Monday, May 2, 2011

Background Checks

Why your new tenant was a nightmare

You had the vacancy, and you needed a renter, so you posted an advertisement. After receiving a few phone calls, you set up an appointment with a prospective tenant, show him the place, and he likes it. At the office, he fills out the application, consents to a credit report, and pays the fee. Everything checks out on the credit report, so you collect the security deposit and first month’s rent, hand him the keys, and breathe a sigh of relief, while patting yourself on the back for finding a good tenant.

Less than three months later, you’re issuing an eviction notice.

What went wrong? The new tenant gave a good first impression, they seemed gainfully employed, and their credit history checked out. So why are you dealing with this nightmare, and what can you do about it to avoid a similar headache with your next tenant?

The complete picture

The answer is in your research process. Sure, a credit report is an important part of the screening process, and today’s credit reports contain more information than ever before under the Fair Credit Reporting Act (FCRA). However, there are other pieces to the puzzle that must be answered before you hand over the keys, such as:

• Does the prospective tenant have reliable and steady income?
• Did they properly vacate the properties they resided in?
• Does (s)he have personal references that can vouch for their character?
• Did the prospective tenant provide false information (i.e. the credit report is from somebody else)?
• Do they have a criminal record?

No matter how comprehensive current credit reporting procedures might be, a credit report does not provide the answers to these questions. This is why you need to have several sources of information that can be cross-referenced, offering clues as to whether you have a shady candidate.

Cross-referencing involves obtaining multiple sources of information and then comparing that information, looking for clues. Some of these sources may include:

• Comprehensive tenant application – this should include such information as complete identity information (driver’s license, SSN, and so on), detailed employment history, income status, references and personal details (such as whether they smoke, have pets, children, or other occupants, and owned vehicles). The application must contain written consent to obtain a credit report.
• Credit report
• Criminal history –national and statewide
• Sexual Predator List
• Eviction records – these may not show up in a credit report
• National Terrorist Database - better to be safe than sorry

Once you’ve obtained all of the information, compare the application with the information you received, looking for the following discrepancies:

• Does the application reflect the same residency history as the information you collected? An applicant might be trying to hide a bad reference or eviction.
• Are there any discrepancies on employment or income? A discrepancy may not be anything malicious, but further written documentation regarding income, job status and future employment status will be necessary.
• Does the vital information (birth date, SSN, etc) match the reports you obtained? Some applicants will deliberately list a family member with the same name, attempting to fool you with their credit history.

In addition, credit reports do not verify property ownership or provide details on rental history. Verbal or written inquiries are necessary for property maintenance issues, bounced checks, leases violations, law enforcement problems and whether they actually paid the rent on time.

The bottom line is that credit reports ARE important but simply do not reflect enough to qualify or deny an applicant. Sarasota Management & Leasing has the experience to assist your investors in screening applicants and placing qualified tenants in their investment property.