New rental applications – how to avoid a bad tenant By David Gargaro
All owners want good, long-term tenants. The more you have tenants who pay their rent regularly, maintain long tenancies, and behave well, the better your business will be overall, and the better your rental community will be. It’s even more important when times are tough, such as when the government imposes rent freezes and a moratorium on evictions during a pandemic. When tenants leave for whatever reason, you will have to engage in the process of verifying new rental applicants. What does the process of verifying new rental applicants involve? It requires collecting information to authenticate their identity, determine their financial situation (i.e., ability to pay rent), and check their references, including current and past landlords, their employer (or other sources of income), and their rent history. The main goals of verifying new rental applicants are to reduce the likelihood of renting to high-risk tenants and to protect against the loss of rental income. While a certified standard rental application does not exist, it should be possible to find a proper, well scrutinized application that follows legal guidelines. As an industry, it is imperative for its members to not stick with the status quo, and to
find and implement a rental application for the purposes of conducting an accurate assessment of a prospective tenant
Verification is time consuming The traditional method of trying to screen new tenants for your rental property is a timeconsuming process. Even if you have a few rental units being vacated each month, you might have to go through numerous rental applications to narrow down the number of prospects. It can take several hours per application to verify the applicant’s information, including phone calls to references and past landlords. This is more difficult and time-consuming during a pandemic, as some prospective tenants cannot meet in person to provide paperwork, and other people are not at their usual phone numbers to provide verification. Even prior to COVID-19, some rental property owners would only request basic information through their website and allow prospective tenants to do a viewing before completing the application. “It has required greater investigation of some applications in verifying their documents based on the program information at the time of application,” said Sheena Reyes Keslick, VP Operations, Mainstreet Equity Corp. “Mainstreet performs the industry routine background checks, including landlord verification, identification verification, credit report, and personal references.” Technology has helped to smooth out the tenant application and verification processes. Many property owners have put tenant applications online, so prospective renters do the work
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themselves of entering their information into online forms. Landlords don’t have to read through paper applications. There are also integrated systems to help with the verification process, including tenant registries, credit checks (e.g., Equifax or TransUnion), and application histories.
strength including bank balance, income and payroll history, history of past rent payments and bill payments, and current debt payments.,” said Chad Guziewicz, Co-founder, Rentify. “It takes less than five minutes for a prospective tenant to fill out, and uses a secure bank integration to verify the information.”
“We rely on Rentify to provide us with a list of preselected applicants, as it improves the selection process,” said Jamie Troke, Property Manager, Ekort Property Management. “It’s a quick, easy, and efficient way to verify rental applicants. We’ve made it part of the application process, and won’t rent to a tenant who does not go through the process. This reduces the amount of paperwork to be filled out. Most importantly, as a manager, it’s important to me that income verification, credit check, landlord history, and tenant identity gets done.”
Inaccuracies and lies are a concern
Challenges related to verifying financial information Credit checks and credit reports have traditionally been an essential part of verifying the financial assets and capabilities of new rental applicants. However, the costs of doing a large number of credit checks can add up, and they are not perfect. They can also provide a false sense of security, as some tenants could have a good credit history but a bad rental history (and vice versa). “We don’t want to eliminate a prospective tenant who does not look great right away because of their credit history,” said Troke. “Some people don’t have credit card history, while a credit bureau might give a false impression of good credit.” A novel way to ensure that a new rental applicant’s financial information is accurate is to verify it from their bank statements. Rental property owners can use the applicant’s bank statements to determine if the potential tenant is currently paying their rent when it is due. That can also be used to break out payroll income, government income, and other sources. Being able to access this information would allow the rental property owner to check key information, such as their closing balance, monthly debt payments, and overdraft percentage and frequency.
The time required to collect a rental applicant’s information is a challenge, but there is also the issue of verifying its accuracy. Some prospective tenants will inflate their incomes or savings to make their financial situations sound better than it actually is. They might also be reluctant to give their payroll information for personal reasons or privacy concerns. There are also fraudsters who are experienced in lying on rental applications for the purpose of gaming the system to live rentfree in units for months at a time. Without having accurate ways to verify a new rental applicant’s information, the industry is largely at the mercy of the applicant’s (dis)honesty. Other people who are part of the application process can also make it difficult to collect accurate information on rental applicants. Landlord references might give a false impression of the tenant to help them or to get them out of their current apartment. Employers might give incomplete information about their employees to help them find a place to live. In truth, many people will stretch the truth, while others will flat out lie just to get or help someone be approved. “We have had issues in the past obtaining proper landlord references and employee references,” said Keslick. “We have received forged and fake employment contracts and pay stubs verifying work and often landlord references are close friends or family.”
“Rentify uses a rapid tenant verification process that confirms the new rental applicant’s financial
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Trying to verify the accuracy of information from new rental applicants by yourself is a challenge. If a prospective tenant wants to lie about their information, then it’s difficult to determine what’s true and what’s not. A research study conducted by Forrester and commissioned by TransUnion, which interviewed 153 property management organizations, found that 73 per cent of property managers did not find evidence of fraud until after a tenant moved in. Working with third parties and technologies designed to verify a tenant’s banking information, employment status, and rental history will help rental property owners filter out potentially fraudulent tenants.
The legalities of collecting personal information “The only way to ensure information is accurate is to verify it from the bank statement of the applicant,” said Guziewicz. People have a legal right to protect their personal information. There are several pieces of legislation that regulate the sharing of personal information. Under the Personal Information Protection and Electronic Documents Act (PIPEDA), a landlord should not disclose personal information to another landlord about a tenant’s income and credit history, because the other landlord should get the tenant’s consent and obtain that information on its own. Information about a tenant’s conduct and payment history during a previous tenancy can be disclosed with the tenant’s consent. “Presumably, if the tenant is putting the landlord down as a reference, they would consent to such disclosure,” said Mark W. Melchers, Partner, Cohen Highley LLP. “Valid consent requires that the person can reasonably be expected to understand the nature, purpose, and consequences of the disclosure.” There is also a regulation under the Ontario Human Rights Code that confirms that a landlord can request credit references and/or rental history information from a prospective tenant, and can request authorization to conduct credit checks. However, a landlord is only allowed to consider income information to assess a prospective tenant, if it is considered in combination with credit information, employment information, and information about the applicant’s rental history. If necessary, a landlord can require guarantee for the rent.
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“Before collecting personal information about a prospective tenant, the landlord should get the person’s consent in writing, and only collect information that it reasonably needs to assess whether to accept the person as a tenant,” said Melchers. “In addition to income and credit information, this can include information about payment and conduct history during a previous tenancy, but again, consent is required to collect and use this information.” Rental property owners cannot collect some types of information about the rental applicant without their consent. For example, the prospective tenant’s previous landlord cannot provide any information about them to another party (including the potentially new landlord) without the applicant’s permission. As a result, it can be difficult for the rental property owner to determine if the new rental applicant would make a good tenant for their building. “Rentify addresses the legality of collecting an individual’s personal information by requiring the applicant to check a permission box that allows verification of references and a credit check,” said Guziewicz. “All applicant data is deleted after 30 days, and it only captures the information related to the applicant’s income as needed for verification. We have a full legal review from one of Canada’s top law firms confirming this process is legal, and superior in many ways, including it does not require a birth date or SIN and makes no mark on the credit score.”
Conclusion Rental housing providers are consistently challenged to find good, long-term tenants, especially during difficult financial times. That’s why it’s important to properly verify new rental applicants. Traditional verification methods can be time consuming, as some applicants will not want to share their information and there are legal hurdles to overcome. Fraud is one of the most common things a property manager can encounter. When vetting an applicant, it is essential to thoroughly investigate all suspicious information and cross-reference all information received. Taking shortcuts can cost thousands of dollars, and can lead to the costly eviction of a poorly vetted tenant. It’s a challenge for any rental housing provider, but an effective verification process is essential to a rental housing provider’s bottom line.
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