By: Tia Politi, ORHA President
December 14, 2022

If you have a decent rental property and responsible residents, there’s no easier job in the world than being a housing provider, and proper screening will help you identify those responsible residents. Applicant screening is an invaluable risk assessment tool and a crucial part of your success in rental management. You are handing an asset of great value over to a virtual stranger (in most cases), so it’s essential that you assess the applicant’s ability to stick with the agreement, pay the rent, take care of the asset, and be a good neighbor. That’s all that matters – not the type of job they have or where they rent comes from, not whether they’re married or not, not whether they are from a different culture or religion, and not whether they have children. On paper, the only things that matter are income, rental history, credit history and criminal history. In person, demeanor is also important. An aggressive or bullying demeanor during the screening process is a preview of things to come and may be a reason for denial depending on the circumstances.

Underlying all aspects of housing is Fair Housing Law. Be careful to apply screening criteria equally to all applicants, without regard to race, color, national origin, religion, sex, familial status, disability, marital status, source of income, sexual orientation, and gender identity, and remember that you can’t discriminate against applicants because they are or have been a victim of domestic violence, sexual assault, or stalking. There may be additional protected classes in your local area. In Eugene, for example, there are also protections for age, type of occupation, ethnicity, and domestic partnership.

Due to the COVID pandemic, housing providers need to be aware of additional screening restrictions enacted under Senate Bill 282, that while temporary, will impact how we screen through January 2, 2028. Regardless of the reason, housing providers are not allowed to consider eviction judgments rendered or cases pending during the Protected Period (April 1, 2020 – February 28, 2022). Housing providers are also prohibited from denying applicants based on debt owing from a prior tenancy that accrued during the Protected Period. These restrictions apply to any applicant through January 2, 2028.

While an eviction judgment rendered during the Protected Period cannot be used to screen out applicants, the reasons for the eviction may be relevant, as will any negative rental history arising from the tenancy (unrelated to nonpayment during the Protected Period). So, an eviction action that came about due the applicant’s noncompliance with the rental agreement is relevant, but only as it relates to the behavior of the applicant as communicated to you by the reference. If you are the one providing a rental reference for a prior renter who was evicted or owes debt from the Protected Period, proceed with caution. If asked whether the tenant left owing money, if it relates to debt incurred before or after the Protected Period, it’s okay to say that. If the resident owes money from the Protected Period, they are not considered to be in default until February 28, 2022, and even if they don’t pay in full or make payment arrangements by then, the debt may not be held against them for this five-year period. Challenging, eh?

In summary, while debt incurred during the Protected Period itself cannot be grounds for denial, the reason for the debt might be. For example, the reference informs you that the applicant left their property in a terrible mess or severely damaged – that’s relevant, but not the money owing. In another example, if the debt is all related to nonpayment of rent during the Protected Period, then it can’t be used as a basis for denial.

While the provisions of Senate Bill 282 have a sunset date, SB 291 passed last session, making a few permanent changes to screening law, and our screening forms have been changed accordingly. Most of the changes are best practices that professional managers have been compliant with for many years. Beginning January 1, 2022, to assess a screening charge to an applicant, the amount of any applicant screening charge must not be greater than the landlord’s average actual cost of screening applicants or the customary amount charged by tenant screening companies or consumer credit reporting agencies for a comparable level of screening. Actual costs may include the cost of using a tenant screening company or a consumer credit reporting agency, and the reasonable value of any time spent by the landlord or the landlord’s agents in otherwise obtaining information on applicants.

Additionally, the landlord must include written notice to the applicant of the following:

1. A right to appeal a negative determination, if any right to appeal exists;
2. Any nondiscrimination policy as required by federal, state or local law plus any non-discrimination policy of the landlord, including that a landlord may not discriminate against an applicant because of the race, color, religion, sex, sexual orientation, national origin, marital status, familial status or source of income of the applicant;
3. The amount of rent the landlord will charge and the deposits the landlord will require, subject to change in the rent or deposits by agreement of the landlord and the tenant before entering into a rental agreement; and
4. Whether the landlord requires tenants to obtain and maintain renter’s liability insurance and, if so, the amount of insurance required.

A more significant change found within Senate Bill 291 is the requirement of individualized assessments related to denials based on criminal history, which closely mirrors HUD’s guidance when considering an applicant’s criminal history. Housing providers must now seek and allow an opportunity for the applicant to submit supplemental evidence to explain, justify or negate the relevance of potentially negative information that may result in a criminal denial. Further, landlords must also conduct an individualized assessment of the applicant that includes reviewing any supplemental evidence before denying an applicant based upon their criminal-screening results. That individualized assessment must consider factors, including:

1. The nature and severity of the incidents that would lead to a denial;
2. The number and type of incidents;
3. The time that has elapsed since the date the incidents occurred; and
4. The age of the individual at the time the incidents occurred.

Another significant change is that you must now provide a written statement of denial within 14 days of the denial regardless of whether you assess a screening charge. That’s a big change for folks like me who do not charge for screening.

Some of the biggest problems landlords create for themselves usually result from shortcutting the screening process. Some basic rules: only accept completed applications; require that all lines on the application be filled in, even if it’s just an N/A because there is no information; when multiple parties are applying together, establish a policy that the applications will not be considered complete until the last one has been received; and perhaps the most important basic rule, do not pre-screen. Housing providers often get into trouble trying to weed out unqualified applicants. Provide an application to all who inquire, even if at first contact it appears that they may not qualify. Use our new combined four-page Application to Rent - ORHA form S1, now available on the forms store. The packet now consists of our Application Screening Guidelines (it’s important to let applicants know your screening criteria), as well as a separate Release of Information to make it easier to send the request without compromising applicants’ privacy.

When talking with applicants, absolutely don’t ask illegal questions such as their line of work, whether they have children, or about their religion, marital status, or ethnicity. What can begin as a friendly attempt to get to know a potential renter can head right to a discrimination complaint on a dime. Plan your communications: if someone asks a leading question, just say something like, “I do not discriminate based on any protected class. Would you like an application?” To help you avoid discrimination claims, note on the application the date and time received, and screen applications in the order received. This is now a requirement in Portland, and the city of Eugene will likely be following suit very soon, but not the state, yet. It’s just a best practice that can help you stay out of trouble. Check each application thoroughly to make sure each question has been answered yes or no. If an applicant answers a question regarding criminal history in the negative and within one year the landlord discovers they lied about that, the tenant may be evicted on a 24-hour Notice for Harm. That won’t happen to you though because you will check their history, right?

It’s understandable that we would like a clear path to approval or denial, but most of life is not black and white, and in screening there’s a lot of gray. Establishing reasonable criteria, evaluating an applicant’s suitability, and having clearly defined processes for approval and denial will help you stay on track. You must also know the law in Oregon.

Required Disclosures:
You must disclose the following, in writing, to any applicant before taking any payments:

1. Terms of tenancy – Periodic (month-to-month, week-to-week) or fixed-term?
2. Rent amount – Subject to change prior to entering into a rental agreement.
3. Required Deposits – Which can be increased for an applicant’s failure to meet criteria.
4. Due date for rent.
5. Renter's insurance requirement – You may require tenants to obtain renter’s insurance if their combined household income is above 50% of the HUD median for that area. Visit www.hud.gov to determine what the income threshold is for the county where the unit is located. The requirement must be disclosed in writing during the application process, and you must also summarize the instances when it would not be legal to require it. You may require tenants to name you as an Interested Party (not an Additional Insured) on the policy for the purposes of notification of the resident’s failure to maintain the policy, reduction in coverage, or removal of your status as an interested party, and may also require that residents maintain a minimum of $100,000 in liability coverage as part of that policy. Requiring renter’s insurance when it would be illegal to do so may incur a penalty of the tenant’s actual damages or $250, whichever is greater.
6. Fees to be charged at the beginning, end or during the tenancy. This includes late fees, NSF fees, noncompliance fees and statutory fees such as smoke/CO alarm tampering fees.
7. Legal action – You must disclose if the property has entered foreclosure due to default under a trust deed, mortgage or contract of sale, or notice of trustee's sale under trust deed, including any pending suit to foreclose a mortgage, trust deed or vendor's lien under a contract of sale or any pending declaration of forfeiture or suit for specific performance of a contract of sale, or any pending proceeding to foreclose a tax lien – Use Foreclosure/Default Addendum - ORHA form #58. The penalty for non-disclosure: If the resident moves because of foreclosure actions that you failed to disclose, the penalty is twice the actual damages or twice the monthly rent, whichever is greater, in addition to all prepaid rent. Should the property enter legal action as described above at any time during the tenancy, the residents may, with written notice, request that any security deposits or prepaid rents be applied to their current rent or payment obligations. If the property is retrieved from legal action, you must provide proof of such to the residents and may require repayment of those funds but must give them up to three months to pay.
8. Utility or services for which tenant pays that benefit another - If, as part of renting a unit, the tenant will be absorbing the cost of something that benefits the landlord or another tenant, such as common area lighting or yard care, it must be disclosed in writing at or before the commencement of tenancy. If you will be charging a utility fee to your residents, proceed with caution. Housing providers must disclose and do many specific things, such as the method of apportionment (square footage or number of bedrooms) and provide copies of bills upon request. There’s a lot more to charging utility fees, read and re-read ORS 90.315 Failure to disclose utilities or services that benefit another or improperly assessing utility fees incurs a landlord penalty of one month's rent or twice the amount wrongfully charged, whichever is greater. This penalty has been assessed by the courts for every month during which the housing provider was out of compliance, going back one full year, yikes!

Prohibited considerations in screening

1. Dismissed evictions.
2. Eviction judgments more than five years old (remember now, this includes any eviction judgment rendered during the Protected Period).
3. Arrests that did not result in a conviction, unless there are pending criminal charges for which the applicant would be denied, if convicted.

Should you charge a screening fee and if so, how much?
For my business before these changes, I chose to not charge a screening fee, but I only have four units, so it’s not very impactful on my budget to absorb that cost. I’m also very busy and there are a lot of things you must remember to do if you accept a fee, and if you mess up, the penalty is double refund of the fee, plus $150. Now that the screening requirements have changed in a way that removes the ‘advantage’ of not collecting a screening charge, we may want to reconsider this approach. If you want to pass on the costs of screening to the applicants, you must provide the following information to each applicant:

1. Written screening criteria – use your own or use our Application Screening Guidelines contained in our Application to Rent packet – ORHA form S1.
2. You must have an available unit or one that will be available soon and disclose how many units of that type you have are available or will be available.
3. The number of applications in line ahead of theirs.
4. The procedures once approved must be disclosed, outlining the steps the applicants must take if they are approved.

Additionally, you must provide a receipt for the fee - use Application Screening Charge Receipt - ORHA form #42, and you must perform the screening or must return the fee. The charge to the applicant must represent the actual costs of the time and expense for conducting the review and cannot exceed the amount customary to the local area. Most screening services charge between $40-$50. Now that evictions and civil judgments won’t be showing up on credit reports due to a credit reporting law change, it can be a good idea to use a good screening company.

If you charge a fee and deny an applicant or want to conditionally approve an applicant who doesn’t quite meet your criteria with a higher deposit or co-signer, you must disclose the reasons in writing separately to each applicant and give them the opportunity to challenge the denial or adverse action. Use Application Denial and Adverse Action Letter – ORHA form #43.

Remember, credit reports are not always correct. I’ve had people show up as registered sex offenders only to find out it wasn’t them, but someone with the same name. They provided evidence that it was an error, and we were able to reopen their application, and in many cases, enter into a rental agreement. If a denied applicant successfully proves that the reason for denial was incorrect, and you reopen it, they don’t get to jump the line. Their application will go to the end of the line or if you have another available unit that meets their needs, you can place their application in line there. An applicant can also challenge an adverse action by providing evidence that the alleged deficiency is not correct in some fashion.

What are your screening criteria, and how do you apply them during the screening process?
Do you require household income of two times the monthly rent or three? Do you allow applicants to combine income for the purposes of meeting income criteria or must they qualify individually? What about debt-to-income ratio? How many years of verifiable rental history do you require? One year? Two? Three? What about someone who has none? How will you evaluate an applicant’s creditworthiness? What types of credit problems would disqualify an applicant? What about bankruptcy? What types of criminal convictions would disqualify an applicant?

There’s a lot to screening and many aspects of the process that need to be done just right to avoid claims of discrimination. To keep yourself on track, you should develop your own risk assessment tool. I suggest that you write up and use a document to help guide you through the decision-making process and regardless of whether you assess a screening charge, provide the tenants with Application Screening Guidelines – ORHA form #45. The language below in italics is taken directly from that form.

Income/Resources Criteria
Household income shall be at least ______ times the rent (excluding utilities). Income must be verifiable through pay stubs or employer contact; award letters for Social Security, alimony, child support, welfare, utility or housing assistance; current tax records; or bank statements.

Many property management companies will allow applicants to combine income if they have shared housing for a year or more to avoid discriminating against applicants based on marital status. It’s standard to require gross household income be three times the monthly rent or higher, but with rents increasing faster than wages, some like myself are only requiring 2-1/2 times the monthly rent. But what if you have a person with a very high income, but also a high debt-to-income (DTI) ratio? To calculate that ratio, simply take the total debt figure and divide it by the total income. For instance, if the debt costs $2,000 per month and the monthly income equals $6,000, the DTI is $2,000 ÷ $6,000, or 33 percent. In the world of mortgage lending, most lenders want to see no more than 30% debt-to-income ratio. Anything above that constitutes a higher risk in the world of lending, which I think can be extrapolated to our business as well.

Taking into consideration the amount of rent vs the amount of debt and income and your internal guidelines might look something like this:

1. Meets criteria or has only a minor lack of income, $100 or less short, good DTI. Applicant meets criteria.
2. Some lack of income – 2-1/2 times rent/income ratio, good DTI - $500 increased deposit or qualified co-signer.
3. Moderate lack of income – 2 times rent/income ratio or marginal DTI - $1000 increased deposit, double deposit, or qualified co-signer.
4. Major lack of income/poor DTI – less than 2 times rent/income ratio, high DTI, some income not claimed or documented – additional $1500 security deposit or qualified co-signer.
5. No provable income - automatic denial.

continued to Part 2 of this article