PM said they can’t adjust credit score criteria per property
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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votesPeople misunderstand fair housing regulations all of the time. There are so many people here that have the perspective "I'm not discriminating, so I have nothing to worry about."
Totally untrue- fair housing violation claims are not about whether or not you actually discriminated, it's about being able to prove that you did not, which is much more nuanced than you think.
As a property manager (or self manager), if you don't have very specific criteria and processes published and documentation for every step along the way, you can end up with a HUGE fine. Not because you discriminated, but because you couldn't prove that you did not.
That being said, I think it's possible to adjust your credit requirements for an individual property and still be protected, but my guess here is that is not the issue. The real issue is that your PM already has processes and criteria in place and making modifications for just one property, one owner, mucks up the whole machine.
Property management is really a low margin business and profits are made based on effeciency, I'm sure they are trying to remain consistent in order to maintiain their processes.
Before I get blown up- I understand that credit scores are not protected and you can "discrimniate" based on them. I'm talking about a PM having clear and consistent processes related to screening and tenant placement- credit scores are a big part of that and as a whole, they play in to protecting both you as the owner and the PM from violations.
21 Replies
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes3y
@Lesley M., that sounds ridiculous to me. Credit score is not a protected class of people.
If the PM thinks this, shouldn't they NOT use credit scores at all because there are people who have no score and they would be disadvantaged?
I would make them justify this. Get them to site a law or legal guidance that explains this so that it makes sense.
- 3yAndrew FreedBusiness MemberInvestor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
@Lesley M. - As a landlord you have the right to have a rental criteria. As long as it does not discriminate against protected classes, you are completely eligible to restrict tenancy. Normal rental criteria restricts credit to certain levels, 3x rental income, no history of evictions, good prior landlord references... None of these are protected classes hence I think your PM needs to get more educated on the laws. @Kevin Sobilo has some good recommendations on how to approach this.
- 3yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
People misunderstand fair housing regulations all of the time. There are so many people here that have the perspective "I'm not discriminating, so I have nothing to worry about."
Totally untrue- fair housing violation claims are not about whether or not you actually discriminated, it's about being able to prove that you did not, which is much more nuanced than you think.
As a property manager (or self manager), if you don't have very specific criteria and processes published and documentation for every step along the way, you can end up with a HUGE fine. Not because you discriminated, but because you couldn't prove that you did not.
That being said, I think it's possible to adjust your credit requirements for an individual property and still be protected, but my guess here is that is not the issue. The real issue is that your PM already has processes and criteria in place and making modifications for just one property, one owner, mucks up the whole machine.
Property management is really a low margin business and profits are made based on effeciency, I'm sure they are trying to remain consistent in order to maintiain their processes.
Before I get blown up- I understand that credit scores are not protected and you can "discrimniate" based on them. I'm talking about a PM having clear and consistent processes related to screening and tenant placement- credit scores are a big part of that and as a whole, they play in to protecting both you as the owner and the PM from violations.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Lesley M.:
Hi there. I own a rental property in St Louis. We recently had turnover and listed the property on the market again. I asked my property manager to increase the minimum credit score for applicants. They said they couldn’t adjust it per property because that would make them liable for discrimination. Does anyone have experience with this?
There are two issues here:
1. Can the PM have a different set of rental criteria for different rentals? Yes, as long as they are applied equally to all applicants. A tenant wanting to rent a $4,000 house must meet different income requirements, so why not different credit requirements?
2. Is the PM willing to set different criteria for each rental? No, the PM has processes in place that are designed to be efficient. If they custom-tailor the application requirements for every property, it would take forever to get through the applications. We process over 1,000 applications per year!
They can do it but don't want to because it changes their process, increases their workload, and increases the probability of problems.
The DIY Landlord Book4.7243 Reviews - 3yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
You should be happy that your PMC is being honest.
It would be easy for a PMC with no integrity to tell you, "sure, no problem", then do whatever they wanted.
Logical Property Management4.9464 Reviews - Member since 2019 · 7k+ posts · 4k+ votes3y
In California my best tenant is always those who never have credit score at all LOL
- 3yGreg PowersPro MemberReal Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
@Lesley Martin, do a Google search for the phrase “disparate impact discrimination.” A similar question was raised a few years ago about using criminal history to screen tenants. That may be what the PM is referring to.
Absolutely ridiculous. As long as you apply the higher credit score requirement to all applicants of that property, there should be no issue.
Either the PM just doesn't want to do it because it will be more work for them to find a qualified tenant or they are misinterpreting the law. I'd ask them to cite the law and if they can't, I'd fire them. Not knowing or misrepresenting the law is a death nail for me. They get paid to protect you and if they don't know the law, they are useless.
- 3yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Lesley M. curious, why do you want the credit score higher and what is it now? I find length in previous rental and job/family in the area are better predictors of good long term tenant.
I don't like really high credit scores (750-800) in my tenants because that means my rental is a placeholder while they are looking to buy. Not sure if that will continue to hold up but we''ll see.
- Member since 2022 · 405 posts · 455 votes3y
I agree with others in this post that it sounds like your PM can, but does not want to.
Quote from @Colleen F.:
@Lesley M. curious, why do you want the credit score higher and what is it now? I find length in previous rental and job/family in the area are better predictors of good long term tenant.
I don't like really high credit scores (750-800) in my tenants because that means my rental is a placeholder while they are looking to buy. Not sure if that will continue to hold up but we''ll see.
My previous tenants were continually late with rent and left with $2.5k in unpaid expenses, so I would prefer tenants that are higher quality and more fiscally responsible.
- 3yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Lesley M. sounds like the PM did not get rid of them soon enough. Is you PM open to other criteria being added that are not credit score? Do you do previous LL references? that works the best for me. I also favor 2 years previous rental history in the same location. Not sure what bigger PM companies use in addition to credit score.
Have you looked into other PMs?
Quote from @Colleen F.:
@Lesley M. sounds like the PM did not get rid of them soon enough. Is you PM open to other criteria being added that are not credit score? Do you do previous LL references? that works the best for me. I also favor 2 years previous rental history in the same location. Not sure what bigger PM companies use in addition to credit score.
Have you looked into other PMs?
Good Qs and you raise good points about other criteria being important. They do look at previous landlord references over 3 years.
I agree with the other posts that my PM has processes in place and doesn’t want to deal with adjustments for 1 property.
I have called about 5 other PMs but the issue is that I only have one property, so there’s only one other PM who would handle my property. This may be the spur for me to transition.- Investor · Anchorage, AK · Member since 2015 · 267 posts · 76 votes3y
The property manager absolutely could do this, but they don't want to because it would increase the work for them. The bigger the property management company is, the less willing they will be to customize their processes to what you want / need as an investor. They usually are only concerned about their short term gains and not your long term needs as an investor. Some property managers don't even use credit score as one of their screening criteria! You could self-manage or try the other local company and see if they will do what you want re: screening criteria.
Quote from @Lesley M.:
Quote from @Colleen F.:
@Lesley M. curious, why do you want the credit score higher and what is it now? I find length in previous rental and job/family in the area are better predictors of good long term tenant.
I don't like really high credit scores (750-800) in my tenants because that means my rental is a placeholder while they are looking to buy. Not sure if that will continue to hold up but we''ll see.
My previous tenants were continually late with rent and left with $2.5k in unpaid expenses, so I would prefer tenants that are higher quality and more fiscally responsible.
Were you using the same PM then as the one that told you that they cannot mandate a higher credit score? If so, I would fire them immediately.
I hear those that state the processes do not allow for a change of minimum credit, but I doubt that is the reason. Can it be significantly harder to set minimum credit score as it is to set minimum income? Possible, but I doubt it.
I believe they do not want to have a higher minimum credit score is because it makes it harder to find a qualified tenant. Seems reasonable unless they have a track record of placing tenants that cannot pay which if you were using the same PM prior seems to be the case. In such case they need to do all they can to make up for giving you a tenant that did not perform. If this means changing process and/or having to work a little harder to find a qualified tenant because you are dictating a higher minimum credit score, so be it.
Seriously, it is time to get a new PM on grounds that this one lied to you, placed unperforming tenant, and is not following your direction when it comes to minimum qualifications for renting your unit.
Good luck
Quote from @Dan H.:
Quote from @Lesley M.:
Quote from @Colleen F.:
@Lesley M. curious, why do you want the credit score higher and what is it now? I find length in previous rental and job/family in the area are better predictors of good long term tenant.
I don't like really high credit scores (750-800) in my tenants because that means my rental is a placeholder while they are looking to buy. Not sure if that will continue to hold up but we''ll see.
My previous tenants were continually late with rent and left with $2.5k in unpaid expenses, so I would prefer tenants that are higher quality and more fiscally responsible.
Were you using the same PM then as the one that told you that they cannot mandate a higher credit score? If so, I would fire them immediately.
I hear those that state the processes do not allow for a change of minimum credit, but I doubt that is the reason. Can it be significantly harder to set minimum credit score as it is to set minimum income? Possible, but I doubt it.
I believe they do not want to have a higher minimum credit score is because it makes it harder to find a qualified tenant. Seems reasonable unless they have a track record of placing tenants that cannot pay which if you were using the same PM prior seems to be the case. In such case they need to do all they can to make up for giving you a tenant that did not perform. If this means changing process and/or having to work a little harder to find a qualified tenant because you are dictating a higher minimum credit score, so be it.
Seriously, it is time to get a new PM on grounds that this one lied to you, placed unperforming tenant, and is not following your direction when it comes to minimum qualifications for renting your unit.
Good luck
Thanks- yes I am seeing that they’ve been swindling me. I’ll look for another PM.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Colleen F.:
@Lesley M. curious, why do you want the credit score higher and what is it now? I find length in previous rental and job/family in the area are better predictors of good long term tenant.
I don't like really high credit scores (750-800) in my tenants because that means my rental is a placeholder while they are looking to buy. Not sure if that will continue to hold up but we''ll see.
Smart !
the higher credit score of the applicant is usually more demanding .
my biggest best tenant for years are always them that does not even have social security or credit score ! Lol
but we are in California - 3yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Carlos Ptriawan I have given a number of younger people with no credit a chance if all else looks good. I will get back something like unable to determine.
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3y
Aloha,
I see several points to consider here.
1) It would be important to adequately document the UNIQUE credit score requirement up front...in your ad for the specific property, and again before accepting an application if you/your company has multiple other offerings at your "standard" credit score criteria.
2) Generally, I see the excuse that having a different criteria as being "additional work", mostly bogus. Maybe if you have a very large PMC, with a large "team" all having their hands in the marketing/application/approval processes. Left hand never knows what the right hand is doing. But for any small to midsize PMC...not that difficult. Often only one or two people involved in these aspects of the bigger process. Flag the file, whether on computer or in a folder of paper files, so that when anyone looks at the file during the move out process for a current Tenant, they would see the flag and take appropriate action regarding credit scoring for any new marketing or applications.
3) I believe @Corby Goade is slightly off base regarding FH claims. It is true that it does not matter what YOUR intent was, for any action or statement (unless it is overtly discriminatory, obviously). It only matters what the OTHER party feels/believes. If they feel discriminated against, they can initiate a formal FH complaint. Once that investigation has begun, then, yes, YOU will need to prove you did not discriminate.
How do you prove that? By keeping good business records...well organized and well secured (per FCRA). I have always kept every complete, and incomplete application package. Approved apps remain with the Tenant/Tenant History file until years after the Tenant has vacated the property. We might have two Tenants in a property over a ten year period, or we might have five...every one is kept complete with most of their correspondence, late notices, and their original app and Rental Agreement WITH move in/move out reports (SO many times I have used those reports to "prove" to an Owner, yes, it has been 10 years since you last painted!). Every single denied or incomplete app, or those where the applicant changed their mind at the last minute is also kept as a complete package, chronologically, in a series of "closed applications" folders.
Assuming you have not actually been discriminatory over time, you will build up a great defense in written records that can be easily produced for your hearing. The more units you are working with, the larger, and more clear, the pool of evidence (one way or the other!). I use a cover sheet for each application package when I initially process them, where I record the results, and/or comments, from various investigations...court records, credit report, payroll and savings info, and anything else. My contemporaneous notes on that worksheet will illustrate the decision process. The underlying documents that complete the package support the handwritten notes. Easy Win.
As to overall screening processes, I look at all available supporting documentation looking for Bad Habits, vs. any single element for a go/no go decision.
- 3yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Richard F. so how long are you keeping your applicants file? I get tons of calls and a few applications. But tenants move on to buy their own place, move out of state etc and I shred their info.I do keep a list of those inquiring and if they were turned away why, also any declined applications but approved and gone for years seems overkill.
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3y
It probably is overkill, but it protects me/my office from false FH claims. As an investor, if you have only a handful of units, or maybe dozens, you should keep them all for the same reason. For currently active property files, we have no reason to purge anything, as they provide a clear, chronological record of everything...repairs, replacements, conditions (including photos), Tenant communications, Owner communications, insurance renewals and claims, etc. The Tenant application is just a small portion of what is maintained. We have properties that the company has managed continuously for over 20 years, with complete files. Financials and emails are all on computer files, but correspondence, contracts, and all of the miscellaneous documentation is hard copy. Every year, I find myself researching some of those records to find an answer to a question.
As to the denials and incomplete applications, I keep all of them. They are equally as important to defend a FH claim as approved apps, in my opinion. To be clear, I have never had a formal complaint, but do know Agents that have. These can be very difficult if you have no records to prove your lack of bias.
One additional reason for keeping denied apps, is that Equifax randomly requests copies of authorization signatures for credit reports we have pulled. Usually this is within six months of the specific report, but is a requirement.
It is important to keep these records under lock and key, and, if storage space is an issue, simply pare down to a comfortable level or archive the records in a storage facility. You should have a minimum retention period for all records, generally 7 years for tax related items, but other records that impose a responsibility may need to be kept indefinitely. Some can be purged in only 3 years.
For properties that are no longer managed, files are archived in storage. Annually, some of those records do get purged after the minimum retention period.
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