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The Property Management Webinar Series Presents The Tenant Application Process Presented by ABBY LEE, Associate Counsel

The Property Management Webinar Series Presents The Tenant Application Process Presented by ABBY LEE, Associate Counsel August 15, 2012. Webinar Outline. Finding a Tenant: The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records

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The Property Management Webinar Series Presents The Tenant Application Process Presented by ABBY LEE, Associate Counsel

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  1. TheProperty Management Webinar Series PresentsThe Tenant Application Process Presented byABBY LEE,Associate CounselAugust 15, 2012

  2. Webinar Outline • Finding a Tenant: The Lease Application • Overview • Applicant’s Age • Authorizations • The Credit Report • Privacy Policy & Business Records • Application Fees & Application Deposit • Tenant Selection Criteria and Acknowledgement • Photo ID • Accepting or Rejecting a Tenant

  3. Overview of Lease Application Process • The Applicant is provided with a rental application.

  4. Overview of Lease Application Process • The Applicant is provided with a rental application. • The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy.

  5. Overview of Lease Application Process • The Applicant is provided with a rental application. • The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy. • Applicant must then sign an acknowledgement indicating the notice was made available.

  6. Overview of Lease Application Process • The Applicant is provided with a rental application. • The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy. • Applicant must then sign an acknowledgement indicating the notice was made available. • The Landlord will the process the applications in-house or send them to a tenant screening agency.

  7. Overview of Lease Application Process • The Applicant is provided with a rental application. • The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy. • Applicant must then sign an acknowledgement indicating the notice was made available. • The Landlord will the process the applications in-house or send them to a tenant screening agency. • Finally, the Applicant is either approved or rejected as a tenant. • If approved, the Landlord and Applicant enter into a lease agreement. • If rejected, the Landlord has certain obligations…

  8. The Lease Application What is it?

  9. The Lease Application • The Texas Property Code defines a “rental application” as a written request made by an applicant to a landlord to lease premises from the landlord.

  10. The Lease Application TAR form 2003

  11. The Lease Application • Residential Lease Application (TAR 2003) • Key Issues: • Applicant’s Age • Authorizations • The Credit Report • Privacy Policy & Business Records • Application Fee & Application Deposit • Tenant Selection Criteria & Acknowledgement • Photo ID

  12. The Lease Application: Age • Each occupant and co-applicant 18 years or older must submit a separate application. • Recommended: Property managers should require all adult occupants to fill out an application even if they are not signing the lease as a tenant. • TAR form 2003 requires this. • Why?You should know whether the occupant poses a risk to you, particularly if the occupant has a prior criminal record or a bad rental history.

  13. The Lease Application: Authorizations • The TAR Lease Application contains two different types of authorizations:

  14. The Lease Application: Authorizations • The TAR Lease Application contains two different types of authorizations: • Page 3 – “Authorization”

  15. The Lease Application: Authorizations • The TAR Lease Application contains two different types of authorizations: • Page 3 – “Authorization” • Page 4 - “Authorization to Release Information Related to a Residential Lease Applicant” Here, the applicant gives permission: • to current and former employers to release any information about employment history and income history; • to current and former landlords to release any information about rental history; • to current and former mortgage lenders on property owned to release any information about mortgage payment history; • to bank, savings and loan, or credit union to provide a verification of funds that are on deposit; and • to the authorized person to obtain a copy of a consumer report (credit report) from any consumer reporting agency and to obtain background information.

  16. The Lease Application: Authorizations

  17. Webinar Outline • Finding a Tenant: The Lease Application • Overview • Applicant’s Age • Authorizations • The Credit Report • Privacy Policy & Business Records • Application Fees & Application Deposit • Tenant Selection Criteria and Acknowledgment • Photo ID • Accepting or Rejecting a Tenant

  18. The Lease Application: The Credit Report What is a credit report?

  19. The Lease Application: The Credit Report A credit report, or consumer report, contains information about a person’s: • credit worthiness • credit standing • character • general reputation • lifestyle It may also include information about an applicant’s rental history.

  20. The Lease Application: The Credit Report How is credit reporting regulated?

  21. The Lease Application: The Credit Report Credit reporting agencies are regulated by the Federal Trade Commission (FTC) under the Fair Credit Reporting Act (FCRA). FCRA was created to protect the privacy of consumer report information and to guarantee that the information supplied by credit reporting agencies is accurate.

  22. The Lease Application: The Credit Report What does credit reporting have to do with the lease application process?

  23. The Lease Application: The Credit Report It’s everywhere in the lease application process! Where? • Texas Property Code § 92.3515(a) - Grounds for denial of an applicant may be based on an applicant’s credit history. • TAR’s Model Tenant Selection Criteria – Landlord will obtain a credit report to verify an applicant's credit history • TAR form 2003 Residential Lease Application– Asks about the applicant’s credit problems & authorizes a landlord to obtain a copy of the credit report.

  24. The Lease Application: The Credit Report What are different ways a landlord can assess an applicant’s credit? • Credit reports from a credit reporting agency, or credit bureau, like Trans Union, Experian, and Equifax; • Reports from a tenant-screening service that contain rental history and/or credit history; • Reports from a reference-checking service that contacts previous landlords or parties listed on the application.

  25. The Lease Application: The Credit Report What does the law require when a landlord requires a credit report in the lease application process?

  26. The Lease Application: The Credit Report • A landlord must obtain an applicant’s written permission to run a credit report. • TAR form 2003 Residential Lease Application contains an authorization allowing the Landlord (or agent) to obtain a copy of the applicant's consumer report.

  27. The Lease Application: The Credit Report • A landlord must obtain an applicant’s written permission to run a credit report. • TAR form 2003 Residential Lease Application contains an authorization allowing the Landlord (or agent) to obtain a copy of the applicant's consumer report. • If the landlord rejects an applicant based solely or partly on information obtained from the credit report, the landlord must inform the applicant in writing and provide certain required information (“Notice of Adverse Action”). • TAR form 2212 Adverse Action Notice and Credit Score Disclosure complies with FCRA.

  28. The Lease Application: The Credit Report What does adverse action mean?

  29. The Lease Application: The Credit Report An ‘adverse action’ is any action by a landlord that is unfavorable to the interests of an applicant, which includes: • denial of an application; • requiring a co-signer on the lease; • requiring a deposit that would not be required for another applicant; • requiring a larger deposit than might be required for another applicant; and • raising the rent to a higher amount than for another applicant. Under the Fair Credit Reporting Act, a landlord must provide a “Notice of Adverse Action” to an applicant who is rejected based in whole or in part on information obtained from the applicant’s credit report.

  30. The Lease Application: The Credit Report • If the landlord sends the applications to a tenant screening agency, their service usually includes a written notice of denial. • If the landlord processes the applications in-house, the landlord should prepare a form letter to be sent to all applicants denied a lease because of their credit. TAR form 2212 satisfies this.

  31. The Lease Application: The Credit Report If you do not use TAR form 2212, what must the form letter or notice include? • the name, address and telephone number of the credit reporting agency that supplied the report, including a toll-free telephone number for credit reporting agencies that maintain files nationwide; • a statement that the credit reporting agency that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and • a notice of the applicant’s right to dispute the accuracy or completeness of any information the credit reporting agency furnished, and the applicant’s right to a free report from the credit reporting agency upon request within 60 days.

  32. The Lease Application: The Credit Report Liability for failure to comply with Fair Credit Reporting Act: • A party may be sued for damages in federal court for violation of FCRA. • Maximum fine up to $1,000 per violation • A prevailing party is entitled to recover court costs and reasonable attorney’s fees. • The law also permits a prevailing party to seek punitive damages for deliberate violations.

  33. Webinar Outline • Finding a Tenant: The Lease Application • Overview • Applicant’s Age • Authorizations • The Credit Report • Privacy Policy & Business Records • Application Fees & Application Deposit • Tenant Selection Criteria and Acknowledgement • Photo ID • Accepting or Rejecting a Tenant

  34. The Lease Application: Privacy Policy & Business Records What do you do with the information provided in a lease application or other documents, like a credit report?

  35. The Lease Application: Privacy Policy & Business Records A person may not require an individual to disclose the individual's social security number to obtain goods or services from or enter into a business transaction with the person, unless the person: • adopts a privacy policy; • makes the privacy policy available to the individual; and • maintains under the privacy policy the confidentiality and security of a social security number disclosed to the person. The policy must include: • how the information is collected; • how and when it is used; • how it is protected; • who has access to the information; and • the method of disposal.

  36. The Lease Application: Privacy Policy & Business Records Bottom line: If you are using TAR’s Residential Lease Application, you must have a privacy policy in place because the application requests the applicant’s Social Security number.

  37. The Lease Application: Privacy Policy & Business Records Any violation of laws regarding privacy policies subjects the individual of a fine up to $500 a month during which a violation occurs. Failure to provide an applicant with the policy, upon request, is a violation.

  38. The Lease Application: Privacy Policy & Business Records How do privacy laws affect Property Managers?

  39. The Lease Application: Privacy Policy & Business Records • Property managers are responsible for private information of rental applicants and should be cautious of information shared with property owners. • Only pertinent information should be shared, such as income, employment history, rental history, criminal history, the number of occupants, and any pets. • In general, the credit report should only be given to the landlord upon permission of the credit reporting agency that prepared it (look to the agreement with the CRA). If a landlord does receive a copy, the landlord is also responsible for discarding the report properly as required by law. • The application itself could be given to the landlord; however, because the application contains the applicant’s SSN, the application should either be redacted or the landlord must have a privacy policy in place, and store and discard the application properly. • Recommended As property manager, it is best to keep all applicant documents and not provide copies to the landlord.

  40. The Lease Application: Privacy Policy & Business Records TAR 2003 (page 3 & 4) – Landlord’s agent or property manager maintains a privacy policy that is available upon request. Model Privacy Policy: TAR has a Privacy Policy Manual • Page 3 – “Property owners for whom the company manages do not have access to personal information in the company’s files. However, the company and its agents may discuss the information in a tenant’s consumer report or lease application with a property owner. Copies of such information are provided to the landlord only: (1) with the tenant’s consent; or (2) if the company ceases to be the property manager and the landlord requests that the files be sent to the landlord, the landlord’s attorney, or the new property manager.”

  41. The Lease Application: Privacy Policy & Business Records How long should you keep applicant information?

  42. The Lease Application: Privacy Policy & Business Records Under the law, a business record may be destroyed at any time after the 3rd anniversary of the date the business record was created. HOWEVER, TREC requires that if a licensee maintains a trust account, documentary records of each deposit or withdrawal for that account must be retained for four years. TREC requires that this standard be maintained by licensees for documents relating to all real estate transactions because TREC can investigate a complaint against a licensee up to four years from the date of the transaction. Recommended  Keep confidential information under lock and key and protect electronic records with passwords. The Model TAR Privacy Policy contains this language.

  43. The Lease Application: Privacy Policy & Business Records What is the proper way to discard this information?

  44. The Lease Application: Privacy Policy & Business Records State and federal law require that when a business disposes of business records, the business must take appropriate measures to dispose of the records if they contain: • credit reports and credit scores, employment background, check-writing history, insurance claims, residential or tenant history and medical history, or • a person’s name and the person’s date of birth, Social Security number, mother’s maiden name or other unique identifying or financial information. Note: A name and address or telephone number by itself is not classified as a business record requiring destruction under state or federal law.

  45. The Lease Application: Privacy Policy & Business Records So what are these “appropriate measures” of disposal? • The law states that a business must modify by shredding, erasing, or other means, the “personal identifying information” to make it unreadable or undecipherable. • Alternatively, a business may contract with a person engaged in the business of disposing records to do this.

  46. The Lease Application: Privacy Policy & Business Records What happens if you fail to dispose of this information correctly? • Under state law, a business that fails to properly dispose of a business record is liable for a civil penalty of up to $500 for each record. • Therefore, a business must keep the personal information safe and secure.

  47. Webinar Outline • Finding a Tenant: The Lease Application • Overview • Applicant’s Age • Authorizations • The Credit Report • Privacy Policy & Business Records • Application Fees & Application Deposit • Tenant Selection Criteria and Acknowledgement • Photo ID • Accepting or Rejecting a Tenant

  48. The Lease Application: Application Fee & Application Deposit What is an Application Fee?

  49. The Lease Application: Application Fee & Application Deposit • Application Fee: • A nonrefundable sum of money that is given to the landlord to offset the costs of screening an applicant for acceptance as a tenant.

  50. The Lease Application: Application Fee & Application Deposit What is an Application Deposit?

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