March 2003 Owners Update

Using Credit Reports and Prior Landlords to Aid in Tenant Screening

Whether you're cyber-cruising down the Information Super Highway or just putting along on a bicycle built for two, the road to perfect tenants is rarely smooth. You're likely to find lots of bumps and surprises along the way. But if you wanted an easy job, you wouldn't have chosen to own or manage rental property, right? What you really need are a few navigating tools to help you traverse the rough spots.

One of the things your screening agency should be able to do is point out the "red flags" in a tenant's credit profile. Of course the bottom-line decision is always yours—you're the only one who knows what's right for your properties. But getting some good advice along the way from someone who has researched a few thousand credit reports can certainly help you make that decision.

One of the thorniest problems a property owner can face is a tenant who declares bankruptcy. Over the years, we've heard many horror stories from landlords who got caught in the middle of a tenant filing for a Chapter 7 or Chapter 13 discharge of their debts. Unfortunately, rent, damage deposits and other related fees CAN be included in their declaration. Once the tenant is protected by bankruptcy court, all the rules change. Rent collection, eviction procedures, even written notices can all be affected. If you find yourself in this situation, contact an attorney immediately.

RED FLAG RULE NUMBER ONE:
It is not advisable to rent to someone who has an open (undischarged) bankruptcy. If they decide to include money they owe you, you will probably not be able to collect it. Following Red Flag Rule Number One is pretty straightforward. If your prospective tenant is involved in an ongoing bankruptcy, it will almost always be on their credit file. But that brings us to the much more subtle and challenging.

RED-FLAG RULE NUMBER TWO:
It is not advisable to rent to someone who is at high risk for declaring bankruptcy. We can't predict the future, but we may be able to point out some probabilities. If your applicant has several thousand dollars in past due accounts or collections, or their creditors have obtained judgments against them—watch out. It is at this point most people get weary of the phone calls and harassment (or in the case of a judgment, the possibility of garnishment) and seek bankruptcy protection. Other things to watch for are high debts in proportion to income, seasonal or temporary jobs, or a long-term pattern of chronically past-due accounts.

Remember—you can't decline someone just because you have a feeling they may be having problems. It is important to always use objective criteria from the credit file or rental references. And be consistent! If you decline someone who has 10 accounts in collection this month, don't rent to someone with similar credit next month just because your Aunt Flo said they were nice people!

THE UNDISCLOSED ADDRESS:
Sometimes, the most interesting information on the credit file isn't in the account activity section. At the beginning of every credit report, there are several lines of personal information. These lines act as "footprints", and can often tell you where your prospective tenant has been over the past few years.

Any time there is credit activity, the address being used by the applicant will be reported to the credit bureau. That means when they apply for credit, or have something go to collection, the address they are using at the time will be placed on the file.

When you get the credit report, always check the addresses and dates listed on it with the ones your applicant gave you. (You should have already checked the addresses listed on the driver's license and their checks.) If you see any extra ones, ASK THE TENANT ABOUT THEM. If they are reluctant to tell you who they rented from, or get a sudden attack of "Selective Amnesia", this may be a red flag!

You should always insist on getting complete landlord information going back at least 2 years. Failure to provide you with this information CAN be grounds to decline someone. (You should look at the whole credit picture to decide.)

If you are really interested in tracking down an address, you can call the County Auditor's office and ask who owns the property. You can usually get the name of the legal owner within a few minutes on the phone. (This information is available on-line in Tuscarawas County at www.co.tuscarawas.oh.us and click on Real Estate Search)

We recommend that you never ignore extra addresses. Even if they turn out to be relatives or friends, at least now you know. Some of the most interesting references are from people who were NOT listed as former landlords by the applicant. We also recommend that you verify who really owns the addresses your applicant does list. Unfortunately, applicants will often list a roommate or friend rather than have you speak directly with the owner.

Ultimately, the landlord references you receive can be one of the most important elements in making your decision. It's a good idea to make sure you're getting the whole story from an accurate, credible source!

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