E-Renter News

A recent landlord-tenant case in Florida caught our attention. New landlords leased their furnished home to a tenant—or rather, the tenant’s company—who apparently had no intention of paying rent. After three months with no rent payments, the landlords started getting suspicious. They discovered a number of landlord-tenant disputes and court documents filed against the tenant and his company.

By checking with some of the other victims of the tenant’s scams, under the name Global Academy Online, Inc. the landlords discovered he was very “savvy” and knew just what to do to “dodge the bullet.” In this particular case, the tenant filed court documents or neglected to appear in court in an attempt to prolong the eviction process.

In court, the tenant claimed that the landlords did not live up to their end of the lease, because all utilities—including Internet access—were to be provided, and on three occasions the Internet service was interrupted.

The judge ruled for the landlords, and signed an eviction order. The landlords say they are not “after the money,” and they just want the tenant out of their house.

There are a few lessons to learn from this case:

• If a tenant wants to rent your property under their corporate or business name, consider it a red flag. Not in every case, but do check it out.
• If you run proper tenant background checks and credit checks, it’s more likely you will find out about landlord-tenant disputes and court filings before you sign the lease. It’s not a stretch to assume there were no credit checks or inadequate checks run in this case.
• A quick Google search can reveal a great deal about a prospective tenant, as well. This particular company raises a few red flags.
• Finally, don’t roll over and let a scammer get away without paying what is owed. Fight for the money you have coming to you.

If you’re a landlord or property manager who does not currently charge rental application fees, you could be missing out on a steady source of revenue. Why? Because the monthly rent covers only the privilege of living on your property—not the time and energy you spend finding the right tenant.

While the amount typically charged varies according to the market, most application fees are in the $25 – $50 range. Many landlords use the fees only to cover tenant screening. Others charge both an application and a screening fee.

Why charge an application fee above the screening fee? Well, it makes sense that you’d want to cover your time and out-of-pocket expenses each time you vet a prospective tenant—the time you spend showing the property, calling references, ordering credit checks and criminal reports can really add up. If the tenant goes away on his or her own, or if you reject their application, you have sustained a loss.

Charging a fee also helps weed out the tenants that may not be able to pay your rent. Yes, times are tough right now, but if a lease applicant can’t afford $25 or $40, can they afford to rent your property?

Remember, you’re in business to make a profit. Every time you expend time or other resources, you should be getting paid for it. So consider having every lease applicant pay for the tenant background and credit check you’ll be running, as well as for your time.

What else do you have to sell?

California state law sets limits on tenant screening fees and how landlords can use those fees. In addition, certain municipalities have their own ordinances covering tenant screening. If you’re a California landlord, here are some dos and don’ts you should know:

• If you own rental property in Berkeley, do disclose to lease applicants about tenant screening fee protections by providing a copy of the state law.
• Do note that the maximum allowable tenant screening fee allowed under state law is currently $42.41.
• Don’t use the screening fee for anything other than conducting a tenant background check or credit check.
• Do provide potential tenants with a receipt outlining any fees you paid.
• Don’t neglect to refund applicants the difference between what you paid out and they paid you.
• Do provide the applicant with a copy of his or her credit report, if obtained during the screening process.
• Don’t charge an application screening fee when you have no vacancies or won’t have one in a reasonable length of time.
• Do keep excellent records of all funds received from potential tenants, especially if they pay with cash.
• Don’t accept tenant screening fees from multiple applicants if you’ve already decided whom you’re going to lease to.

And finally, don’t try to make money on tenant screening. It’s a cost of conducting your rental property business and can save you time, trouble and money in the long run. Properly screening potential tenants can protect you, your assets and your other tenants. It’s worth it!

Last week, we wrote about the danger faced by landlords whose tenants could be renting out their property to travelers – unscreened, unknown strangers – through the website Airbnb. Well, it didn’t take long for news of a disaster related to this practice to surface. And now the authorities are looking into the legalities surrounding it, too.

Airbnb “Guest” Trashes Apartment
In one recent case, a San Francisco woman rented her apartment through Airbnb when she was out of town. The “guests” not only trashed her apartment and stole clothes, jewelry, cash, a laptop and other valuables, but they rifled through her personal documents and gained access to financial records and account numbers. They piled dirty dishes in the kitchen, burned sheets in the fireplace and dumped cleanser all over the apartment. As this renter discovered, strangers can be dangerous and unkind.

Apparently the allure of making a half-month’s rent in one week’s time was too appealing to not take the risk on total strangers. Airbnb claims it’s the first major incident they’ve ever had, that they thoroughly check the references of would-be renters, and that as of August 15 2011, it will provide $50,000 in coverage to hosts for loss or damage to their personal property due to vandalism or theft caused by an Airbnb guest. In a change to their procedures, they will now allow hosts to view a potential guest before agreeing to rent to them. Previously, they controlled all communication so that by the time the host knew about the renter, the property was already booked.

No Background Checks in Order to “Respect Privacy”
None of this makes any sense. In the case of leased property, does Airbnb provide any protection to the property owner? What if this tenant had no renter’s insurance? Airbnb states on its website that “we respect user privacy and do not do formal background checks on Airbnb guests and hosts.” The company suggests that once they give a host the full name of the guest, (after the room or apartment is booked) the host should look them up on the Internet and “message mutual friends to get a sense for who they are.” Seriously?

Apart from the obvious risks to rental property owners and tenants alike, there are additional problems with the whole Airbnb model: it is largely illegal in a number of municipalities. In San Francisco, for example, rent control laws and planning regulations prohibit the practice. A property that is leased for less than 30 days is defined as a hotel, subject to restrictions, permits, fees and taxes. There is also a law in California that prevents unfair competition – something that hotels and motels are suffering when people take away their customers without going through the same permitting process or collecting any taxes whatsoever. New York City approved a law banning short-term apartment rentals last May, and the practice is also outlawed in Paris.

Still, we don’t hear a lot about landlord rights in this controversy. So be warned, and make sure that your tenants know how you feel about them renting your property to total strangers.

As of July 1st in Dubuque, IA, landlords must run a criminal backround check on everyone who fills out a lease application. As part of an ongoing crime reduction effort, a police department spokesperson said, the background check requirement will ensure that landlords get better-quality tenants who aren’t going to generate problems—for the police department or for the landlord.

The new law requires landlords to check for felony and misdemeanor charges and convictions, but what the landlord does with the information they discover is an individual choice. Whether a rental property owner continues with the lease agreement based on a criminal background check is up to him or her.

The main point is that the landlord knows going in what the person’s background is, said the police spokesperson. “It’s certainly possible people could be rehabilitated. If [the landlord] feels confident the tenant is one of those people, great.”

Landlords should know that they could be held partially responsible if there are problems later with the tenant—such as a fine for repeated police calls to the same address—if a background check was not conducted. Landlords also face the possibility of losing their rental license if repeated tenant problems occur.

Dubuque also requires landlords with ten or more rental units to attend a city program on crime-free housing. The police spokesperson stressed that the new law is aimed toward “hands off owners” who are interested “only in getting a check and don’t care about the quality of tenant they are renting to.”

He concluded, “Most landlords do a great job. Most good landlords are interested in running criminal background checks and credit checks to be sure they are getting good tenants.”

What do you think about mandatory criminal background checks on potential tenants? Do you know of any other municipalities that require them?

While tenant prescreening can tell you a great deal about a prospective tenant’s credit history, criminal record, eviction history and previous addresses, landlords should supplement this information with a little sleuthing of their own.

Checking references is an often-skipped step that can reveal whether or not your lease applicant actually has a job; if former landlords had good experiences with him or her, and if that gut feeling you got about the applicant is spot-on or not.

The web is another good source of information. Whether you enter the applicant’s name in Google or Facebook, you may end up with all sorts of character references they may or may not have intended you to see.

We know landlords who have discovered unauthorized pets owned by current tenants, or evidence of illegal activities taking place in their rental properties, by glancing through Facebook photos. And depending on the level of security the tenant or potential tenant chooses, you may not even need to “friend” them to obtain access to their personal information and photos.

On Facebook, you could discover that the person applying to lease your property has quite the partying habit, lies to his or her boss about being sick while going to the beach, or has major credit problems. The things people confess on Facebook never ceases to amaze!

Checking Google can also lead to a bevy of information. Usually, entering a prospective tenant’s name, city and state can get you started. You can also enter previous addresses, which would show up in police reports if anything shady had occurred there.

While Facebook and Google searches cannot take the place of professional tenant screening. Rather, when used in conjunction with tenant screening, they can help you build a complete picture of a prospective tenant, so you can make an informed decision about whether or not to approve a lease application.

Running a thorough background check and credit check on potential tenants is a must-do. Most landlords will tell you that skipping this important step usually results in a bad outcome.

But is a tenant’s rent paying history more important to a landlord than their credit history? Maybe. While a credit report will tell you how a person handles general finances, such as credit card payments, student loans, retail store credit and bank loans, it also can confirm information provided on a lease application, such as current and past employers. In addition, the credit report will reveal any public record information, such as state and county court records on bankruptcy, tax lien and monetary judgments.

Most landlords want to know how a prospective tenant handles payments other than rent, as an indicator of how well they handle their overall finances—and whether or not they will pay their rent on time every month.

But a rental payment history will more accurately indicate a tenant’s reliability in meeting the obligations of a lease as it pertains to rent payment. For some tenants, paying rent on time every month may be more important than paying their Macy’s bill. This is certainly not an argument that paying any legal obligation late is okay! It’s just an observation of human behavior.

The question a landlord must ask is whether it’s more important to you that a tenant has a perfect rental payment history or a perfect credit history. Obviously, the ideal tenant will have both!

Regardless of how you handle this issue, you can keep your risk of loss at a minimum by requiring every lease applicant to undergo a tenant background and credit check–and then by going a step further to check their rental payment history, as well.

After drugs invaded a neighborhood in South Daytona, Fla., the owner of a multi-family housing complex took over its management and partnered with police to stop drug activity. After the owner completed a special crime-reduction program sponsored by the city, the rental property now has a sign designating it as a “Crime Free Multi-Housing Program” property.

Through the program, rental property owners and managers, as well as tenants, learn how to improve their neighborhood. Police officers lead the three-part program, which trains property managers to reduce crime by implementing security requirements, screening tenants and learning crime-prevention methods.

Landlords may also add a Crime-Free clause to their rental agreements that specifies criminal acts that can result in immediate lease termination.

More apartment complex owners and managers are signing up for the program; the police would like to see the new sign in front of every multifamily housing property in the city. The police department benefits with fewer service calls, safer communities and more stable residents.

Mesa, Arizona police created the Crime Free Multi-Housing Program in 1992. 2,000 cities in 44 states have implemented the program.

As the economy continues to sputter toward recovery, jobs are still hard to come by and in many markets, home sales are just not happening. If you’ve tried to sell a home but have been unsuccessful, or have moved for a job and can’t sell your old home, perhaps you’ve joined the ranks of rental property owners.

Here are a few tips to help you manage rental property more successfully:

Talk to an attorney: It will cost you up front, but it’s best to have professional help in setting up your lease forms and security deposit policy. These are legal documents and will protect you and your assets when drawn up properly.

Read some books: There are plenty of manuals and guides for landlords out there. Here are three good ones you will refer to again and again:

Screen prospective tenants: This is one of the most important things you can do to protect yourself, your property and even the neighborhood. Run credit checks to see how the person who will be paying you rent every month handles his finances; do a criminal background screening to weed out felons, sex offenders and other criminals; and check with previous landlords for character references. Don’t rush this process and don’t skip this step—ever.

Follow housing laws: Remember it is illegal to deny an applicant housing based on race, color, country of origin, gender, religion, family status and disability. In other words, you cannot reject an applicant because of their appearance. Experienced landlords will tell you stories about applicants who looked a little unsavory, but turned out to be excellent tenants. The reverse is often true, as well: flashy clothes, cars and jewelry do not equate to a high-paying job and great credit history.

Whether you plan on being a landlord for many years, or just until your house sells, approach it as the business it is. You have a valuable asset to protect, you need the rent to be paid on time, and you want to minimize risk whenever possible.

We’ve previously discussed whether or not it’s a good idea to allow tenants to run businesses out of rental properties. Here are two good reasons to restrict tenants from doing so:

1. Liability: If the public is entering your rental property, you may be subject to liability for any injuries or accidents that occur. This is especially worrisome if the business is a daycare or babysitting business where children are at risk of injury.
2. Nuisances: How will other tenants feel about parking issues, noise, odors, or other disruptions to their peaceful habitation of your rental property?

Most landlords would not allow a woodworking shop, car repair shop, or commercial catering business to run out of a rental home or apartment. And many states and cities do not allow rental property owners to restrict tenants from running a daycare business—so be sure to check on laws in your area.

But what about tenants who wish to start or continue with a quiet home-based business, such as real estate, computer programming or graphic design?

Barring any local ordinances or zoning laws, it’s not a bad idea to rethink the no businesses allowed policy. There are advantages to having tenants home during the day. Empty units invite more burglaries, so a set of eyes and ears to keep a watch on things can be a deterrent. Another advantage is faster notification of problems like broken pipes, fallen limbs or other weather-related damages.

If you have tenants who wish to run a home business, check local zoning regulations for the types of businesses allowed in your area, as well as any restrictions on signage, parking, and health and safety issues. Next, check with your insurance provider to determine whether additional coverage is needed under your existing policy, as well as whether or not the tenant will need to obtain a liability policy.