Why Allowing Owners to Review Renter Applications is a Risky Move
One thing often debated is whether or not to allow an owner to review a rental application or background check before accepting an applicant. The answer is a resounding NO.
Being in a service-based industry the concept of telling a client “no” is a difficult one. However, it is our duty as property managers to protect our clients even when that means protecting them from themselves.
Sharing the rental application with your owner exposes both of you to risk
- Data Security risks
An application often contains a trove of sensitive and private information including birthdays, social security numbers, ID numbers, children's names, and more. Sharing of this information via electronic means without proper high-end data encryption is not only risky and it can even be illegal. - FCRA Violations
The Federal Credit Reporting Act is a series of Federal Laws that dictate how and when things like credit reports can be run and to whom the information can be shared. The FCRA prohibits the sharing of consumer credit reports to persons or entities that do not have the proper vetting. Violations of this act hold strict penalties and fines. - Fair Housing Violations
Application information reveal details about a renter like Gender, National Origin, Race, and Familial Status that are protected under federal law.
What if the owner makes a biased statement based on the name of the applicant? This conversation (one in which you immediately should cancel your listing or property management agreement with the owner) will be much harder than just a simple “no” would have been in advance. Even if the owner doesn't make this egregious mistake and you find a legitimate and legal reason to decline the applicant later, the applicant always has the ability to file a HUD complaint. In the event of a HUD Complaint, your defense may be challenging if the decision to decline came after your disclosure of information to the owner.
What should you do if an owner insists that you show them renter applications?
You need to ask yourself the basic question: What information are they looking for on an application?
Without a doubt, the owner is looking to calm their fears about the unknowns of a new renter living in their investment.
There are much better and safer ways to calm their fears than handing over a sensitive application.
Review Your Rental Criteria with owners in advance
Show and discuss your written rental criteria with your owner in advance. Make this part of your “onboarding process”. Though unlikely, if you reach an impasse with your owner it's better to do it now than after you have spent countless hours and hundreds of dollars on marketing.
Ultimately the owner's concerns should be based on the quality of the applicant. Making sure they understand how and why your minimum rental criteria significantly reduces the risk of placing an unqualified tenant is the best way to calm owner fears.
Share your legal expertise
Get well-versed in local and federal laws regarding applicant protections. More and more jurisdictions are updating laws that create more protected classes. Things like a source of income, felony charges, sexual orientation and others are protected in cities across the country.
Many owners are simply unaware of the laws and risks associated with breaking them.
In conclusion, allowing owners to review rental applications and background checks is a risky move for both the owner and your property management businesses. The potential data security risks, FCRA violations, and fair housing violations should not be taken lightly.
While it may be difficult to tell a client "no", it is your duty to protect them. So don't be afraid to say "no" when necessary. It's better to do so upfront than to face potential legal repercussions down the line.