What To Do When Tenant Application Has False Information
As a burgeoning real estate investor, you’ll inevitably encounter tenant applications. While most applicants are honest, a small percentage may try to misrepresent themselves. Discovering false information on a tenant application can be a frustrating and potentially costly experience. This article will guide you through the steps to take when you identify discrepancies, citing relevant data to help you navigate this challenge as a beginner investor.
The Importance of Due Diligence
Before diving into what to do when false information is found, it’s crucial to understand why thorough tenant screening is paramount. According to a study by TransUnion, over 70% of landlords report that tenant screening helps them find higher quality tenants and lowers their risk of eviction. This highlights the proactive steps you should take to minimize the chances of encountering issues in the first place.
Steps to Take When You Discover False Information
- Verify the Information (or Lack Thereof):
Your first step is to confirm that the information is indeed false. This might involve:
- Cross-referencing reported employment with the employer.
- Checking landlord references against the provided contact details.
- Verifying income claims with pay stubs or bank statements.
- Utilizing a reputable tenant screening service for background and credit checks. False information in an application often contradicts data found in these reports.
For instance, if an applicant claims a specific income but their credit report shows a much lower income or significant debt, that’s a red flag. Data from a 2021 survey by the National Association of Residential Property Managers (NARPM) showed that income verification and credit checks are among the top five most valuable screening tools for landlords.
- Document Everything:
Maintain meticulous records. Create a file for the applicant and include:
- The original application.
- Copies of any supporting documents provided by the applicant.
- Detailed notes of your attempts to verify information, including dates, times, and outcomes of calls or emails.
- Any discrepancies you found.
This documentation is crucial if you need to defend your decision or if the applicant attempts to dispute your findings.
- Review Your Rental Criteria:
Refer to your pre-established rental criteria. Did the false information relate to a criterion that would have disqualified them (e.g., income threshold, credit score, eviction history)? Having clear, objective criteria helps you make consistent and non-discriminatory decisions.
- Decline the Application:
If you’ve verified that the information is false and it impacts your decision to approve them based on your rental criteria, you have every right to decline their application. It’s generally advisable to decline rather than confront, as confronting can lead to arguments or even accusations if not handled carefully.
Remember, you are looking for reliable tenants. False information, even on seemingly minor details, indicates a lack of trustworthiness and could be a precursor to future problems like late rent payments or property damage.
- Communicate Your Decision (Carefully):
If you decline the applicant based on information obtained from a credit report or background check, the Fair Credit Reporting Act (FCRA) requires you to provide an Adverse Action Notice. This notice informs the applicant of the adverse action (denial) and provides the name and contact information of the consumer reporting agency (CRA) that supplied the information. This allows the applicant to dispute inaccuracies with the CRA.
However, if you decline solely based on false information provided directly on the application (e.g., a fake employer that you verified yourself without a credit report), an Adverse Action Notice might not be required. Consult with legal counsel if you are unsure.
- Learn and Adapt:
Each experience, even a negative one, offers a learning opportunity. If you frequently encounter false information, review your application form and screening process. Are there questions that could be clearer? Are you utilizing all available screening tools effectively? Strengthen your screening process to reduce future occurrences.
Preventative Measures for Beginner Investors
- Use a Comprehensive Application Form: Ensure your application asks for details that can be easily verified (e.g., previous addresses, employer contact information, SSN/ITIN for background checks).
- Conduct Thorough Background Checks: Invest in reputable tenant screening services that provide credit reports, criminal background checks, and eviction history reports.
- Verify Employment and Income: Request pay stubs, W-2s, or tax returns. Call the employer directly to verify employment status and salary. Be wary of applicants who provide only a phone number for “HR” without official company details.
- Contact Previous Landlords: This is perhaps one of the most critical steps. Ask specific questions about rent payment history, property care, and whether they would re-rent to the tenant.
According to Zillow’s 2022 Rental Market Report, a solid screening process reduces the likelihood of issues by 80% over the lifespan of a tenant.
FAQs
- Q1: Can I charge an application fee if I discover false information?
A1: Yes, application fees are typically non-refundable and cover the cost of screening. Discovering false information doesn’t change the fact that you incurred costs for processing. - Q2: Should I tell the applicant exactly why I’m denying them?
A2: If the denial is based on a consumer report (credit, background), you are required to provide an Adverse Action Notice. If it’s solely based on false information directly on the application, while not legally required to give specific reasons (unless state/local laws dictate otherwise), it’s generally safer and more professional to state that the application did not meet your established rental criteria, without getting into a detailed confrontation about the falsehoods. - Q3: What if the false information seems minor, like a misspelled former landlord’s name?
A3: Even “minor” inaccuracies can be red flags. While a simple typo might be innocent, consistent or significant errors might indicate an attempt to obscure something. It warrants further investigation. Trust your instincts. - Q4: Can I be sued for denying an applicant based on false information?
A4: Generally, no. Landlords have the right to select tenants based on legitimate, non-discriminatory criteria. If you can prove the information was false and that the falsehood impacted your decision based on your predetermined criteria, you are on solid ground. Keep thorough documentation. - Q5: How long should I keep records of rejected applications?
A5: It’s good practice to retain rejected application records for at least one to three years, or longer if required by state or local law. This provides a clear paper trail in case of any disputes or discrimination claims. - Q6: Should I report the applicant to anyone if I find false information?
A6: There’s no specific government agency to report individuals who provide false information on rental applications. Your action is typically to deny their application. - Q7: Does finding false information mean the applicant is automatically a “bad” tenant?
A7: While providing false information is a significant red flag that suggests a lack of honesty and reliability, it doesn’t automatically mean they are “bad” in every aspect. However, it does directly question their trustworthiness, which is a fundamental quality you need in a tenant.
Bottom Line
Dealing with false information on a tenant application is a challenge, but with a systematic approach and thorough documentation, you can effectively manage the situation. As a beginner real estate investor, developing a robust tenant screening process is one of the most critical steps to protecting your investment and ensuring a positive landlord experience. Prioritize due diligence, learn from every application, and don’t hesitate to decline applicants who are not transparent.