Tenant Screening Laws

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You want to ensure the best possible fit when choosing a tenant for the property you’re managing, but how can you ensure that the questions you ask and the rules you put in place are in compliance with fair housing and anti-discrimination statutes as well as other tenant screening laws? This review of the rules, regulations, and laws related to tenant screening can help you ensure that you are always on the right side of local, state, and federal law.

What are Tenant Screening Laws?

Tenant screening laws are designed to help protect both landlords and tenants during the rental application process.

For real estate agents, landlords, and property managers, tenant screening laws help to protect the property’s physical condition and cash flow by ensuring that renters are properly screened, have the ability to pay rent each month, and have a history of good behavior in their prior rental properties.

For renters, tenant screening laws ensure that rental agents, landlords, and property owners do not arbitrarily discriminate against them during the application process. In addition, tenant screening laws ensure that neighbors in the same rental complex can feel more secure, knowing that their fellow tenants have successfully passed a screening process identical to their own.

Tenant screening laws generally apply to the following situations:

• Advertising for a particular type of tenant
• Discriminating against protected groups during the screening process
• Denying access to listings or housing information
• Setting qualification criteria that changes between different applicants
• Harassing, threatening, or disrespecting a tenant’s rights under the local fair housing laws and regulations
• Refusing reasonable accommodations.

What are Federal Fair Housing Laws?

The Civil Rights Act of 1866 declared that all citizens would have the same rights “to inherit, purchase, lease, sell, hold, and convey real and personal property.” Despite this assurance, over the next century, fair housing became a contentious topic with a variety of states and municipalities making their own rules to allow discriminatory practices in neighborhoods and townships.

Much of the federal law covering the rental of property is based on the 1968 Fair Housing Act (FHAct). Originally adopted as part of the Civil Rights Act of 1968 under President Lyndon B. Johnson, FHAct was broadened in 1988 to provide provisions for protected classes in order to prevent discrimination when renting or buying a home, obtaining a mortgage, seeking assistance for housing, or participating in other housing-related activities.

What classes are protected from rental discrimination?

Federal law sets out a number of guidelines meant to prevent discrimination against people based on broad demographic or physical factors. Protected classes under the federal fair housing laws include:

• Race
• Color
• Religion: This includes discrimination based on both the practice and non-practice of religious observances.
• Sex: This includes discrimination based on non-conformity with gender stereotypes.
• National origin: Discrimination based on limited English proficiency, while not a separate protected class, is considered a part of national origin. Therefore, it is considered discriminatory to refuse to rent to someone because they are not proficient English-speakers.
• Familial status (added in 1988): This includes refusing to rent to families with children or to pregnant women. The only exception to this is senior housing complexes which may bar tenants under the age of 55.
• Physical or mental disability (added in 1988): This includes housing for tenants with physical or mental impairments including chronic alcoholism or drug addiction, if the tenant is active in a recovery program. This rule requires reasonable accommodations, such as assistance dogs in no-pets properties or reasonable modifications like grab bars or preferred parking.

What is the FHA (or Mrs. Murphy) Exemption?

The Fair Housing Act provides exemptions to the federal rules in a few cases, most notably in a scenario called the Mrs. Murphy exemption. Mrs Murphy is not a real person, but is a stand-in for an imaginary owner-landlord.

In an owner-occupied building with four or fewer units, the rules governing fair housing do not necessarily apply. However, this exemption can be overridden at the state or local level. It is important to check with your local attorney to find out what the specific exemptions are in your area.

Additional exemptions may include:

• Single-family homes sold or rented by the owner without the use of a real estate agent.
• Housing run by a religious organization or private club that limits occupancy to its members only.

What regulations apply to maximum occupancy restrictions?

In some cases, maximum occupancy rules have resulted in charges of discrimination on the basis of familial status. For the purposes of fair housing, children under the age of one should not be counted in an occupancy total.

There are a variety of ways to determine what occupancy limitations you can use in your screening:

• The Keating Memorandum issued by HUD, which specifies two persons for each bedroom, subject to limitations and exceptions.
• The Building Officials and Administrators Code (BOAC) which specifies
• 150 sq. ft. for the first occupant
• 100 sq. ft. for each additional occupant
• Bedrooms must contain at least 70 sq. ft. of floor space for the first occupant or 50 sq. ft. per person for more than one occupant.

Determine which criteria you plan to use to determine maximum occupancy then apply it consistently across all of the properties you represent and all of the tenant applications you process.

What state or local laws apply in tenant screening?

In many state and local jurisdictions, lawmakers have designed more stringent regulations governing their area’s protected classes. Some state and local protections may apply based on:

• Citizenship
• Age
• Veteran or military status
• Genetic information
• Sexual orientation
• Gender identity or expression
• Source of income: Generally applied to housing discrimination against Section 8 Housing Choice voucher holders. This protection can be found in many states and municipalities around the country.
• Criminal history
• Victims of domestic abuse or other crimes
• Student Status
• Type of Military Discharge
• Physical Appearance
• Political Beliefs
• Homelessness

It is important to remember that state and local laws are often more restrictive than national laws and can govern aspects of the tenant-landlord relationship, including landlord entry to the property, non-payment of rent, and eviction processes. It is essential that you clearly review the applicable rules and regulations for each market where you manage the rental process.

What are HUD’s guidelines regarding Disparate Impact?

At one time, it was common for landlords to automatically dismiss the rental applications of prospective tenants if they had a criminal history. In 2016, the Department of Housing and Urban Development (HUD) provided guidelines to address more fully some aspects of the federal housing laws, including discrimination based on criminal history.

According to HUD, because African-American and Hispanic citizens are “arrested, convicted, and incarcerated at rates disproportionate to their share of the general population . . . criminal history-based restrictions on housing opportunities” may violate the FHAct in regards to race or national origin. This is called disparate treatment liability.

Here are some things to keep in mind as you evaluate tenants based on their criminal background check:

• Was the tenant convicted of a crime or simply arrested for one? In most cases, a tenant cannot be rejected for an arrest if it was not followed by a conviction.
• If there was a conviction, was it recent or in the distant past?
• Was the crime in question a non-violent crime, like a non-violent drug offense that involves possession only? If so, has the applicant sought treatment for drug use? (Discrimination based on a history of drug use may violate the anti-disability category.)
• Are there multiple offenses? If so, did they all take place around the same time or is there a pattern of repeated, ongoing offenses?
• Was the crime in question one that could pose a potential danger to neighbors or other tenants (assault, rape, or child molestation, for example)?
• Was the crime in question one that could pose a potential danger to the property (arson or vandalism, for example)?
• Are you treating all applicants with a similar history the same or is there a secondary discriminatory factor at work, like race or sex?

What are FCRA guidelines for tenant screening?

When conducting a background and financial check as part of your tenant screening, you will need to comply with the Federal Trade Commission’s Fair Credit Reporting Act (FCRA). In order to be in compliance, you must do the following:

1. Have a permissible purpose, like an application for a new lease or for a lease renewal.
2. Have the permission of the tenant or applicant, in writing and with their signature.
3. Notify the tenant orally, in writing, or electronically in the event that you decide to take an adverse action against them based on the report you receive. (Note: written correspondence is preferable in order to provide proof of FCRA compliance.) Adverse actions may include:
4. Denying their application for lease or renewal
5. Requiring a co-signer on their lease
6. Requiring a deposit that would not otherwise be required or requiring an unusually large deposit
7. Raising the rent to a higher amount than other tenants pay.
8. Include the following in your adverse action notification:
9. The name, address, and phone number of the consumer reporting agency (CRA) that you used for the report
10. State that the CRA did not make the decision and cannot give reasons for it
11. Provide notice that the person can dispute the accuracy or completeness of any information furnished by the CRA and get a free report if requested within 60 days.
12. Properly dispose of all information acquired during the screening process within an appropriate time frame, in order to better protect sensitive information. Proper disposal includes:
13. Burning, pulverizing, or shredding documents containing consumer report information so that it cannot be read or reconstructed
14. Destroying or erasing electronic files or media containing consumer report information so that it cannot be read or reconstructed
15. Conducting due diligence and hiring a document destruction contractor to properly dispose of material.

What happens if I fail to comply with fair housing laws?

According to HUD guidelines, the first violation of the fair housing laws can carry a fine of more than $20,000 upon a civil conviction in federal court, with higher penalties accruing for multiple convictions within a seven year period. In addition, you will be open to civil lawsuits from tenants against whom you have discriminated.

In addition, if you are a real estate professional managing the rental process for a property, discriminatory policies will put you in breach of the code of ethics and may result in civil and professional penalties under the Fair Housing Act. You are not allowed to behave in a discriminatory manner yourself, nor are you allowed to engage in discrimination at your client’s request.

As with criminal law, ignorance of the law is not considered a defense in the case of housing discrimination. Therefore, it is advisable to consult with an attorney in order to ensure that you are in compliance with the rules and regulations regarding fair housing for your state and municipality, as well as at the federal level.

Now that you know what tenant screening laws apply to you, it’s time to look at what facts you will consider in making your decision.

Continue to Chapter 4: Determining Tenant Screening Criteria or jump to a different article.

1. Tenant Screening 101
2. Creating your tenant screening checklist
3. Tenant Screening Laws
4. Determining Tenant Screening Criteria
5. Rental Property Marketing
6. Questions To Ask Rental Applicants
7. Showing the Rental Property to Prospective Tenants
8. What is a rental background check?
9. Top 5 Problems With Tenant Screening Services
10. Onboarding A New Tenant