Outline for Webinar

1. Property Management Webinar SeriesThe lease application process & Credit ReportingInstructed byKinski Leuffer,Associate CounselOctober 20, 2010

2. Outline for Webinar • Lease Application Process • Credit Reporting

3. I. The Application Process • Overview of Steps: • Applicant is provided with a rental application • Landlord makes available to Applicant printed notice of the tenant selection criteria and grounds for denial • Applicant shall sign an acknowledgment indicating the notice was made available • Landlord will process the applications in-house or send them to a tenant screening agency • Applicant is approved or rejected as a tenant • Approved Landlord & Applicant enter into a lease agreement. • Rejected  Landlord has certain obligations if applicant is rejected

4. Rental Application • TPC § 92.351(5-a) – “Rental application” means a written request made by an applicant to a landlord to lease premises from the landlord. • Residential Lease Application (TAR-2003): • Each occupant and co-applicant 18 years or older must submit a separate application. • Authorizations • Application Fee & Application Deposit • Acknowledgment (Tenant Selection Criteria) • Photo ID

5. TAR Residential Lease Application: Adult Occupants • 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-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.

6. TAR Residential Lease Application: Authorizations • Authorization (p. 2) – Applicant authorizes Landlord/Landlord’s agent, at any time before, during, or after any tenancy to obtain/verify: • credit report; • criminal background check; • rental or employment history; and • any other information related to application. • Authorization to Release Information (p. 4) – 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.

7. Fees • Fees – TPC § 92.351(1, 1-a) • “Application deposit” – a sum of money that is given to the landlord in connection with a rental application and that is refundable to the applicant if the applicant is rejected as a tenant. • “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. • Application Deposit v. Security Deposit • Application Deposit – a deposit given by an applicant and accepted by the landlord before a lease has been entered into. • Security Deposit – a deposit to secure performance of a lease that has been entered into.

8. Fees • TAR’s Agreement for Application Deposit And Hold On Property (TAR-2009) • Under the terms of this agreement, the application deposit is credited to the security deposit when the applicant signs the lease. • Remember: • As a real estate licensee, any time you hold money that belongs to another, you must keep that money in a trust account or risk a charge of commingling. • TAC 535.159(f) A salesperson may not maintain an escrow account or act as an escrow agent. Any money received by a real estate salesperson which is to be held in trust pursuant to a real estate transaction must be delivered to the salesperson's sponsoring broker to be deposited in accordance with the agreement of the principals in the transaction. • Taken from the PM Trust Accounts Webinar

9. Notice of Eligibility Requirements • TPC § 92.3515(a) – At the time an applicant is provided with a rental application, the landlord shall make available to the applicant printed notice of the landlord’s tenant selection criteria and the grounds for which the rental application may be denied, including the applicant’s: • criminal history: • previous rental history; • current income; • credit history; or • failure to provide accurate or complete information on the application form. • Model Policy: • TAR has a model Tenant Selection Criteria

10. Notice of Eligibility Requirements • TPC § 92.3515(b) – If the landlord makes the notice available at the time the applicant is provided with a rental application, the applicant shall sign an acknowledgement indicating the notice was made available. • If not signed  Rebuttable presumption that the notice was not made available. • TPC § 92.3515(c) – The acknowledgment must include: • a statement substantively equivalent to the following: “Signing this acknowledgment indicates that you have had the opportunity to review the landlord's tenant selection criteria.  The tenant selection criteria may include factors such as criminal history, credit history, current income, and rental history.  If you do not meet the selection criteria, or if you provide inaccurate or incomplete information, your application may be rejected and your application fee will not be refunded." • TPC § 92.3515(d) – The acknowledgment may be part of the rental application if the notice is underlined or in bold print.

11. Acknowledgment of Landlord’s Tenant Selection Criteria • TAR-2003 contains the statutorily required acknowledgment.

12. Notice of Eligibility Requirements • TPC § 92.3515(e) – If the landlord rejects an applicant and the landlord has not made the notice of the landlord’s tenant selection criteria available, landlord shall return the application fee and any application deposit. • TPC § 92.3515(f) – If an applicant requests a landlord to mail a refund of the applicant’s application fee to the applicant, the landlord shall mail the refund check to the applicant at the address furnished by the applicant.

13. Photo Identification • Ask for a photo ID for all applicants • Keep a copy for your files. • What if an applicant objects? • TTC § 521.456: An applicant may object to you making a copy of their photo ID, claiming it is illegal to photocopy a driver’s license. • However, it is only illegal if there is an intent to “sell, distribute, or deliver a forged counterfeit instrument.” • FHA: An applicant objects because they believe it is a violation of fair housing laws to copy their photo ID. • However, it is not a violation if the purpose is to conduct an actual verification and check on criminal history, rental, history, or credit history. • Avoid fair housing violations by using a consistent policy for all applicants.

14. Rejection of Applicant • TPC § 92.352(a) – The applicant is deemed rejected by the landlord if the landlord does not give notice of acceptance of the applicant on or before the 7th day after the: • date the applicant submits a completed rental application to the landlord on an application form furnished by the landlord; or • date the landlord accepts an application deposit if the landlord does not furnish the applicant an application form. • Recommended  Review the application for any missing or illegible information and confirm it is complete and signed. • Return the application if it is incomplete and request that it be fully completed. • TPC § 92.352(b) – Rejection of one co-applicant shall be deemed as rejection of all co-applicants.

15. Notice of Acceptance/ Rejection or Refund • TPC § 92.353(a) – A landlord is presumed to have given notice of an applicant’s acceptance or rejection if notice is by: • telephone to the applicant, co-applicant, or a person living with the applicant or co-applicant on or before the required date; or • US mail, addressed to the applicant and postmarked on or before the required date. • TPC § 92.353(b) – If an applicant requests that any acceptance or any refund of the application deposit be mailed to the applicant, the landlord must mail the refund to the applicant at the address furnished. • TAR-2009 provides the landlord's obligations upon approval or non-approval.

16. Notice of Acceptance/ Rejection or Refund • TPC § 92.353(c) – If the date of required notice of acceptance or required refund is a Saturday, Sunday, or state or federal holiday, the required date shall be extended to the end of the next day following the Saturday, Sunday, or holiday. • TPC § 92.354 – A landlord who in bad faith fails to refund an application fee or deposit is liable for an amount equal to the sum of $100, three times the amount wrongfully retained, and the applicant’s reasonable attorney’s fees.

17. Application: Approved or Rejected • Applicant is Approved  Landlord & Applicant enter into a lease agreement • TAR Residential Lease (TAR-2001) • Applicant is Rejected  Landlord sends Applicant notice of denial and any refund of fees. • TAR Denial of Lease Application (TAR-2212)

18. II. Credit Reporting • Why is credit reporting important? • It’s everywhere in the lease application process: • TPC § 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-2003 – Asks about the applicant’s credit problems & authorizes a landlord to obtain a copy of the credit report.

19. Credit Reporting • What is a credit report/consumer report? • It contains information about a person’s credit characteristics, character, general reputation, and lifestyle. • It may also include information about an applicant’s rental history. • How is credit reporting regulated? • The Federal Trade Commission regulates CRAs under FCRA. • A CRA is a business that assembles reports for other businesses (a credit bureau). • FCRA was created to protect the privacy of consumer report information and to guarantee that the information supplied by CRAs is accurate.

20. Credit Reporting • What types of consumer reports do Landlords use to evaluate applicants? • Credit reports from a credit bureau (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.

21. Credit Reporting • What duties does FCRA impose on a landlord who requires a credit report in the lease application process? • A landlord must obtain an applicant’s written permission to run a credit report. • TAR-2003 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 on information solely or partly obtained from the credit report, the landlord must inform the applicant in writing and provide certain required information (“Notice of Adverse Action”). • TAR’s Denial of Lease Application (TAR-2212) form complies with FCRA.

22. Credit Reporting: Adverse Action • Under FCRA § 615(a), a landlord must provide “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. • What is an Adverse Action? • 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.

23. Credit Reporting: Adverse Action Notice • When is an adverse action notice required? • when any adverse action is taken based solely or partly on information from a consumer report • What if the landlord sends the applications to a tenant screening agency? • 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-2212 satisfies this. • If the landlord sends the applications to a tenant screening agency, their service usually includes a written notice of denial.

24. Credit Reporting: Adverse Action Notice • What must the notice include? • the name, address and telephone number of the CRA that supplied the report, including a toll-free telephone number for CRAs that maintain files nationwide; • a statement that the CRA 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 CRA furnished, and the applicant’s right to a free report from the CRA upon request within 60 days. • TAR-2212 satisfies this.

25. Credit Reporting: Adverse Action Notice • Liability for failure to comply with FCRA: • 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. • Credit Reporting information gathered from www.ftc.gov.

26. Credit Reporting What do you do with the information provided in a credit report?

27. Privacy Policy Law • TB&CC § 501.052(a) – 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. • A lease is generally considered a “service,” so all rental property owners must comply. • TB&CC § 501.052(b) – 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.

28. Privacy Policy Law • TB&CC § 501.053(a) – Any violation of the privacy policy law 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. • Rationale behind Privacy Policy law  To increase protection standards to guard against identity theft and other invasions of privacy.

29. Privacy Policy Law • How does this law affect Property Managers? • Property managers are responsible for the privacy 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. • Details & specific information obtained from the credit report should not be discussed with anyone except the applicant. • Hence, a property manager could be liable for violation of privacy laws and common law concepts of contract and tort for permitting unauthorized persons to access an applicant’s personal information.

30. Privacy Policy • 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 do not have access to personal information in the property management 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.

31. Business Records Law • FACTA & TB&CC § 72.001(2) – 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 + address or telephone number by itself is not classified as a business record requiring destruction under state or federal law.

32. Business Records Law • TB&CC § 72.004(d) – A business that fails to properly dispose of a business record is liable for a civil penalty of up to $500 for each record. • A business must keep the personal information safe and secure. • Recommended  Keep confidential information under lock and key and protect electronic records with passwords. • TAR Privacy Policy Manual contains this language. • When should a business dispose of these records? • TB&CC § 72.002(a) – A business record may be destroyed at any time after the 3rd anniversary of the date the business record was created. • TB&CC § 72.003 – Retention of a business record is satisfied by retention of a reproduction of the original record.

33. Business Records Law • Checks: • TB&CC § 72.051(c) – requires a business who accepts checks to delete any electronic record indicating that a customer has issued a dishonored check or any other information on which the business bases a refusal to accept a check if one of the 2 conditions arise: • the business and customer agree that the information is incorrect, or • the customer presents a report filed with a law enforcement agency stating that the dishonored check was unauthorized, and a written notice from the customer that the dishonored check was unauthorized. • TB&CC § 72.051 applies to property owners and mangers who accept checks from residents. • TB&CC § 72.051(d) – A business that fails to comply is liable to the state for a civil penalty of up to $1,000.

34. THE END

35. List of TAR Forms • The following TAR Forms are available for member use only: • Residential Lease Application (TAR-2003) • Authorization To Release Information Related To A Residential Lease Applicant (TAR-2003) • Application For Guarantor of Residential Lease (TAR-2007) • Residential Lease Guaranty (TAR-2007) • Agreement For Application Deposit And Hold On Property (TAR-2009) • Denial Of Lease application (TAR-2212) • Request For Rental History (TAR-2214) • Request For Employment Verification (TAR-2219)

36. Thank you • Thanks for your participation in our 3rd PM Webinar! • Future Topics • Security Deposit – December • Questions? Contact the Legal Hotline 800/873-9155 • For more on Fair Housing, download Keeping it Fair – What every PM should know about fair housing • Give us your feedback! Send to: kleuffer@texasrealtors.com