Property Management, Tenant Selection, Real Estate News & Tips

How to Legally Deny a Rental Applicant

By on May 23, 2017 in Education with 0 Comments

deny a rental applicant

Property managers are responsible for approving and rejecting rental applicants.

As long as the reasons for denial are legitimate and meet Federal Fair Housing Guidelines, you have the right to approve the most qualified rental applicant to become your next tenant (and say “no” to the rest).  

To understand just how often rental managers have to deny a rental applicant, Nathan Miller, president of Rentec Direct, looked at data from more than 13,000 property managers and landlords who use Rentec Direct’s property management software:

“We reviewed some statistics from 5236 rental applications received during the first two months of 2017.  Of those applications, 56% of the units we rented after receiving just one application,” says Miller.  “The remaining units received between 2 and 63 applicants per unit.  The average overall was 3.54 applicants per unit to find and place a tenant.”

If you are one of the managers with 63 applicants for a single unit, there are going to quite a few people that need to hear why they were rejected.

To save yourself from any discrimination claims, you need to be able to tell a rental applicant exactly why they didn’t get approved for the property.

If you simply tell a rental applicant it’s not going to work out but you give them zero reasons, they can file a discrimination claim, even if you based your decision on legal reasons. If they happen to belong to a protected class, you could be in some legal trouble. (It’s called disparate-impact and you can learn more about it here: Are you breaking Fair Housing Laws unintentionally?)

A housing provider can find a qualified renter by reviewing an applicant’s credit report and criminal record, verifying employment and income, checking references, and speaking to your past landlords to find out if they were a lease-breaking tenant.

You are not allowed to deny any rental applicants due to their race, religion, sex, familial status, disability, color, or national origin, under the Fair Housing Act.

How to Deny a Rental Applicant Legally

You can deny a rental applicant as long as the landlord can prove that every applicant was screened by the same standards and the basis for rejection was due to an applicant’s potential inability to pay rent or if he is seen as dangerous to the property or neighborhood.

However, the way you tell a renter they are “not approved” needs to handled legally – especially if you deny a renter due to their credit score or information on their credit report or another public record.

Denying a Renter Due to Credit Score or Credit Report

If an applicant is rejected based on information found on a credit report, the landlord must provide an Adverse Action Notice to the applicant.

An Adverse Action Notice tells the renter that he was denied due to information found on a consumer credit report, and gives contact information for the credit reporting agency used so the applicant can access the report too.  

Providing an applicant with an Adverse Action Notices is a federal requirement created by the Federal Fair Credit Reporting Act.

If a renter contacts you saying that the information on their credit report is inaccurate, you should advise the renter to refer back to the Adverse Action Notice you provided and speak directly with the credit reporting agency to figure out how to make adjustments to their credit report.

After issuing an adverse action letter, if any rental applicant’s try and dispute the reasoning with you, consider this suggestion from Heather Peake, a former manager of 80+ properties in California, “I used to point [applicants] to the adverse action letter for instructions on who to contact to repair/remove information and then let them know that after they have proof of correction they were welcome to apply to any units we had available at that time.  If they asked about the unit they were denied for I would indicate that we could not hold the unit on their behalf.”

Starpoint provides a free Adverse Action Notice for housing providers: Free Denial Letter

If you are a Rentec Direct Client you can use this template from Starpoint:

CLICK HERE TO USE THE STARPOINT TEMPLATE If you are declining the application based on information obtained within their TransUnion credit report.

Denying a Renter Due to a Dangerous Criminal Record

Landlords and property managers are only allowed to use a criminal record to deny a rental applicant if the record shows dangerous criminal convictions that would put the property, other tenants, or the neighborhood at risk.  

You are not allowed to use arrest records to determine a rental applicant’s qualifications.

According to the U.S Department of Housing and Urban Development:

  1. Arrests records are not a valid reason to deny a rental applicant housing.
  2. Convicted criminals may be denied housing if the reason for their convictions clearly demonstrates that the safety of your residents and/or property are at risk.
  3. Blanket terms in your screening criteria that say “Any criminal convictions will be denied” are now considered discriminatory and in violation of the Fair Housing Act.

If you deny a rental applicant due to information found on a public record (like a criminal background report or eviction search) you need to provide the applicant with a denial letter and instructions on how they can obtain a copy of the report. You do not need to provide a copy of the report, just tell the applicant which agency you used to access the report and who to contact to get a copy.

CLICK HERE TO USE THE CIC TEMPLATE If you are declining the application based on information obtained within their nationwide criminal search (report code: CRIM), or nationwide eviction search (report code: EVICTION).

Kathryn Szymanski from the Client Success Team at Rentec Direct and a former property manager in Oregon, says, “Our best practices when I was in PM was to mail [an adverse action] letter no matter whether whole/part/no credit was reason for denial and then we listed all of our companies used for decision in the letter.”

Denying a Rental Applicant for Other Legal Reasons

The Landlord Protection Agency, recommends creating a generic rejection letter with a checklist of potential legal reasons an applicant was denied. A manager or landlord simply needs to check which reason applied to the applicant and return to them.

  • The LPA Denial Letter provides a checklist of 12 reasons to select for the rejection of the applicant. Some of these include:
    • Rental price offer not accepted
    • Income
    • Unable to verify or insufficient employment
    • Credit history (Adverse Action Letter to accompany)
    • Pets
    • Smoking
    • Tenant Lied on application
    • Incomplete application
    • More…
  • No applicant is happy to be rejected, but the LPA Denial Letter when needed, helps you manage your time more efficiently, rather than spending valuable time on complaining rejected applicants. It also gives the applicant a courteous, detailed explanation of why he or she was declined.

Denying a Rental Applicant Due to Availability

Housing providers are advised to approve rental applicants on a first come, first serve basis. First come meaning, the first QUALIFIED applicant (not the first applicant). Undoubtedly, this means you will have to deny a qualified applicant simply because some else was approved before them.

If you are denying a rental applicant because a property is no longer available, make sure to communicate this as the reason. You can let them know, they were approved for the property, but that another applicant was approved before them. You can also give them instructions on how to apply for another property you manage.

Property managers and landlords can follow legal requirements and protect themselves from discrimination claims by following these steps for denying a rental applicant the right way.


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About the Author

About the Author: Kaycee manages marketing and media relations for Rentec Direct, bringing a unique perspective to the world of property management and proudly shares industry news, products, and trends within the community. .

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