the property management webinar series presents the tenant application process presented by abby...

The Property Management Webinar Series Presents

The Tenant Application Process

Presented byABBY 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• Application Fees & Application Deposit• Tenant Selection Criteria and

Acknowledgement• Photo ID

• Accepting or Rejecting a Tenant

Overview of Lease Application Process

1. The Applicant is provided with a rental application.



2. 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.




3. Applicant must then sign an acknowledgement indicating the notice was made available.





4. The Landlord will the process the applications in-house or send them to a tenant screening agency.





4. The Landlord will the process the applications in-house or send them to a tenant screening agency.

5. 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…

The Lease Application

What is it?


• 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.


TAR form 2003


• Residential Lease Application (TAR 2003)

• Key Issues:

1. Applicant’s Age

2. Authorizations

3. The Credit Report

4. Privacy Policy & Business Records

5. Application Fee & Application Deposit

6. Tenant Selection Criteria & Acknowledgement

7. Photo ID

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.

The Lease Application: Authorizations

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



1. Page 3 – “Authorization”



1. Page 3 – “Authorization”

2. Page 4 - “Authorization to Release Information Related to a Residential Lease Applicant”

Here, the applicant gives permission:

3. to current and former employers to release any information about employment history and income history;

4. to current and former landlords to release any information about rental history;

5. to current and former mortgage lenders on property owned to release any information about mortgage payment history;

6. to bank, savings and loan, or credit union to provide a verification of funds that are on deposit; and

7. to the authorized person to obtain a copy of a consumer report (credit report) from any consumer reporting agency and to obtain background information.

Webinar Outline


• Overview• Applicant’s Age• Authorizations • The Credit Report• Privacy Policy & Business Records• Application Fees & Application Deposit• Tenant Selection Criteria and Acknowledgment• Photo ID


The Lease Application: The Credit Report

What is a 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.


How is credit reporting regulated?


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.


What does credit reporting have to do with the lease application

process?


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.


What are different ways a landlord can assess an applicant’s credit?

1. Credit reports from a credit reporting agency, or credit bureau, like Trans Union, Experian, and Equifax;

2. Reports from a tenant-screening service that contain rental history and/or credit history;

3. Reports from a reference-checking service that contacts previous landlords or parties listed on the application.


What does the law require when a landlord requires a credit report in the lease application process?


1. 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.


1. 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.

2. 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.


What does adverse action mean?


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.


• 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.


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.


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.

Webinar Outline





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?


RecordsA 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:

1) adopts a privacy policy; 2) makes the privacy policy available to the individual;

and3) 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.


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.


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.


Records

How do privacy laws affect Property Managers?


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.


RecordsTAR 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.”

http://www.texasrealtors.com/MR/Legal/ModelPolicies/Privacy.pdf

http://www.texasrealtors.com/MR/Legal/ModelPolicies/Privacy.pdf


Records

How long should you keep applicant information?


RecordsUnder 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.


Records

What is the proper way to discard this information?


RecordsState 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.


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.


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.

Webinar Outline





The Lease Application: Application Fee & Application Deposit

What is an Application Fee?


• 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.


What is an Application Deposit?


• Application Deposit:

A sum of money that is given to the landlord in connection with a rental application and is refundable to the applicant if the applicant is rejected as a tenant.


Security Deposit vs. Application Deposit • A security deposit is a deposit to secure performance of a

lease that has already been entered into.

• An application deposit is a deposit given by an applicant and accepted by the landlord before a lease has been entered into.

• While an application deposit is not considered a security deposit if there is no binding lease, landlord-tenant agreements can convert the application deposit into a security deposit when a lease has been executed.

• TAR form 2009 ‘Agreement for Application Deposit and Hold On Property’ is one of them.

Webinar Outline





The Lease Application: Tenant Selection Criteria &

Acknowledgement

What is Tenant Selection Criteria?


Acknowledgement

Tenant selection criteria is the factors a landlord will examine and base his or her decision on when selecting a tenant. If the tenant does not meet this criteria, the tenant can be rejected.


AcknowledgementTexas law states:

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: 1. criminal history2. previous rental history;3. current income; 4. credit history; or 5. failure to provide accurate or complete

information on the application form.


AcknowledgementTAR has created a Model Tenant Selection Criteria


Acknowledgement

Question:

I am representing the applicant and the landlord never provided the applicant with the tenant selection criteria, even though we requested it. The applicant was rejected and she wants her application fee and deposit back, but the landlord is now claiming we never requested the tenant selection criteria because we don’t have an email to prove it. Does this request need to be done in writing?


Acknowledgement

Answer:

No. The request to view the tenant selection criteria does not have to be in writing. However, the request will, of course, be easier to prove it is in writing.


AcknowledgementSteps required to be in compliance with Texas law

regarding tenant selection criteria:

Step One: Landlord or property manager will make available to the applicant a printed notice containing the landlord’s tenant selection criteria and the grounds for which a rental application can be denied when the applicant receives the tenant application. See TAR Model Tenant Selection Criteria.


AcknowledgementStep Two:

The applicant must sign an acknowledgement indicating the notice was made available. If it is not signed, there is a rebuttable presumption that the notice was not made available. • The acknowledgment must include a statement substantively

equivalent to the following: “Signing this acknowledgement 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."

• The acknowledgment may be part of the rental application if the notice is underlined or in bold print.

• TAR form 2003 contains the necessary language and a place for signature.


AcknowledgementPage 3 of TAR form 2003 Residential Lease Application


Acknowledgement

Question:

Could the residential lease application itself serve as notice of the tenant selection criteria? The application states, under the ‘Authorization’ paragraph, that the landlord or agent can obtain the applicant’s credit report, employment history, etc.


Acknowledgement

Answer:

No. While the language in the application certainly authorizes the landlord or agent to obtain information which might be part of a landlord’s selection criteria, the application alone does not meet the requirements of the statute. This language might not contain all the tenant selection criteria the landlord wants to examine and furthermore, it does not inform the applicant that they could be rejected if they don’t meet this criteria.


Acknowledgement

What happens if the landlord fails to follow these steps?


Acknowledgement

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.

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.


Acknowledgement

Question:

Are there any limits on how many applications can be accepted at one time? Does the landlord have to accept only one application at a time?


Acknowledgement

Answer:

No. There are no limits on how many applications a landlord can accept at one time, thus the landlord does not have to accept only one application at a time.

However, some landlords may find it easier to only accept one application at a time in order to make sure all applicable rules and laws, including fair housing laws, are complied with.

Remember, if applicants are rejected, the application deposit must be returned.


Acknowledgement

In summary…

1. Provide applicant with TAR form 2003 Residential Lease Application.

2. Provide applicant with notice of the landlord’s Tenant Selection Criteria.

3. If the landlord fails to provide the notice of Tenant Selection Criteria AND the landlord rejects the applicant, the landlord cannot keep any application fee or deposit.

Webinar Outline





The Lease Application: Photo ID

• If you request a photo ID from an applicant, make sure the purpose of the request relates to an actual verification of the applicant’s information.

• Be uniform and consistent.

The Lease Application: Photo ID

What if an applicant objects?

• Under the Texas Transportation Code, an applicant may object to you making a copy of their photo ID, claiming it is illegal to photocopy a driver’s license.

• It is only illegal if there is an intent to “sell, distribute, or deliver a forged counterfeit instrument.”

• Under the Fair Housing Act, an applicant may object because they believe it is a violation of fair housing laws to copy their photo ID.

• As long as the purpose is to conduct an actual verification of an applicant’s identity and/or check on criminal history, rental history, or credit history, the Fair Housing Act should not be violated.

• Avoid fair housing violations by using a consistent policy for all applicants.

Accepting or Rejecting a Tenant

After the applicant has submitted his or her application, the landlord can either approve or reject the applicant…

• If approved, the Landlord and Applicant enter into a lease agreement. Use TAR form 2001 Residential Lease.

• If rejected, the Landlord notifies the applicant of is or her denial and any refund of fees.

• If the applicant is rejected because they failed to meet one or more of the tenant selection criteria, use TAR form 2212 Adverse Action Notice and Credit Score Disclosure.

• Otherwise, you may notify the applicant in writing or orally that they have been rejected (or you may do nothing and the applicant will be deemed rejected after seven days). There is no TAR form for this.


What are the rules?


Rule 1:

A landlord can give notice of the applicant’s acceptance or rejection by phone or regular mail.

• If by mail, the notice must be postmarked on or before the end of the seven-day period.

• 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.

• 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.


Rule 2:

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:

1. date the applicant submits a completed rental application to the landlord on an application form furnished by the landlord; or

2. date the landlord accepts an application deposit if the landlord does not furnish the applicant an application form.

Note: Rejection of one co-applicant shall be deemed as rejection of all co-applicants.


Question:

So the 7-day period starts to run after the landlord accepts a fully completed rental application. What if the applicant submits an incomplete application, does that mean the 7-day period never starts?


Answer:

Technically, yes. However, you should not rely on this. If you accept an incomplete application and fail to notify the applicant that it is incomplete, the applicant may argue that you waived this requirement.

The best practice is to:

1. Review the application for any missing or illegible information and confirm it is complete and signed.

2. Return the application if it is incomplete and request that it be fully completed.


Question:

I'm a listing agent for a property owner who is renting his home. I received a rental application and presented it to the owner. He wants to wait a week or two before deciding on this applicant to see if a better match to the tenant-selection criteria comes along. How long does the owner have to make a decision?


Answer:

The property owner has seven days to make a decision on that rental application, otherwise the applicant is deemed rejected. The seven-day clock begins on the date the applicant submits a completed rental application on an application form furnished by the property owner, or the date the property owner accepts an application deposit if the property owner did not furnish an application form

Any application deposit should be refunded to the applicant if the applicant was rejected. Remember, an application deposit is a sum of money that is given to the property owner in connection with the rental application that is refundable if the applicant is rejected, whereas an application fee is a nonrefundable sum of money given to the property owner to offset the costs of screening an applicant.


Question:

What if the applicant wasn't made aware of the property owner's tenant-selection criteria when he received the application?


Answer:

At the time the applicant was provided with a rental application, the property owner was required to make available the printed notice of the owner's tenant-selection criteria. If the applicant was rejected and the property owner failed to make the criteria available, the application fee and any application deposit must be returned. Any wrongful withholding will subject the property owner to liability. The Texas Association of REALTORS® has developed a model tenant-selection criteria form for members' use.


Question:

What if the landlord rejects the tenant for a reason other than that listed as a tenant selection criteria (i.e. the landlord had two great applicants and just randomly chose one)? Does the landlord still need to provide TAR form 2212?


Answer:

No. TAR form 2212 is only required if the applicant is rejected due in whole or in part to the applicant’s credit report and can be used for failing to meet other tenant selection criteria.

If the applicant is rejected simply because several applicant’s applied and someone had to be rejected, the landlord could notify the applicant orally or in writing they have been rejected (or do nothing as applicants are deemed rejected after seven days from the date a completed application or application deposit is submitted). Notifying the applicant they have been rejected is the better practice.


Rule 3:

A landlord, who in bad faith fails to refund an application fee or deposit, is liable:

1. for an amount equal to the sum of $100;

2. three times the amount wrongfully retained; and

3. the applicant’s reasonable attorney’s fees.


TAR form 2009 Agreement for Application Deposit and Hold on Property provides the landlord's obligations upon approval or non-approval.

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, last page)• Residential Lease Guaranty (TAR 2007)• Application For Guarantor of Residential Lease

(TAR 2007)• Agreement For Application Deposit And Hold On

Property (TAR 2009)• Adverse Action Notice and Credit Score Disclosure

(TAR 2212)• Request For Rental History (TAR 2214)• Request For Employment Verification (TAR 2219)

Tying it all together…

1. Before the landlord receives any applications: Establish Tenant Selection Criteria. Create a Privacy Policy.


1. Before the landlord receives applications: Establish Tenant Selection Criteria. Create Privacy Policy.

2. When the landlord receives interest from a prospective tenant:

Give the prospective tenant TAR form 2003 Residential Lease Application.

Make the Tenant Selection Criteria available. Make the Privacy Policy available.


1. Before the landlord receives applications: Establish Tenant Selection Criteria. Create Privacy Policy,

2. When the landlord receives interest from a prospective tenant: Give the prospective tenant TAR form 2003 Residential Lease

Application. Make Tenant Selection Criteria available. Make Privacy Policy available.

3. Screen or review applications within seven days of receiving completed application from the tenant or from receiving the application deposit.

Discuss findings generally with the landlord. Do not give the credit report to the landlord without

first verifying you have permission from the credit reporting agency to do so. Remember, the landlord must properly discard the report.

Do not give the application to the landlord without removing the social security number or insuring the landlord has a privacy policy in place. Remember, the landlord must properly discard it also.


1. Before the landlord receives applications: Establish Tenant Selection Criteria. Create Privacy Policy.

2. When the landlord receives interest from a prospective tenant: Give the prospective tenant TAR form 2003 Residential Lease Application. Make Tenant Selection Criteria available. Make the Privacy Policy available.

3. Screen or review applications within seven days of receiving completed application from the tenant or from receiving application deposit.

Discuss findings generally with the landlord. Do not give the credit report to the landlord without first verifying you have permission

from the credit reporting agency to do so. Remember, the landlord must properly discard the report.

Do not give the application to the landlord without removing the social security number or insuring the landlord has a privacy policy in place. Remember, the landlord must properly discard it also.

4. Accept or reject the tenant: If you accept the tenant, sign TAR 2001 Residential Lease within two

days. If you reject the tenant because they failed to meet one or more of

the tenant selection criteria, notify the tenant with TAR form 2212 . If you failed to make available to the applicant the tenant

selection criteria, you must refund both the application fee and any application deposit.

If you made available the tenant selection criteria, you may keep the application fee, but must refund the application deposit.

If you reject the tenant for any other lawful purpose, you may notify the applicant in writing or orally (or you may do nothing and the applicant will be deemed rejected after seven days). You must refund any application deposit.


1. Before the landlord receives applications: Establish Tenant Selection Criteria. Create Privacy Policy

2. When the landlord receives interest from a prospective tenant: Give the prospective Tenant TAR form 2003 Residential Lease Application Make Tenant Selection Criteria available. Make the Privacy Policy available.

3. Screen or review applications within seven days of receiving completed application from the tenant or from receiving application deposit.

Discuss findings generally with the landlord. Do not give the credit report to the landlord without first obtaining permission from the

tenant and the credit reporting agency. Do not give the application to the landlord without removing the social security number

or insuring the landlord has a privacy policy in place. 4. Accept or reject the tenant:

If you accept the tenant, sign TAR 2001 Residential Lease within two days. If you reject the tenant because they failed to meet one or more of the tenant selection criteria,

notify the tenant with TAR form 2212 . If you failed to make available to the applicant the tenant selection criteria, you must

refund both the application fee and any application deposit. If you made available the tenant selection criteria, you may keep the application fee, but

must refund the application deposit. If you reject the tenant for any other lawful purpose, you may notify the applicant in writing or

orally (or you may do nothing and the applicant will be deemed rejected after seven days). You must refund any application deposit.

Keep all documents, including notes, related to an applicant and/or tenant for four years, then discard properly the documents that contain confidential information.

The Tenant Application Process

Questions?

Conclusion

• Thanks for your participation in our webinar!

• Future Webinar Dates:

• October 17 & December 19

• Questions? Contact the Legal Hotline at 512-480-8200

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the property management webinar series presents the tenant application process presented by abby...

Documents

overview of lease application

rental application

tenant application process

separate application

lease application tar

tar lease

lease applicationwhat

lease agreement