A. Avoiding Fair Housing Complaints and Lawsuits 1/2

B. How to Advertise Rental Property 1/2

C. Renting Property That's Still Occupied 1/4

D. Dealing With Prospective Tenants 1/4 1. Take Phone Calls From Prospective Tenants 1/5 2. Have Interested Tenants Complete a Rental Application 1/5

E. Checking References, Credit History and More 1/10 1. Check With Previous Landlords and Other References 1/13 2. Verify Income and Employment 1/13 3. Obtain a Credit Report 1/14 4. Verify Bank Account Information 1/16 5. Review Court Records 1/17 6. Use Megan's Law to Check State Databases 1/17

F. Choosing-And Rejecting-An Applicant 1/18 1. What Information Should You Keep on Rejected Applicants? 1/18 2. How to Reject an Applicant 1/18

G. Finder's Fees and Holding Deposits 1/20 1. Finder's Fees 1/20 2. Holding Deposits 1/21

Choosing tenants is the most important decision any landlord makes, and to do it well you need a reliable system. Follow the steps in this chapter to maximize your chances of selecting tenants who will pay their rent on time, keep their units in good condition and not cause you any legal or practical problems later.

Before you advertise your property for rent, make a number of basic decisions-including how much rent to charge, whether to offer a fixed-term lease or a month-to-month tenancy, how many tenants can occupy each rental unit, how big a security deposit to require and whether you'll allow pets. Making these important decisions should dovetail with writing your lease or rental agreement (see Chapter 2).

A. Avoiding Fair Housing Complaints and Lawsuits

Federal and state antidiscrimination laws limit what you can say and do in the tenant selection process. Because the topic of discrimination is so important we devote a whole chapter to it later in the book (Chapter 5), including legal reasons for refusing to rent to a tenant and how to avoid discrimination in your tenant selection process. You should read Chapter 5 before you run an ad or interview prospective tenants. For now, keep in mind four important points:

1. You are legally free to choose among
prospective tenants as long as your decisions
are based on legitimate business criteria. You
are entitled to reject applicants with bad
credit histories, income that you reasonably
regard as insufficient to pay the rent, or past
behavior-such as property damage or
consistent late rent payments-that makes
someone a bad risk. A valid occupancy limit
that is clearly tied to health and safety or
legitimate business needs can also be a legal
basis for refusing tenants. It goes without
saying that you may legally refuse to rent to
someone who can't come up with the security
deposit or meet some other condition of the
tenancy.

2. Fair housing laws specify clearly illegal reasons
to refuse to rent to a tenant. Federal law
prohibits discrimination on the basis of race,
religion, national origin, gender, age, familial
status, physical or mental disability (including
recovering alcoholics and people with a past
drug addiction). Many states and cities also
prohibit discrimination based on marital status
or sexual orientation.

3. Anybody who deals with prospective tenants
must follow fair housing laws. This includes
owners, landlords, managers and real estate
agents, and all of their employees. As the
property owner, you may be held legally
responsible for your employees' discriminatory
statements or conduct, including sexual
harassment. (Chapter 6, Section E, explains
how to protect yourself from your employee's
illegal acts.)

4. Consistency is crucial when dealing with
prospective tenants. If you don't treat all
tenants more or less equally-for example, if
you arbitrarily set tougher standards for renting
to a member of a racial minority-you are
violating federal laws and opening yourself
up to lawsuits.

B. How to Advertise Rental Property

You can advertise rental property in many ways:

• putting an "Apartment for Rent" sign in front
of the building or in one of the windows

• taking out newspaper ads

• posting flyers on neighborhood bulletin boards,
such as the local laundromat or coffee shop

• listing with a homefinders' or apartment-finding
service that provides a centralized listing
of rental units for a particular geographic area

• listing with a local real estate office that
handles rentals

• hiring a property management company
which will advertise your rentals as part of
the management fee

• posting a notice with a university, alumni or
corporate housing office

• buying ads in apartment rental guides or
magazines, or

• posting a notice with an online service such
as Homestore (http://www.homestore.com)
which represents millions of apartment units
in the United States.

The kind of advertising that will work best depends on a number of factors, including the characteristics of the particular property, its location, your budget and whether you are in a hurry to rent. Many smaller landlords find that instead of advertising widely and having to screen many potential tenants in an effort to sort the good from the bad, it makes better sense to market their rentals through word-of-mouth-telling friends, colleagues, neighbors and current tenants. After all, people who already live in your property will want decent neighbors. For example, if you know a vacancy is coming up, you might visit or send a note to all tenants whom you or your manager think well of. Ask them to tell friends or relatives about the available apartment.

If you do advertise your units, try to target your ads as narrowly as possible to produce the pool of prospective tenants you want. For example, if you rent primarily to college students, your best bet is the campus newspaper or housing office.

To stay out of legal hot water when you advertise, just follow these simple rules:

Describe the rental unit accurately. Your ad should be easy to understand and scrupulously honest. Also, as a practical matter, you should avoid abbreviations and real estate jargon in your ad. Include basic details, such as:

• rent

• size-particularly number of bedrooms and
baths

• location-either the general neighborhood or
street address

• lease or month-to-month rental agreement

• special features-such as fenced-in yard,
view, washer/dryer, fireplace, remodeled
kitchen, furnished, garage parking, doorman,
hardwood floors or wall-to-wall carpeting

• phone number or email for more details
(unless you're going to show the unit only at
an open house and don't want to take calls),
and

• date and time of any open house.

Read other ads to get good ideas. Some landlords find that writing a very detailed ad cuts down on the time they spend answering questions on the phone or taking calls from inappropriate tenants.

If you have any important rules (legal and nondiscriminatory), such as no pets, put them in your ad. Letting prospective tenants know about your important policies can save you or your manager from talking to a lot of unsuitable people. For example, your ad might say you require credit checks in order to discourage applicants who have a history of paying rent late. However, it's optional, because the wording of your ad does not legally obligate you to rent on any particular terms. In other words, just because your ad doesn't specify "no pets," you are not obligated to rent to someone with two Dobermans.

Be sure your ad can't be construed as discriminatory. The best way to do this is to focus only on the rental property-not on any particular type of tenant. Specifically, ads should never mention sex, race, religion, disability or age (unless yours is really legally sanctioned senior citizens housing). And ads should never imply through words, photographs or illustrations that you prefer to rent to people because of their age, sex or race. For example, an ad in an environmental or church newsletter that contains a drawing of a recognizably white (or black or Asian) couple with no children might open you to an accusation of discrimination based on race, age and familial status (prohibiting children).

Quote an honest price in your ad. If a tenant who is otherwise acceptable (has a good credit history, impeccable references and meets all the criteria laid out in Section E, below), shows up promptly and agrees to all the terms set out in your ad, you may violate false advertising laws if you arbitrarily raise the price. This doesn't mean you are always legally required to rent at your advertised price, however. If a tenant asks for more services or different lease terms that you feel require more rent, it's fine to bargain and raise your price, as long as your proposed increase doesn't violate local rent control laws.

Don't advertise something you don't have. Some large landlords, management companies and rental services have advertised units that weren't really available in order to produce a large number of prospective tenants who could then be directed to higher priced or inferior units. Such bait-and-switch advertising is clearly illegal under consumer fraud laws, and many property owners have been prosecuted for such practices. So if you advertise a sunny two-bedroom apartment next to a rose garden for $500 a month, make sure that the second bedroom isn't a closet, the rose garden isn't a beetle-infested bush and the $500 isn't the first week's rent.

Keep in mind that even if you aren't prosecuted for breaking fraud laws, your advertising promises can still come back to haunt you. A tenant who is robbed or attacked in what you advertised as a "high-security building" may sue you for medical bills, lost earnings and pain and suffering. (See Chapter 12 for details.)

C. Renting Property That's Still Occupied

Often, you can wait until the old tenant moves out to show a rental unit to prospective tenants. This gives you the chance to refurbish the unit and avoids problems such as promising the place to a new tenant, only to have the existing tenant not move out on time or leave the place a mess.

To eliminate any gap in rent, however, you may want to show a rental unit while its current tenants are still there. This can create a conflict; in most states, you have a right to show the still-occupied property to prospective tenants, but your current tenants are still entitled to their privacy. (For details on access rules, see Chapter 13.)

To minimize disturbing your current tenant, follow these guidelines:

• Before implementing your plans to find a
new tenant discuss them with outgoing
tenants, so you can be as accommodating as
possible.

• Give current tenants as much notice as
possible before entering and showing a rental
unit to prospective tenants. State law usually
requires at least one or two days. (See Chapter
13 for details.)

• Try to limit the number of times you show
the unit in a given week, and make sure your
current tenants agree to any evening and
weekend visits.

• Consider reducing the rent slightly for the existing
tenant if showing the unit really will be
an imposition.

• If possible, avoid putting a sign on the rental
property itself, since this almost guarantees
that your existing tenants will be bothered by
strangers. Or, if you can't avoid putting up a
sign, make sure any sign clearly warns against
disturbing the occupant and includes a telephone
number for information. Something on
the order of "For Rent: Shown by Appointment
Only. Call 555-1700. DO NOT DISTURB
OCCUPANTS" should work fine.

If, despite your best efforts to protect their privacy, the current tenants are uncooperative or hostile, wait until they leave before showing the unit. Also, if the current tenant is a complete slob or has damaged the place, you'll be far better off to apply paint and elbow grease before trying to re-rent it.

D. Dealing With Prospective Tenants

It's good business, as well as a sound way to protect yourself from future legal problems, to carefully screen prospective tenants.

1. Take Phone Calls From Prospective Tenants

If you show rental property only at open houses and don't list a phone number in your ads, skip ahead to Section 2.

Continue...

Excerpted from Every Landlord's Legal Guide by Marcia Stewart & Attorneys Ralph Warner & Janet Portman Copyright © 2001 by Nolo
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.