Tenant Application and Background Check Part II

Yes, bad tenants want to rent from you. In a perfect world, bad tenants would just rent from bad landlords. This isn't a perfect world, and it's up to you to protect yourself as much as possible from the sure-fire disaster tenants. Your first line of defense is checking public records, newspaper articles and court records. We've found that one of the greatest indicators of problem tenants is a history of legal problems. Often the tenant will consider the legal scrapes to be minor, but if someone has a driving without insurance, a 4th degree assault and a couple of lawsuits over debts within the last few years they may not have gone to jail for any of them, but what are the chances they will be a good tenant? Driving without insurance is a very bad sign, for example; it indicates extreme irresponsibility and irresponsible people tend to not pay rent or take care of property.

Your primary tool in beginning to weed out bad tenants is the application, but there is one more tool and that is the application fee or good faith deposit. You should always take in some amount of money, whether you call it a fee or good faith. You'd be surprised at how many people can't even come up with $50 or $100 to go with the application. That's a pretty good indicator of how well they'll be able to pay the rent. Also, the ones that know they've got serious problems in their record won't want to throw away money, or at least some will come somewhat clean about their problems to see if you think they should even bother with the application. Most landlords charge an application fee; we do it a little different. We ask for a $100 good faith deposit, telling the prospect that if they are approved, all of the $100 will applied to their deposit. If we turn them down, we will return all but the $15 the state charges us for the criminal background check (saying this lets them know for sure that you will be doing the background check, and that they'll lose $15 if it's bad). We learned to take this approach because 1) "fee" is a very negative word. Nobody likes to pay fees that seem like penalties or unnecessary charges. "Good faith deposit" sounds like the start of a positive relationship and we don't keep any of the $100 if they are approved. 2) The main reason is the surprising number of people who will fill out an application with no intention of renting, or who will change their mind, or who keep looking and find something else. Foolishly, at first I didn't charge anything for the application - it seemed like a good way to attract prospects: "no application fee". I quickly learned how many of them would let me spend all the time and money doing the background checks but not rent. Many took advantage, treating it like an option - I couldn't rent to someone else for a while if they were approved, so they could keep looking around at other rentals. Now we include language that makes it clear on the application that if they are approved they must execute a lease within seven days or lose the $100.

Now on to the nitty-gritty:

Name: pretty obvious, you'd think, but we've learned to also ask for maiden names or any aliases. We've run across a number of women who got into all kinds of trouble with a married name and would later change back to using a maiden name to fool folks like us. When you get a maiden or alias, search for it just as much as you would their current name (and of course always search under variations like Liz for Elizabeth). If someone is married and won't give you their maiden name, that's a pretty bad sign.

Social Security & Driver's License numbers: obviously you must have at least the social in order to get a criminal background check done.

Email: we now ask for email addresses. It helps in communications, saves money since we can send them statements via email, etc. However, there is one more thing - while there are numerous good reasons for exceptions, we have found that in general people under 60 without email addresses are worse tenants. At the least, we consider it a plus that someone has a working email address.

Current address: often not a tremendous help, but search Google News on this address; if there has been a big drug bust or something there in the last few days, you'd at least like to know it.

Employer information: we ask for the typical employer information, address, contact, phone, number of years on the job. If they work at a fast-food place (except in management), or other restaurant, video rental, etc., then the fact they have a job is frankly not much help to you. These are fluid jobs that have constant turnover; even if they say they've been there for a few years it doesn't really help. We have found a disturbing pattern of tenants losing or leaving jobs right after we rent to them. Either they are good at faking, or more likely they realize that the end may be near and if they want to look good on an application they need to act soon. Whatever it is, job stability isn't a given. You do at least want them to have a job or source of income like disability, of course. If it's a tough call on whether to rent, then you need to contact the employer and ask frankly about the applicant's chances for continued employment. They won't come right out and say "we've had enough, they probably won't be here another week", but you should be able to read between the lines. We also ask for previous employer contact information. While not overly helpful, it does give you a better overall picture of their history. If they were only at their last job 6 months and just got a new job, it could be a bad sign.

Current landlord information: we ask for the typical contact information. Of course, if the applicant is a bad tenant, the current landlord probably is happy to see them go and won't say anything too negative, so they may not be the best help to you. If they are good tenants, the landlord may not want to let them go, and may pretend they are bad to scare you off. While we only occasionally call previous landlords, the fact that someone else rented to them is a little positive. Interestingly, in all my years of managing property, we have never gotten a call from a new landlord on one of our current or former tenants to get a reference. There are many who would have benefited from giving us a call. Also beware a scam that we have run across more than once: the tenant preps a friend or relative, maybe even getting a temporary cell phone just for the occasion. When you call, they pretend to be the current/former landlord and tell you that they are wonderful tenants. It has happened to me. Sometimes it doesn't hurt find a way to confirm that the landlord phone number they give you is really their landlord. Apartment complexes will be listed in the phone book, for individual landlords, maybe try a reverse phone number lookup on the internet.

Previous landlord information: this is where the good information is often found. The previous landlord will be more honest with you since the tenant is no longer with them. When we call, I'm more interested in what the previous landlord says than the current one.

Personal references: like most, we ask for two personal references and their contact information. We don't actually call these folks - you know that the applicant isn't going to list someone who would say anything but the nicest about them. The secret here is that this is an old bill collector's trick. Later, when the tenant has skipped and you are trying to track them down, the folks they list as personal references can be a great source of information - often that's where they are living. There is one more trick to this; we also do a quick computer search on news and courthouse records for the people listed as references (don't order criminal background check, that's probably not legal as it requires their consent). The reason is this: birds of a feather. If your prospect lists as references people with a bunch of convictions or lawsuits for debts owed, that's a terrible sign since people tend to gravitate to the behaviors of those with whom they most closely associate.

Auto information: you want to get the make, model and license tag number of the vehicle(s) they plan on parking on your property. This is important for controlling parking, but also lets you know something about what is likely their biggest asset (you also want to ask if they own or lease). You will know about what is appropriate for people living in your properties to drive. If they put down that they own some expensive late-model car and your rental would be more appropriate for something a little more modest, you might be dealing with someone who doesn't handle their finances well (or worse may be making money illegally and your modest rental is going to be the front). On the other end, if they are driving something that is falling apart and it turns out they don't even own it - say they are 40 years old, but the car belongs to Mom or Dad - that tells you a little about how far along they are financially. While you don't want to read too much into what they are driving, it does give you another piece of the puzzle.

The big four questions: "Have you ever been convicted of any misdemeanor or felony? Have you ever been evicted or sued for unlawful detainer? Do you owe on any judgments, including child support? Are you currently behind on any bills or payments owed? If Yes to any, give details." It's not that you would say "no" automatically in any of these cases, but you want as complete a picture as possible. Someone may never have been convicted of any crime, but if they've got 3 evictions in the last two years, you probably don't want to touch them. Being behind on some bills may be due to a recent divorce or medical emergency, and not indicative of their general payment history. You have to make a decision as to how relevant each of these is to your applicant's likelihood of paying you on time.

Also ask: how did you hear about us? It's always good to have some idea whether it was yard sign, classified ad, website, referral, etc. that's getting you applicants, especially ones that look good. A whole other topic would be your website, but we've found that an informative website brings us qualified prospects.

One thing we don't look at in the application is a credit history and score. It costs money to get these, and though many would think otherwise, the information is of little value. Unless you are renting high-end properties (in which case you probably should do a credit check), you are dealing with people who either have bad credit or no credit. Credit scoring, though sworn to by lenders, is actually quite worthless in telling you anything about creditworthiness. The formulas for the Fair-Isaacs credit scoring formula were developed years ago and were rather sophomoric then, let alone in modern life which has brought many changes to people's financial lives. If someone is really in deep on their bills, you'll see civil lawsuits in the court records. You can add a fifth question, which is "have you filed for bankruptcy in the last seven years" or something similar. Of course, most bankruptcies are due to divorce or medical bills, which means it still doesn't really tell you much. We have also found that in some cases people who have filed bankruptcies are better able to pay; they have eliminated or cut down debts and they can't file bankruptcy again for seven years meaning that they can't bail out on what they owe you until that time is up. We consider bankruptcies, but only after determining what led to the bankruptcy. If it appeared to be financial mismanagement, then that is a real danger sign; if it was divorce, medical, or other singular event it may not be so bad.

Bottom line, some people over-emphasize employment and credit score for renting, but we've found that the best indicator is in the court records - someone with DUI's, driving without insurance, civil suits over debts (unrelated to divorce and medical), misdemeanors, and of course felonies is going to be the highest risk. This is a better indicator that rental history (except if they've been evicted), job history, credit score, etc. even though all those help give you a big picture.

The final thing I do is when something goes really bad with a tenant, I go back and look at their application - was there something we missed, was the tenant able to cover up something we would like to have known, etc. These help develop questions and procedures you might want to add to your application process in the future.