Metro Apartment Manager, February 2005

Q: I recently received three applications on the same day for our one vacant unit. Because the first one looked a bit shaky, I ordered credit reports on all three before making reference calls. Sure enough, I turned the first one down because of credit, but the second one qualified. When I called the third one to say we had rented to someone who had applied before, she asked me to refund her $50 screening fee. Because I had ordered the credit report I refused. She’s angry. Was I wrong?

A: Many landlords focus on potential fair housing pitfalls when thinking about how they screen. But a few years ago Oregon adopted some law to cover screening and, based on lots of questions I get, many property managers don’t seem to understand it.

There is no legal requirement that you rent to the first applicant who qualifies, but most landlords do so because it satisfies fair housing with a process independent of the applicants and is seen as fair by most people. While there’s an arbitrariness to first come-first serve, most of us accept it.

And, to satisfy fair housing law, qualifying means meeting some discrete, objective criteria. Those could include, for example, no criminal record and satisfactory landlord references over some period of time. (One can argue that satisfactory isn’t sufficiently objective, but it’s usual meaning is that the prior landlord would re-rent, which is objective [even though the prior landlord’s assessment might be subjective]).

So if we have a fair process for how we screen applications and use objective criteria in evaluating applicants, we satisfy fair housing requirements.

But then, there’s Oregon law about screening. It allows screening fees (the law calls it an “applicant screening charge;” I call it a “screening fee”) and imposes requirements when a landlord turns an applicant down. The latter mostly mirrors requirements of the federal Fair Credit Reporting Act.

Oregon, I believe (readers will tell me if I’m wrong), is the only state whose landlord tenant law broaches the subject of screening and screening fees. Oregon allows such fees but limits them to the average cost of actual screening not to exceed what a screening company would charge for similar service. And, if you charge a screening fee, you subject yourself to more requirements. Before you accept the fee, you must give the applicant four things in writing: the amount of the screening fee, your screening criteria, your screening process, and notice of how the applicant can dispute the credit or screening report; and you must verbally disclose two more things: your estimate of the number of vacancies, and the number of applications for those units still under consideration.

The idea behind the latter is to enable an applicant to evaluate the likelihood, should she qualify, that you will have a unit for her and so whether it’s worthwhile filling out an application and paying a fee.

The idea behind the former — the written disclosures — is to enable her to evaluate the likelihood you would approve her application. Your disclosure of the screening process enables her to see what you require (like ID, a written application) and what you check (like credit, criminal records). Knowing what you do, she should be able to read your criteria and determine whether she qualifies: does she have a criminal record? does her credit meet your standard? does she have sufficient rental references and will they be satisfactory? Since most of us know the answers to those questions regarding ourselves, your applicant should be able to look at those and have a good idea whether or not she can meet them.

The whole concept is supposed to benefit both landlords and tenants. The benefit to landlords is, first, that applicants will self-screen. Some will read your guidelines and then not complete an application, because they can see they don’t meet your guidelines. The second benefit, often overlooked, is how the verbal disclosures operate. You can get in fair housing trouble if you discourage prospective renters from applying. You couldn’t say, “Gee, you know I already have four applications for this property.” That would be discouraging. But now you can, and should given state law, say, “We have the one vacancy and four applications still under consideration.”

The benefit to tenants is that they should be able to determine ahead of time whether or not you are likely to have an apartment for them and whether or not they qualify for it. They shouldn’t be paying application fees and then getting turned down; or at least it should happen more rarely. The problem I find is that applicants don’t do their part — reading or evaluating — or are less than candid in their self-evaluation. Still, it’s a help.

Disclosure of the process is one thing; following it is another. The law says you should disclose “The process that the landlord typically will follow in screening the applicant, including whether the landlord uses a tenant screening company, credit reports, public records or criminal records or contacts employers, landlords or other references.” So most of us disclose whether we check landlord references or get credit reports. Though the law doesn’t explicitly say something like “we screen applications in the order in which we receive them,” something like that is implicit in the word process, which the dictionary closest at hand defines as “a series of actions… that bring about an end or result.” So the process we disclose should include whether we take them in the order received or do something different; it should also include what we do when we approve an application (require a deposit within a certain time) and when we don’t (send a denial letter).

All landlords are faced eventually with the quandary of what to do when references aren’t responding. You call the prior landlord, leave a message, then sit by the phone drumming your fingers on your desk. But thrum for how long? My screening process disclosure says, “If, after a good-faith effort, we are unable to verify something on your application, we will go on to the next.” That doesn’t set a time limit, but at least it establishes that I won’t wait forever.

You are not the only landlord to order credit reports on all, and then make screening calls one at a time. If that’s what you do, I think you should disclose as part of your screening process. A particularly savvy applicant could then realize that, even if he’s fourth in line, his screening fee is spent. If you did so disclose, you would comply with Oregon law.

Even if you didn’t disclose, you might get under the wire because the law [see above] talks about the process you typically use. So it allows for exceptions.

But while you might be in compliance with state law, you may be in fair housing trouble. Once you have credit reports on all three, for instance, it is going to be difficult to show you weren’t influenced by those and ended up favoring the one with the best credit. That gets you perilously close to choosing not the first one who meets your criteria, but the one who best meets them, and that you can’t do.

Is it worth an argument? Were it me, I’d return the screening fee.

My usual reminder: each circumstance is unique, so your case will be different. Before you act, be certain about what you do. Don’t rely solely on this general advice; read the law and consult others as appropriate.

This entry was posted on Monday, February 28th, 2005 at 2:15 pm and is filed under screening process, application fees, screening. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.