The (Hidden) Advantage of Application Fees

by Robert Cain

Application fees have the additional advantage of being “self-weeding” of bad tenants.

Tenants who know they will be rejected usually won’t apply to rent from you if they know they will lose their application fee.

If all the risk is on you, many times they will just go ahead and fill out a rental application, replete with lies, half-truths, and omissions. But if they have to risk their own money, they may just go on to the next landlord—the one who won’t be so careful whom he rents to.If you do collect an application fee you are either legally or ethically (depending on whether your state has passed a law about it yet) required to do the following:

a. Tell them what you are going to check.

b. Inform them of their rights to dispute any information you uncover. (You don’t have to wait for the disputed information to be resolved, you can go ahead and rent to someone with no black marks on his or her credit report.)

c. Tell them the name of the screening service or credit reporting agency.

d. Even if you don’t charge an application fee, but you reject them as tenants because of information you received from a credit agency or tenant screening service, tell the applicant that you rejected him or her because of the information you received, and give him or her the name and address of the service or agency.

e. You need not tell applicants the specific results of the credit report or screening report, only that it caused you to reject them. They need to contact the agency for the specifics. You can, however, give them a copy of their “consumer report,” as defined in the Fair Credit Reporting Act.

f. Do not charge a fee unless you actually have a unit available to rent at that moment or expect one within a reasonable length of time.

g. If you charge an application fee, but never screen the applicant, give the money back “within a reasonable time.”

Write all this out as an agreement and receipt that they and you will sign when they pay you the application fee. 

Copyright Cain Publications, Inc., used by permission.

Robert Cain is a nationally-recognized speaker and writer on property management and real estate issues. For a free sample copy of the Rental Property Reporter call 800-654-5456 or visit their web site at www.rentalprop.com.

Share your insights by commenting below. For questions about our blog, contact our editor at kim@joinaaoa.org.

See our feature, Is Your Rental Application Falling Short?

American Apartment Owners Association offers discounts for landlords on products and services related to your rental investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.To subscribe to our blog, click here.

Tags: rental+application+fees, landlords, apartment+owners, landlord+associations, apartment+owners+associations, real+estate+forms, landlord+tips, landlord+tenant+laws

Posted by Kim Ezzell on 06.10.2009. 4 Comments »

Filed under: AAOA Forum, Credit Screening

5 Tenant Screening Tips for Today`s Economy

Tenant screening is more difficult in this bad economy. 

For one thing, there are fewer applicants and that forces a landlord to choose between more mediocre prospects. 

But these times are also hard on landlords who rely too heavily on credit reports to make screening decisions.  More applicants than ever have a foreclosure or a bankruptcy on their credit record, and landlords have to decide whether to overlook it.

Applicants with long-term job histories suddenly have been forced to change careers, and others are moving around to new cities to search out job opportunities.  

While credit is an important factor in tenant screening, it is not the only thing to consider when evaluating a prospective tenant: 

Talk to The Previous Landlord – Oops, There Isn’t One!

Read the rest of this entry »

Posted by Kim Ezzell on 04.02.2009. 5 Comments »

Filed under: AAOA Forum, Credit Screening

3 Tenant Debt Collection Myths

Collecting delinquent rent and damages against a tenant is the least appealing part of being a landlord.  Yet, the burgeoning eviction numbers reported by courts around the country are an indicator that more and more of us are facing the challenge of delinquent tenants.  

Don’t let false assumptions and preconceptions about debt collection, especially the belief, “I’m careful, it will never happen to me,” affect your chances for tenant debt recovery.

Here are three common misconceptions that can hinder your success in debt collection: 

MYTH #1:

If I don’t collect the debt right away, I may as well forget about it.

In fact, a tenant who doesn’t pay rent is typically experiencing a financial crisis, like a medical injury or job loss. While there will always be those who don’t recover, for many just a few months can make all of the difference in re-establishing their financial health.

So, why do some collection agencies tell you they can’t collect old debt or charge you more if the trail isn’t fresh?  Because there are always a portion of debtors who will get scared and pay immediately when approached by a debt collector.  The company still gets it’s hefty fee even in these easy circumstances, for little very effort — typically just a letter or phone call. (You can send your own debt collection letter.)   

This is how they stay profitable.  It doesn’t mean your older debt is uncollectible.

Reputable collection agencies will continue to pursue your debt indefinitely, or until the statute of limitations runs out, which can be many years after the default.  Some of the better agencies are still collecting debt from the 1990’s.

MYTH #2

The SSN is all I need to collect the debt.

While a social security number is instrumental to debt collection, it is only a part of the information that a good collection agency needs.  Accurate and current employment and banking information is just as crucial.  Here are some examples of what you should have in your rental application or your tenant file: 

• current employment info, as well as past  
                                                                           

• current bank account info, including a copy of each rental check

• a copy of current driver’s license

• a copy of current vehicle registration or vehicle plate and description

• three personal references

• three current emergency contacts, who are not the same as personal contacts

• list of previous addresses

MYTH #3

An applicant with good credit won’t default, or will be easy to collect from.

Even the most responsible tenants can suffer unexpected problems, especially in this time of high unemployment.

Likewise, screening on credit alone will not help you find a delinquent tenant who was using a false social security number. 

It is critical to debt collection efforts to have enough information about the tenant to find them, and their assets, should they become delinquent. All applicants must be fully screened including credit, criminal history, employment, previous landlord, and previous address history. 

It is this combination of tenant screening reports, cross-checked, that not only allows you to detect fraud, but will help you locate the tenant who becomes delinquent.

For more, see our Tenant Debt Collection forum.

For help with tenant debt collection, email collection@joinaaoa.org.

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.

To subscribe to our blog, click here.

Tags: tenant+debt+collection, rent+collection, rent+recovery, landlords, apartment+owners, real+estate+forms, tenant+background+checks, tenant+screening

Posted by Kim Ezzell on 02.16.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Credit Screening

Tenant Screening: Accessing Bad Check Databases

Wouldn’t you like to find out if an applicant has written a bad check before you rent to them, or make sure the check they offered to you is good before you accept it and give them the keys to your property?

The TeleCheck® Check Verification Service is available to all AAOA members, including free members, either alone or with an AAOA screening package.

TeleCheck is well-known for assisting merchants in separating good check writers from bad ones, allowing them to adopt a liberal check acceptance policy that will benefit both the merchants and their customers.

These same national databases are available to landlords through AAOA and contain real-time information from more than 306,000 businesses and financial institutions. 

TeleCheck offers the most accurate check verification service in the industry. These databases provide merchants with continually updated information including bad check activity as it occurs, automated inquiries using the consumer’s identification (Driver’s License or State ID) as well as checking account data.

An applicant’s check writing history can indicate what type of renter they will be.

The basic Verification service quickly separates good and bad check risks using TeleCheck’s negative database. This database comprises more than 51 million bad check records and can help detect a poor rental prospect, as well as a fraudulent application.

The Verification with Risk Management service uses both TeleCheck’s check writer activity and negative databases along with its risk management system to identify not only bad check writing risks, but also good ones. The risk management service utilizes TeleCheck’s risk and predictive-modeling systems to analyze over 30 variables to predict the probability of a check being good. These assessment tools include regression modeling, neural networks, & decision tree analysis.

To access the service visit www.joinaaoa.org, and sign up for one of our membership options, including free membership, or our new limited membership that allows access to credit reporting.  Premium members receive discounts on tenant screening.

See a sample TeleCheck Verification Report.  

See more Tenant Screening articles. 

American Apartment Owners Association offers discounts on products and services related to your commercial housing investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.

To subscribe to our blog, click here. 

Tags: tenant+screening, bad+checks, tenant+background+checks, telecheck, apartment+owners, landlords, real+estate+forms

Posted by Kim Ezzell on 01.22.2009. 1 Comment »

Filed under: AAOA Forum, Credit Screening

Tenant Background Checks: 4 Crucial Tips for Detecting Fraud

For many landlords, “fraud” is a four-letter word. That’s because they know it spells getting ripped off, with precious little recourse to collect the bad tenant debt.

Unfortunately, a significant number of rental applications are completely fabricated, from the applicant’s name and social security number to job, bank and personal references.

Many delinquent tenants are better at writing fiction than holding down a job!

Learn to recognize some common-and some not so common-signs of fraud:

Read the rest of this entry »

Posted by Kim Ezzell on 01.19.2009. 3 Comments »

Filed under: AAOA Forum, Credit Screening

Sex Offenders Have Rental Rights, Too

by Janet Portman, Inman News

Q: One of my neighbors informed me that one of my newest tenants is a registered sex offender (I’m not sure how she found this out).

He stated on his rental application that he had a three-year-old felony conviction, but he did not report details.  

Figuring that everyone deserves a chance, I did not ask further and rented to him and his wife and two young children, giving them a yearlong lease. They’ve caused no problems. Our local sheriff’s department plans to notify the neighbors of his address and criminal history.

I’m concerned about the safety of this man and his family, as well as how I should handle this situation with the neighbors. Can you please provide me with some guidance on how I should proceed? –Jan

A: You’ve encountered one of the most difficult situations a landlord can find herself in. Unfortunately, there are no easy answers. Read the rest of this entry »

Posted by Kim Ezzell on 11.17.2008. 2 Comments »

Filed under: AAOA Forum, Credit Screening

18 Reasons to Reject a Tenant Application

18 Legal (and Businesslike) Reasons to Reject an Applicant by Robert Cain 

Many landlords believe that they cannot reject any applicant for any reason, that they have to accept the first one to come along with the money or risk the grief of a lawsuit.

Not so.There are numerous legitimate, businesslike reasons to reject a prospective tenant. 

1. Unsatisfactory references from landlords, employers and/or personal references. These could include reports of repeated disturbance of their neighbors’ peaceful enjoyment of their homes; reports of gambling, prostitution, drug dealing or drug manufacturing; damage to the property beyond normal wear and tear; reports of violence or threats to landlords or neighbors; allowing people not listed on the lease or rental agreement to live in the property; failure to give proper notice when vacating the property; or a landlord who would not rent to them again. 

Read the rest of this entry »

Posted by Kim Ezzell on 10.27.2008. 3 Comments »

Filed under: AAOA Forum, Credit Screening

Credit Reports: Do You Know Your Options?

Instant Credit Analysis

Today, tenant credit screening is easy.

In a matter of seconds, you can receive a green light approval on a prospective, a red flag decline, or a warning that you may need to dig deeper with that prospect.  Read the rest of this entry »

Posted by Kim Ezzell on 08.28.2008. CLICK to Leave a Comment »

Filed under: AAOA Forum, Credit Screening

Sign Up For Tenant Screening Before You Need It

by Julie Murphy

One unreliable tenant can cause extreme headaches–non-payment, damages, even leading to eviction.

With the easy process of tenant screening, it’s possible those problems can be avoided.

Basic tenant screening protects your investment as a landlord against tenants who make dishonest remarks about their histories.  There are many companies online that provide these services.  It is important to choose a credible organization that does thorough checks in several categories.  Read the rest of this entry »

Posted by Kim Ezzell on 08.14.2008. 1 Comment »

Filed under: AAOA Forum, Credit Screening

Avoid This Tenant Debt Collection Nightmare

Tenant debt collection expert Bill Gray is seeing a disturbing trend:

“We are getting more and more collection requests from owners who inherited the existing tenants from the seller,” Bill explains. 

“Problem is, all they have is the lease. They don’t have the information we need for collection. Sometimes they don’t even have the debtor’s Social Security Number.” Read the rest of this entry »

Posted by Kim Ezzell on 07.31.2008. 1 Comment »

Filed under: AAOA Forum, Collections, Credit Screening