Ep. 49 | Landlord-Tenant Screening – What To Do

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On this episode of The Mobile Home Park Lawyer, Ferd discusses how you can go about screening potential tenants for your mobile home park. Ferd offers a generic tenant screening procedure, as well as giving us a step-by-step guide.

 

HIGHLIGHTS:

0:00 – Intro
1:05 – You can look at Rent Manager or another service to look up a prospective tenant and check their credit score and felonies
1:27 – Ferd uses a company to screen tenants, which is slower but more thorough
2:10 – If someone has a false reference, the reference won’t have all the facts and you will be able to catch them in a lie
4:10 – Ferd considers non-payment of rent an emergency and may contact emergency contacts to cover rent in that event
4:53 – You have to be fair and uniform in your screening, and you can get ahold of Ferd’s generic tenant screening procedures if you leave a 5-star review on this podcast
5:23 – You should have annual meetings with your LLC and the minutes will reflect what your tenant screening procedure holds
5:42 – Always treat residents without discrimination
5:53 – Require the interested individual to fill out an application
6:06 – Collect an application fee
6:42 – Review the application and remove any immediately obvious unsuccessful applicants
9:18 – If you meet the income and criminal recommendations, you’re approved
9:59 – You’re not required to tell someone why they were rejected
10:28 – If they pass, then you offer the lease and if they accept, you collect the deposit
11:42 – The key is to have legal, written, legitimate tenant screening procedures
12:00 – It is better to reject a bad tenant than to accept and then evict them later

 

FULL TRANSCRIPTION:

Welcome back mobile home park nation. Today in this episode, we’re going to talk about a little dirty secret, and that is basically do not let in bad actors, bad people. How do you decide who’s a bad actor? Who’s a bad person. Well, you can’t discriminate. You can’t say because they’re white, black, purple, orange, yellow, or green. You got to look at some sort of objective tenant screening procedures, tenant screening measures. Okay.

There are a couple of ways to do this. A lot of people do the old, like computer-generated test, look at rent manager or some other service that says, Hey, their credit score was 600. They have no felonies. They have no evictions. Boom! They are in. That’s definitely efficient. It’s fast. You can probably get the results in merely minutes. Another option is to go with a company that actually does the screening. We use a company that are out in the St. Louis area called landlord-tenant services. And Carlos, the owner of the company, they’re really solid. They’re going to be slower, but they’re maybe more thorough. They actually do things like call the last landlord, call two landlords ago. Why do they do that? It makes some sense doesn’t it? If the last landlord is looking to get rid of Johnny deadbeat and you call him, he’s going to say, yeah, Johnny’s great. Oh, don’t let him leave. He’s been so awesome. And they’re not going to be honest and truthful, but two landlords ago, they have no skin in the game. They are going to say, oh my gosh, Johnny dead beat was the worst. I would never do it again. Okay. Makes sense.

They also ask questions like, so let’s say for example, your home rent is 800 bucks. If the person has the false alibi or false, landlord or reference that person’s not going to know all the facts. They’re going to know, yeah, this guy lives with me. I’ve had friends, like I had a friend. This is kind of crazy, really good buddy of mine. I was his best man at his wedding actually. And he had a little downturn in his career there for a minute. And he’s like, Hey, I’m applying for this job at an IT company. And I told him that I was like supervisor of IT at a different company. And I have like all these certifications and degrees and stuff. And I listed you as a reference. Can you just tell them it’s all accurate and I was just like, dude, no, I don’t want to be in the middle of this lie. This is crazy. And they’re not going to, it’s not going to work. Even if I lie for you, you’re going to last like two days in this company. Cause you don’t like, if I say, Oh, I’m a brain surgeon and then give me the first brain surgery. And I’m like, oh crap, I was actually an accountant. This doesn’t really carry over. That’s what he was basically trying to do. It made no sense. But I got out of that one, but tennis do it all the time. And they say things like oh, I’m a great tenant, call my buddy. And you call their buddy. So, what landlord-tenant services does is they’ll call. They know the applicant wrote that $800 for rent, which is probably accurate. They’ll call the quote, pretend landlord. And they’ll say, Hey, is John Smith your tenant? Oh yeah, John, he’s the best. We’ve never had a better tenant. And he’s paying $975 every month on time? Oh yeah. Like clockwork, boom! Caught him in a lie. Because the real landlord would know, not paying $975, they are paying, eight or $815 or whatever the number is. Okay. It’s a racket. It’s a scam.

So there’s something to be said for the personal touch that goes for employment background checks, for landlord background check, for personal references, we include in our application, things like, please identify three people who are an emergency contact. I consider non-payment of rent as an emergency. So, if you call that person and say, Hey, John just listed you as an emergency contact in the event that he can’t pay rent. Are you going to cover is rent? What? No way. John’s a deadbeat. John would never pay rent. I’m not covering that. Gets it off, blah, blah, blah. Okay. That tells you something, right? So, you have to be cognizant of FHA, you know, fair housing, local and state laws.

You can never be discriminatory, but there are some strategies that frankly can help enhance better than the computer. In my opinion, despite being less efficient from a speed perspective, the key is just to be fair and uniform. And the way you do this, is you write down, you know, your tenant screening procedures. Anybody that goes to iTunes and gives me a five-star review, I’ll send them a, this is not legal advice. This is non-binding. I’ll send them a copy of some generic tenant screening procedures. Those tenant screening procedures, I think are good. I would almost use them in my company if you know what I mean. So, have to review them. You should have annual meetings for your LLC or your company. And these minutes will reflect what among other things what’s your tenant screen procedures include. And what we do say, Hey, proceed through each step-in order until an applicant is rejected or accepted, they get rejected. Then just move on.

So, you know, step one, always treat potential residents without discrimination and fairly in compliance with all laws. It’s pretty obvious, right? You didn’t have to pay big bucks for that podcast.

Number two require the interested individual to fill out the application, duh! Make sense. There’s some subcategories here I’m not going to go through in the interest of time brevity, but I think you get it, make them fill out the application. Boom!

Number three collect the application fee. We charge $50 per adult. We make $0 from that, that goes to LTS. That’s just their fee. We have an online link. It’s an online application. They pay them direct. We’re not even in the business of collecting that money. We used to collect the cash and pay with a receivable, payable, I guess. And it was a pain. We just now do it online. If somebody didn’t have IT capability, we help them out. And you’re welcome to it. We’ve got a lot of tents that are very senior, very foreign that do not have English as a first language. And you got to walk them through it.

The next fourth step is you review the applications, see if they’ll pass the income requirements. I mean, if they’re like, Hey, I’m going to apply. And I have no income. I’m homeless. I just want a place to live. It’s like we can process this, but I just have a pretty good feel you’re going to make no dollars. No dollars means no passage. Okay, sorry. And some people say like, Hey, I’ve had people, I’ve had been in the room with a guy one time actually. And he’s like, I’ve got a little bit of a criminal background. Like, okay, what is it? I’ll let you know. I mean, you can go apply. I’m not going to discriminate against you. Unless the quote, unless the law allows it. So, he’s like, I’m a sex offender. Is that unit by the playground available? I kid you not. He said that. And the hair on the back of my neck stood up. I was just like, you know, there’s salvation in Jesus in the next life. But at this moment I was like, dude, you cannot have that. You cannot have a second chance at my mobile home park, because that is pretty scary. And I said, sorry, I’m going to save you $50, dude. You’re not going to get approved. I am allowed, not that all sex offenders are irredeemable and bad people, but I have an obligation and I think a moral responsibility to protect among others, the children in my communities and the guy referenced, can I have the open house by the playground? And it was really awkward to be honest. But you know, you can do that. You can discriminate on that. Cause that is the only thing you discriminate on.

I reviewed the application for factors likely to lead to rejection. We still submit them. But you know, if the rental price is greater than 35% of gross income. It’s going to be hard for your debt to income ratio. And we look for things like violent felonies in the last 10 years, drug-related felony in the last 10 years, other crimes that put others at risk, like sexually related or child sexual related convictions, bankruptcies are an issue. Garnishments, collections are credit issues. They’re an issue from a financial feasibility standpoint. When we submit the application, the background check for the credit criminal check, they contact employers, references, prior landlords, they verify income expenses. They verify assets and liabilities. Look at the credit score. And we get a recommendation from LTS. We evaluate the recommendation, and we report and the report from the company, including those aforementioned items. And then we make a decision. Because there’s some subjectivity in this, but it’s not really that subjective. I have no reason to reject you if you meet the criteria, like why would I? I don’t care if you work as a, frankly, as a stripper, as a teller at a bank, as an engineer, if you meet the income and you meet the criminal recommendations, I don’t care. You’re approved. Okay. And I’m not here to judge people on that.

But you got to look at the report, right? And then sometimes you discuss it with the provider, with the customer and get more clarity. Sometimes it’ll say something like, this look like you were charged, but it was potentially dismissed. What’s the deal. You dig a little deeper. And if they’re short financially, you sometimes consider potential co-tenants or co-signers. You also evaluate whether there’s requirement to notify the applicant rejection. Typically, you should notify the applicant. Like you were rejected. You’re not really required now. I don’t know in every state and city, but in general, you’re not really required to say, you were rejected because you are a sex offender, you were rejected because you have no job, whatever it is you used to say, yeah, I management hereby ever reviewed your application in total, globally for criminal, credit, eviction and other applicable reasons, and we have decided not to offer you occupancy. End of story.

If they make that, they pass that, you offer the lease, you basically [09:59 inaudible]. If they accept it, which they, most of the time do. But sometimes they just ghost you. If they actually accepted you, then you collect the deposit, security deposit. I like to collect two times rent, but some states only allow you one month. Sometimes you get a month-to-month lease. It’s only one month, it’s one year. You can look at your state rules, but basically collect the security deposit and collect the first month’s rent, executed at least two copies of the lease. Give them a copy. You keep a copy. And then allow them move in only after the collections of the deposit, the rent, and exit lease, then give them the standard under leasing, diagnostic of rules and regulations. This is before they sign, by the way, the rules and regs. If there’s some sort of acknowledgment document receive like a lead paint disclosure or some other department of public health you know, the move in, move out, checklists do sort of things. Give them all that, sign the lease, take their money, deposit in your bank account, give them the keys, make sure they got the utilities in their name and then you’re off and running.

But again, the key is to have written legal, legitimate tenant screening procedures, which may be as simple as the robot does it for us. Well, if it’s not that simple, then that’s okay. But just recognize the pros and cons of that. So ultimately it is immensely better to reject a bad tenant and to accept a bad tenant, you have to evict them later. We turn down, I don’t know the percentage offhand, but I would definitely say it’s more than half. So just for reference, we reject more than half of our applicants. And I would much rather sit there for a month of vacancy and go through somebody who is going to be there for four months and quit paying and then trash the place. And I think everybody gets that in concept. But in practice, I see all the time, my dad used to be part of a landlord association in Illinois. And they had some procedures. Like we got our own little blacklist, you know oh, don’t rent to Jack Smith or John Smith or whatever, and blah, blah, blah. I’m like, you guys can’t do that. That’s totally discriminatory. You can’t just like create your own like ad hoc off the book, blacklist. And they wouldn’t budget on that. So, dad eventually left that group because he didn’t want to be part of that process. Really that theory, if you will on life on judging people, but there were some fruits to it that like you could protect one another, but it was just, it wasn’t an illegal process.

Ultimately you have processes, write them down, implement them, implement them fairly on all fronts. Be prudent, be wise in all the work well, right. Until next time be smart, be safe, be legal. God bless.

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