They passed....Landlords to receive credit reports

[Debbie]

Today, I just received the Landlord Association's big news regarding Landlords to receive Credit Reports.

They passed it....Mom and Pop landlord is being penalized. Although it has passed, time is definitely running out. It becomes effective December 16, 2006.

Here's the drift:

"New Requirements for Landlords to Receive Credit Reports"

The concern for consumer privacy and the need to protect individuals from identity theft is paramount. In order to protect consumers, the Fair Credit Reporting Act, the Fair and Accurate Credit Transaction Act and other legislation has been passed.

In order to comply with the legislation and requirements of the Federal Trade Commission, TransUnion, Experian and Equifax have made changes in their requirements as to who can obtain the credit report of another individual. They have set up new standards that apply to all businesses across the board.

Now, in order to receive credit reports, all landlords must meet the same requirements as any other business. Some of the basic requirements are as follows:

1) Must have a business name that has been licensed with the State and has a Federal Tax Number.

2) Must have a business account and consent to verify with your financial institution.

3) The business phone number must be listed in a business directory or yellow pages.

4) Must have on site inspection of office. The office must have a separate entrance from your primary dwelling and an exterior sign identifying the business.

If you do not meet these requirements, you will still be able to get criminal record search, rental history and employment verification.

This is in a summary of a report sent to one of our members from a screening company he uses. This will go into effect December 16, 2006.

Also, the Disposal Rule, a new rule to be enforced by the Federal Trade Commission, requires disposal practices (such as shredding) that are reasonable and appropriate to prevent the unauthorized access to information in a consumer report.

Also, destroy or erase electronic files or media containing consumer report information so that the information cannot be read or reconstructed.

Again, this is only a brief summary of the new rule from the FTC.

[Debbie]

I'm starting to think of developing a 'credit reports just for landlords' type business.....

Good/bad idea?

[Aldo]

I'm starting to think of developing a 'credit reports just for landlords' type business

Can you say, "Ain't gonna happen"? I'm a board director for the largest REI ass'n in WI (1400 members) which offers credit reports to members. That's not to brag, but to qualify myself to reply here.

Creating an account with the big three credit reporting agencies isn't impossible, it's merely improbable. The hoops you have to jump through are so high that you probably can't even see them, yet you are expected to do so. Dotting the I's and crossing the T's is the easy part.

I won't waste anyone's time here and I'll go away with the suggestion that you reconsider your thinking. Yours is a great idea, but one that is probably more work than it's worth.

Anyone who pulls more than a few credit reports annually might consider www.factualdata.com where you can get scored credit reports for about $5.50 online 24/7. There is a one-time setup fee of about $150.

[Debbie]

I'm starting to think of developing a 'credit reports just for landlords' type business

Can you say, "Ain't gonna happen"?

:SM090: About five minutes after I posted, I decided it wasn't worth it effort to
investigate. Plus, I recalled there were too many available 'cheap' services.

I almost came back and delete the "credit report just for landlord" business post. But I decided to leave it here so that other MB members and guests can see the responses, may it be positive or negative.

It'd be interesting to see if there would be any upcoming responses to this thread.....

[Burke]

I'm a board director for the largest REI ass'n in WI (1400 members) which offers credit reports to members.
...............
Anyone who pulls more than a few credit reports annually might consider www.factualdata.com where you can get scored credit reports for about $5.50 online 24/7. There is a one-time setup fee of about $150.

I guess I would be curious to know if this new legislation is going to make it more difficult (impossible?) for these companies/associations to continue to provide the credit reports without opening themselves up to mucho liability. I thought I remembered reading something about this that indicated releasing the report to 3rd parties (landlords in this case) will be more restrictive as well.

[Tim]

The best way to handle this is to work with a screening service. They will help you determine what criteria you want to use and then when you submit an applicant to the screening service you get a pass/fail result or a percentage meeting indicator.

You don't get or need the credit report in that scenario.

[Debbie]

The best way to handle this is to work with a screening service. They will help you determine what criteria you want to use and then when you submit an applicant to the screening service you get a pass/fail result or a percentage meeting indicator.

You don't get or need the credit report in that scenario.

Tim,

I am not sure that would be enough.

The credit report tells the whole picture (or, almost tells the whole picture).

We have one long term tenant who, currently in his late 30's, currently have the same and only job for over ten years. At the time of his rental application, he had a credit FICO of under 600. Upon reading his credit report, it turned out he never had any credit cards, never had auto loan, absolutely nothing. He lived with his parents all of his life.

It was just a few years ago that he decided to branch out on his own along with his girlfriend.

We would not have accepted him if we only learned of his credit FICO and not reading the credit report.

He was a great tenant for the last few years. He bought a house this past spring. To date---he's still doing well with finances.

Somewhat similiar with another long term tenant who had low FICO score. Had we not had access to her credit report, it is highly likely that we would not have accepted her.

On the other hand, we've had potential tenant who had fairly good credit FICO but recent activities showed that the potential tenant had multiple late payments. Of course, we didn't accept him.

My question is this, Tim: Would the screening service provided those credit report information?

[Burke]

The best way to handle this is to work with a screening service. They will help you determine what criteria you want to use and then when you submit an applicant to the screening service you get a pass/fail result or a percentage meeting indicator.

Tim,

I was hoping you would jump in on this. I have heard you say that before. I wonder if you would be willing to start a "lesson" on here on developing such a criteria and how you can get the big picture that Debbie mentions below with a pass/fail.:SM083:

Burke

[Aldo]

I have to disagree with the idea that a credit report is the all-important screening tool. A good example of my reasoning is my 8+ year tenant who has never been a day late with the rent. If her FICO was any lower, it would have to be a double digit score.

That brings to mind the value of a credit score which is approximately zero. Forget the score and carefully read the entire report. An applicant, with otherwise good credit, may have a low score for understandable reasons. Huge medical bills and college loans are among the things I ignore, yet they can greatly reduce a credit score.

I pull credit reports on less than 10% of my applicants. Rental and criminal histories, imo, are most important. Income verification runs a close second. The fact that an applicant has a great credit score doesn't mean that s/he didn't kill his/her last two landlords after getting a Notice to Vacate.

Not pulling a credit report on all applicants can lead to a discrimination lawsuit, so you need to be cautious. In addition to written rental criteria, you need to have a written screening policy/procedure which makes pulling a CR the last 'test' in your screening continuum. Most undesirable applicants will be rejected before that last 'test'. Never, ever, make an exception to either the criteria or the screening procedure. Having a unit remain vacant for another month or two is a lot cheaper than a million dollar lawsuit, especially if you're not properly prepared to defend your actions.

[Debbie]

To provide educational purpose to our Magic Bullets Fambly, I will bring up our criterias and why credit report is important to Jeff and me.

When I talked about the credit report, I was not referring to just the FICO score. I talked about the whole credit report that showed the number of accounts, closed/open accounts, days of late payments, bankruptcy, the amount of whole debts, etc.

The credit report is the last item on our list prior to accepting/reject potential tenants.

Among our criteria lists that must be accomplished between 24-72 hrs, depending on days of the week & holidays:

1) Have applicants fill out the WHOLE rental applications. If applicant left out areas such as social security number, employment name/phone number, etc the potential tenant has just rejected himself.

2) Reverse phone numbers that applicant provided on rental application.

3) Check to see if potential tenant is listed in the National Tenant Rating Bureau, also known as "The Deadbeat Database".

4) Check County Building for potential tenant's Landlord's name & address to verify it is the potential tenant's landlord's property.

5) Contact last 2+ landlords, including current landlord. Although we generally ignore any positive comments from current landlord but we do want the current landlord to be aware of his/her tenant looking to relocate.

6) If at all possible, drive by and/or knock door of potential tenant's current address. Check to see how potential tenant treats the rental home as well as see evidence of potential tenant's care of pet (if any).

7) Contact County Building for criminal and bankruptcy checks.

If any of the above criterias did not meet our expectations, we reject the potential tenants. We simply convert the cash (for credit check) into money order or cashier's check in the mail without any letter or note of explanation.

If the potential tenant passed all of the above criterias, we pull credit report that includes any additional information such as "Does not match" infos, resided in other county/state, payments on time or not, debt ratio, etc.

The above are the main but not all of our criterias mentioned in this post. There are little things not mentioned such as age (18+), must have 1+ yr employment, etc.

Although the credit report (almost ignoring FICO scores) is the last item of our criterias but it is very important to us. Although it might not be to the minute's up to date but it does contain fairly accurate information regarding the debt ratios and late payments.

FYI---we do totally ignore medical bills on the credit reports for obvious reasons. Aldo mentioned about ignoring college tuitions, that subject never occurred to us therefore it still will not be included in our criterias.

[Aldo]

Debbie, that was great. Thanx. One thing that should be added to the screening process is checking your(anyone)'s state sex offender registry. None of us wants a convicted child-molester living next to a tenant with children, for example. I believe most or all states have their registry available online at no cost. If not, there will be a toll free phone number offered. Seek it out!

I add this because, all too often, criminal checks at the county courthouse only offer the records of the county in which the request is made. A state sex offender registry will have state-wide data. Anyone with an out-of-state applicant would be well advised to check the applicant's home state registry.

[Debbie]

Debbie, that was great. Thanx. One thing that should be added to the screening process is checking your(anyone)'s state sex offender registry. None of us wants a convicted child-molester living next to a tenant with children, for example. I believe most or all states have their registry available online at no cost. If not, there will be a toll free phone number offered. Seek it out!

I add this because, all too often, criminal checks at the county courthouse only offer the records of the county in which the request is made. A state sex offender registry will have state-wide data. Anyone with an out-of-state applicant would be well advised to check the applicant's home state registry.

Actually, we do have that as part of the criteria. We also adopted the statement on the rental application that we generously stolen from you! ;)

I should have mentioned the sex offender but it slipped my mind without looking at our criterias.

Thanx for bringing up a very important sex offender subject!

[Aldo]

The importance of this is shown by that fact that WI law requires landlords to provide applicants with contact information to the state sex-offender registry.

Your missing this issue is is understandable because there are many important things to consider when screening applicants and this thread is really about credit reports/scores.

If there appears to be enough interest, we might consider a new thread covering applicant screening procedures. If that happens, we might gather enough followers to justify a Sunday night 'screening' chat. I've done local and national seminars on that topic and would be honored to be the selected host.

[Tom CT]

Please do it Aldo

[Debbie]

I definitely think that is a superb idea Aldo!

Let's pick a date! How about January 14th?

Unless it is a bad night and MB members would like a special night other than Sunday night?

Bend my ear Fambly!

[Burke]

Sounds good to me!

[Aldo]

January 14th works for me.

[Debbie]

Then we have a date!

Shall I wear the red dress or the black dress? :SM113:

[Aldo]

Silly girl! A female should never ask a male what to wear. However, to answer your question, I have to admit that you're weather has been warmer than Milwaukee's and, you're right, last year the Green Bay Packers had more home runs than anyone at NASA because they wear green and gold.

[Jim FL]

Count me in for a screening chat.
I'd love to see how others screen.
I've personally not relied on credit reports for a few years now when screening tenants, using other means as the anchor requirements in my process.

The sex offender data base idea is great.
Not something I include on the application, just something I look at online, as its free and open to public use.

I'd love to hear what others do, and perhaps chime in here and there......could be a GREAT discussion.
Timely as well, because I have a feeling we will be seeing more and more tenant applicants in the coming months.

Jan 14th?
Penciled in already.

Jim FL

[Aldo]

As we well know, the most recent Addendum from the credit reporting agencies is making it increasingly difficult for owners, especially smaller owners, to pull credit reports. That's bad enough but, what many don't know is that the Addendum threatens to put credit report resellers out of business. Those resellers are where most of us get our credit reports.

A large REI group I belong to, which is a credit report reseller for members, felt the threat and went to bat along with similar organizations. We convinced TransUnion of the importance of resellers. It's far more complicated than that, but you get the drift.

Long story short, TransUnion (Equifax & Experian will surely follow) will be issuing a new Addendum in the coming months which will ease restrictions on resellers. At this point I don't know what, if any, effect that will have on owners who pull reports directly, but it appears most of us who rely on resellers may be able to continue doing business as usual.

[Burke]

Long story short, TransUnion (Equifax & Experian will surely follow) will be issuing a new Addendum in the coming months which will ease restrictions on resellers. At this point I don't know what, if any, effect that will have on owners who pull reports directly, but it appears most of us who rely on resellers may be able to continue doing business as usual.

That sounds much better than the alternative. I guess I am still curious if that means the resellers can still get the report and then pass the complete report on to the landlord or will they only be able to provide summary information such as "pass/fail" based on the criteria you give them. Passing the report in it's entirety on to the landlord would seem to be contrary to the intent of the legislation.

[Aldo]

My understanding, though limited, is that resellers will be able to continue providing the full reports but will have tighter restrictions for qualifying the people who order credit reports (us). Part of the reason is that some resellers have been careless in determining a customer's legitimate purpose for requesting the reports. An example of that would be a reseller who provided CR's to me after telling them (not proving) that I own rental properties.

I'm thinking that the owners who might have a problem are those who have their properties buried in entities and/or those who cannot demonstrate ownership.

Again, I'm not an expert on this. I'm sharing what I've heard from those who are.