce the debt you owe and show that you can repay your obligations. The collection paid or unpaid will have a negative effect until it’s purged from your report. One of the most important factors in how collections accounts affect your score is how recent the collection occurred, not necessarily the amount of the collection.

Medical debt is the most common type of collection account, representing nearly half of all reported collections. Almost 1 in 6 credit reports contain a medical debt collection, according to the Federal Reserve. With the new FICO scoring model, medical collections—including unpaid medical collections—will have a smaller impact than non-medical collections.

If the collection on your report is not your debt, you’re not required to pay it and creditors cannot list it on your report. If the collection status still remains on your report and more than 7 years has passed you should dispute the debt from your credit report.

With a physical site inspection those customers ordering credit reports for the purpose of tenant or employment screening from StarPoint Tenant Screening can view collection account detail when provided such as:

  • Creditor
  • Member number
  • Balance
  • Date the Collection was opened
  • Date Reported
  • Account Number
  • Date Paid

Individuals wishing to view their own credit report should visit www.annualcreditreport.com for a free report annually.

What is a Public Record and How Long will a Public Record Show on a Credit Report?

Public records can have a very negative affect on a credit score.  If a person has any filed against them, they should be aware of the following information.

 What is a Public Record?

Public records refer to liens, bankruptcies or civil judgments that have been documented by federal, state or county courts. These records are considered public information and can be accessed by anyone. These records are also reported to the credit bureaus (TransUnion, Equifax and Experian) which are the entities that provide credit report history to mortgage lenders, property managers, employers, and other parties evaluating a person’s credit worthiness.

Criminal records are also considered public records, however, criminal records are not reported to the credit bureaus and will not show up on a consumer’s credit report.

 How will a Public Record affect a Credit Score?

Payment history determines 35% of a person’s credit score. Public records fall into the payment history category so the presence of these records can have a large negative affect on an overall score. These events are considered serious but older items and items with small amounts will count less than recent items or those with larger amounts.

 How Long will a Public Record Stay on a Credit Report?

Chapter 7 bankruptcies are reported on a credit report 10 years from the filing date because the individual is not required to repay the debt.

Chapter 13 bankruptcies are deleted 7 years from the filing date because the individual is required to repay at least part of the debt as determined by the court.

Civil judgments are filed when a person is sued for a monetary reason and they lose. Basically the individual owes a debt according to the court which is then reported on their credit report. Civil judgments stay on a credit report for 7 years from the filing date.

Tax liens are filed by state, county or federal courts when an individual has not paid their taxes. Unpaid tax liens can remain on a credit report for 15 years from the filing date. Paid tax liens remain on the report for 7 years from the paid date.

 

What can a Person with Public Records do to help their Credit score?

If a public record is inaccurate, the individual should follow the directions outlined by the Federal Trade Commission here:  http://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

If the public records are accurate, the individual should make sure they’ve paid overdue accounts. The individual should then contact the three credit bureaus (TransUnion, Equifax and Experian) with documentation of the payments so the information on the report can updated to show the items as paid. While the records will still show on the credit report for the stated length of time, paid items will have a much less negative affect on a credit score.

Tenant Credit Report Unable to Score?

Did you order a Tenant Credit Report from us and receive the message:

Score:   Unable to Score

There can be a few reasons why the tenant’s credit could not be scored.  Here are a few possibilities and what you can do about them:

  • Confirm that the applicant’s name matches their Social Security Number. You can do this by looking in the Details section of the credit report for the word no-hit.

What you can do: If your applicant’s name does not match their Social Security Number a credit report cannot be returned.  Confirm with the applicant their legal name and Social Security number.

  • The applicant is young or a recent US Citizen and does not yet possess enough active credit such as a student loan, auto loan, mortgage or credit cards.

What you can do: If your tenant applicant is young check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have a parent co-sign the application and lease. Most credit bureaus cannot generate a positive score unless the applicant possesses at least 2 active lines of credit.

  • The applicant has lived their life paying cash for everything and have not taken out any loans or had to pay any creditors.

What you can do: If your tenant applicant does not have any debt check with your state landlord laws to see if you can ask for an extra initial deposit up front to help protect yourself or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Most credit bureaus cannot generate a positive score unless the applicant possesses at least 2 active lines of credit.

  • The applicant has previously had loans and debt, but has either closed all of his/her accounts and does not possess enough open accounts for a score to be generated.

What you can do: If your tenant applicant has previously had credit but all accounts are now closed, check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Also ask your credit reporting agency if there are any additional details on why & when the accounts were closed.  Extra information can sometimes be provided such as if they were closed normally or paid as agreed.

  • The applicant has previously had loans and debt, but filed for bankruptcy and all of his/her accounts were closed as part of the bankruptcy filing.

What you can do: If your tenant applicant has previously had credit but all accounts are now closed, check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Also, ask your credit reporting agency if there are any additional details on when the bankruptcy occurred and if there has been any additional debt or collections since then.  Extra information can sometimes be provided such as the closed date, if they were closed normally, or paid or paying as agreed.

  • The applicant has previously had loans and debt, but all accounts are now in collections.

What you can do: If your tenant applicant has previously had credit but all accounts are now closed, check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Also, ask your credit reporting agency if there are any additional details on if these accounts are in collections, when they went to collections and if they are still in collections with a balance.

The Most Common Rental Expenses

Landlords! Remember these common rental expenses when preparing your 2013 tax return.

  • Advertising – advertising expenses relating to offering the unit for rent.
  • Cleaning and Maintenance – Whether you are cleaning an apartment in between tenants, cleaning out a sewer line to avoid future plumbing problems or power washing the building’s exterior, it is all tax deductible. Make sure to keep all receipts for materials, rental equipment and labor costs.
  • Commissions – Commissions, bonuses, fees, and other amounts you pay to get a lease on the property.
  • Depreciation – You can begin to depreciate rental property when it is ready and available for rent.
  • Insurance – If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. You cannot deduct the total premium in the year you pay it.
  • Interest (other) – You can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocatable to loan proceeds not related to rental use generally cannot be deducted as a rental expense.
  • Legal and other professional fees – You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I.
  • Local transportation expenses – You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property.
  • Management fees – Management fees that you pay to a property management company. The property management company should provide you with end of the year tax papers.
  • Mortgage interest paid to banks, etc. – If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year.
  • Points – The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. These charges are also called loan origination fees, maximum loan charges, or premium charges.
  • Repairs
  • Taxes – In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits.
  • Utilities – Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense.

What to Do When Your Tenant Abandons Your Rental Unit?

If you have not heard from one of your tenants in a while  and his or her rental payment is already past due, it is time to investigate what’s happening.

According to a property owner s in Florida, one of his tenants abandoned his rental property, neglected to pay the property rent and gave no notice before leaving. He was devastated because he trusted that person thinking he was responsible. But, instead of filing legal charges against him, he just forgot the issue because he did not want to deal with a costly lawsuit.

He also reasoned that he did not know where to start his complaints about tenants who abandoned rental properties. He  felt the best thing to do  was some thorough tenant screening procedures in the future to prevent an incident like this from happening again in the future.

Now, if this happens to you, there are specific steps you can do to recover the amount of money owed by the tenant who abandoned his obligation. You also have the right to collect money for any damages on your property caused by the tenant who left including the attorney’s fees if you end up in court.

  • Give proper notice. Landlords are obliged to give a proper “notice of abandonment” to his or her tenant before they can get back the property. After two weeks of abandonment, you can put the notice of eviction on the rental unit’s door in case tenant returns. Write on your notice that you will take back the property if he or she cannot pay the rent on or before the date you specify. You can even send a message to the tenant through email or by any other means of contact that your tenant has in your file. You must put in your notice that you will be filing legal charges for what he or she owes you.
  • Take back the property in a legal way. If your tenant has not made any contact with you after three weeks of posting and mailing the notice, you can now take back the abandoned rental unit. You can change the lock of the rental unit and begin assessing the place. Record evidence that the property has been abandoned such as taking pictures and writing down descriptive notes including the time and date. When you file your charges, these documents will help  make the filing process really fast. After taking all the notes and  totaling  the amount that your tenants need to pay, get the rental unit ready for rent again. Remember, do a tenant credit check screening process to insure that “rental unit abandonment” will not happen again.
  • File your charges in court. Be ready with all the documents you have, the notice you gave them and all the documents that will support your charges. You can contact your lawyer to start the legal proceedings to sue your tenant who abandoned their obligation. This way, you can recover what has been owed from you.

As much as possible, prevent this “rental abandonment” case in your rental property business. You can make this possible if you seek help from a credible tenant screening service provider. They can help you check the prospective tenant’s credit, collection accounts plus get info on their payment patterns, payment history from their previous rental unit, tax liens and much more! By doing this, you can help guarantee that you will get a responsible tenant.

How to Temporarily Lift your Credit Freeze

Did you place a credit freeze on your credit report but now you want to rent a home, condo or apartment?  There are ways to temporarily lift this freeze so that your tenant credit report can be accessed.

If you wish to temporarily lift your Security Freeze with Transunion:

Go online:
It’s the fastest, easiest way to accomplish your goal right now >>

By Telephone:
Call 888-909-8872 if you wish to temporarily lift your Security Freeze. Our interactive voice response system will guide you through the process. Please have ready your Social Security Number, date of birth, Security Freeze PIN, lift type, start and end dates and the payment method to be used to pay the applicable fee, if any, for the service. Please refer to the Security Freeze Table for fees, if any. Under certain circumstances, as defined by state law, you may be eligible for reduced fee or free Security Freeze services. Please note that it may take up to 15 minutes to process your request. It may take longer if you have lost your Security Freeze PIN.

By Mail:
Complete the Lift section of the Security Freeze Form that was sent to you with the Security Freeze information letter (sent to you after you requested the Security Freeze), and mail it to the address shown at the bottom of the form. Please refer to the Security Freeze Table for fees (if any). Under certain circumstances, as defined by state law, you may be eligible for reduced fee or free Security Freeze services. Acceptable forms of payment are check, money order, or credit card (American Express, Discover, MasterCard and Visa). When selecting the start date for your temporary lift, be sure to allow mail delivery time for your request to reach TransUnion. It may take up to three business days from date of receipt to process your request to temporarily lift the Security Freeze by mail. It may take longer if you have lost the Security Freeze PIN.

Your Credit Report and Renting – What You Need to Know

If you are looking to rent an apartment or a home, you need to be aware that one of the first things that landlords and property managers look at is your credit history and your credit report score as part of the application process. The landlord alone determines what an acceptable credit report score is, so your best offense is knowledge of what your credit report says.

Landlords specifically will look at your employment history, your history of payments with creditors and if you’ve paid these on time or late, and if you’ve declared bankruptcy or struggled with any sort of financial hardship. Any negative feedback on the credit report indicates that you are a financial risk to the landlord. The landlord will also look at how many, if any, credit report requests have been made within a certain time period. This is a sign that you have applied for credit frequently, and as a result that you have many potential debts, either secured or unsecured. The landlord also will see exactly how much debt you have and to whom you owe it, and for how long you have owed it. The landlord considers all of these things when you apply to rent a residence.

The negative items on your credit report that might give a landlord reason or cause to deny your application are many, but all are somewhat related. If you have balances on loans or credit cards that are very high and you are paying only the minimums, or if you have too many creditors, the landlord sees that as low cash flow and you may not be able to afford the rent payment. Even having too little credit history with no references or background information could affect a landlord’s decision to accept your rental application.

Your credit report and score are your financial history. Landlords cannot usually afford to take risks, as they also have bills to pay on their rental properties in the form of taxes, fees, and maintenance. If you do not pay on time, they cannot pay on time, and their credit is subsequently affected. Make sure that you are familiar with what is on your credit report, and be able to discuss it with your landlord. Some may accept a trial period in the form a short-term lease to allow you to prove your financial worthiness. Others may accept an offer of an increased security deposit as an offer of good faith and confidence in ability to pay. Whatever the reason for a landlord’s decision, you should be aware before the process begins of the potential warning signs on your credit report, so there are no surprises for you at the outcome of the application process.

To obtain a free copy of your credit report visit www.annualcreditreport.com

If you are a landlord or property manager interested in screening a prospective tenant view your tenant credit report options at www.starpointtenantscreening.com

FAQs about the Fair Credit Reporting Act

Consumer credits scores profoundly impact a landlord’s decision in screening tenant applicants. Based on the information in the rental application, landlords may run a credit report or credit screening to examine payment history as well as other prior renter information. The Fair Credit Report Act outlines the requirements for credit reporting agencies and the rights that consumers have in accessing and verifying their credit reports. The importance of an accurate credit score cannot be understated; there are a number of common questions about the FCRA and what protections it affords.

What is the purpose of the Fair Credit Reporting Act?

Congress approved the Fair Credit Reporting Act in 1970 because of the growing power of credit reporting agencies and the importance of accurate reporting for the banking system. It requires reporting agencies to follow reasonable procedures in keeping consumer credit reports private and accurate. Furthermore credit reporting agencies are required by law to disclose the information collected to that individual. It sets an important tone for the private companies that collect personal data, and outlines the responsibilities they have for maintaining and sharing that sensitive information.

How accessible is my credit report?

Under the permissible purpose doctrine, a credit report can only be accessed by those with a valid reason for doing so. Additionally, individuals are entitled to a free copy of their credit report once a year from the private companies that collect and compile those reports. A report can be requested online from www.annualcreditreport.com; however it is important to note that there are additional companies that track renter and financial history. Any company that tracks such information is required to disclose a free report once a year. The landlord can assist in confirming what reports they utilize in tenant screening.

Can I change the information in my credit report?

The Fair Credit Reporting Act requires landlords to notify prospective tenants if their application is denied on the basis of their credit report. The law guarantees that people are not denied based on what may be a deceptive report. If the information is correct regarding prior evictions, damages, or late payments, then better habits can be implemented to improve the report over time. Credit reporting agencies are obligated to expunge any negative information from an individual’s report after seven years. The seven year requirement creates more reasonable expectations of a renter’s ability to make payments. Furthermore, individuals have the right to challenge inaccurate information; credit reporting agencies are in turn required to verify and provide the basis for any negative information in their reports. Regularly accessing your credit report reduces errors associated with outdated information, inaccurate data, and poor ratings stemming from identity theft.

The best place to begin is by accessing your most recent credit score online. First, make sure that the information in the reports is correct. Viewing the report helps clarify what information is collected on you and how it appears to landlords. Understanding the basis for a good credit score is fundamental in creating good habits moving forward. It is just as important to check your reports annually to verify that the information remains correct.

2013 Tax Deductions – Rental Income and Expenses – Real Estate Tax Tips

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property.

Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. Publication 527 includes information on the expenses you can deduct if you rent a condominium or cooperative apartment, if you rent part of your property, or if you change your property to rental use.

When to Report Income

Report rental income on your return for the year you actually or constructively receive it, if you are a cash basis taxpayer. You are a cash basis taxpayer if you report income in the year you receive it, regardless of when it was earned. You constructively receive income when it is made available to you, for example, by being credited to your bank account.

For more information about when you constructively receive income, see Publication 538.

Advance Rent

Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.

Example:

You sign a 10-year lease to rent your property. In the first year, you receive $5,000 for the first year’s rent and $5,000 as rent for the last year of the lease. You must include $10,000 in your income in the first year.

Security Deposits

Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.

If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Include it in your income when you receive it.

Expenses Paid by Tenant

If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.

Example One:

Your tenant pays the water and sewage bill for your rental property and deducts it from the normal rent payment. Under the terms of the lease, your tenant does not have to pay this bill.

Example Two:

While you are out of town, the furnace in your rental property stops working. Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Based on the facts in each example, include in your rental income both the net amount of the rent payment and the amount the tenant paid for the utility bills and the repairs. You can deduct the cost of the utility bills and repairs as a rental expense.

Property or Services in Lieu of Rent

If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.

If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.

Example:

Your tenant is a painter. He offers to paint your rental property instead of paying 2 months’ rent. You accept his offer. Include in your rental income the amount the tenant would have paid for 2 months’ rent. You can include that same amount as a rental expense for painting your property.

Personal Use of Vacation Home or Dwelling Unit

If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use. See Figuring Days of Personal Use and How To Divide Expenses in Publication 527. If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses. See How To Figure Rental Income and Deductions in Publication 527.