How do your rental criteria view judgments?

Question

I don't like the idea of accepting tenants with lots of outstanding judgments. My rationale is that if they already owe someone else money, I probably won't get paid if I end up evicting them and holding a judgment against them. With that said, a judgment is not an automatic no go under my rental criteria.

Would be great to learn how others have incorporated judgments into their criteria. Also useful to know is type of rentals you are managing. Thanks in advance!

Would be great to learn how others have incorporated judgments into their criteria.  Also useful to know is type of rentals you are managing.  Thanks in advance!

Joyce Tavares · Answer

I always look at the amount of the judgments and what they are for and how long ago the judgement was made.  Evictions are an automatic no, but judgments are not a issue if they have already been paid them or they don't amount to much.  I have had applicants who were not even aware that they had a judgment against them.   My main concerns are that they have good FICO scores, steady income, good references  and good rental history.

Michele Fischer · Answer

Peter, I have low income rentals.  I use a point system to rate applications.  They lose significant points for having judgments that are anything other than consumer debt or medical (I overlook those), and they lose more points if they owe more than $2K in judgments, to get to the magnitude.  I don't like to see utility company judgments or collection agencies that could be prior landlords.

Jeff B. · Answer

I prioritize:

• 30,60,90 day lates - - aka how the tenant is performing during the last 6 months
• last 6 months new collections
• comments from the last 2 landlords
• criminal cases
• civil judgements in the last 6 months

beyond that, you're looking to be judgmental imo

Bill Gulley · Answer

Judgments don't effect your rental property as it will in a purchase as that judgment can become a senior lien, so lenders will require them to be fully paid or released. A different matter.

Judgments can cause your tenant's bank account to get hit, they could lose their rent money causing a late payment or default in the lease.

I'm not sure how an accurate point system can be devised that would stand up in the event a tenant complained of a rental assessment (a judgment is enough for a denial) but scoring other matters between other applicants......I wouldn't go there.

Once you take aspects of your underwriting from a subjective side (having the ability to use your opinion on the matter) to an objective side, quantifying some matter, then you open the door to your system being fair and accurate and it won't be.

I say it won't be because multi million dollar programs can't meet that standard, MUELS, a mortgage underwriting system has kicks that can't evaluate objective matters, so I'm sure a landlord won't be successful when institutions with big bucks can't solve such problems.

That said, having some system certainly helps you determine applications on a consistent basis, it's a guide for you to remain fair in your assessment, in your mind so to speak. However, that system should be confidential and never made known to an applicant, No tenant is entitled to know how you arrived at a decision, they are only entitled to know what the decision is and, if it is based on credit, you need to follow the applicable credit disclosures.

My tenants went through basically the same hoops of a Fannie Mae 1003 loan application and made object decisions closely to loan underwriting requirements, ratios and asset evaluations that shows the ability to pay and the ability to stay out of bankruptcy while remaining employed.

Since you should be looking at applications on a first come first serve basis, it doesn't matter legally if you got the best tenant application the next day if the prior applicant passes the tenant requirements, they are then your new tenant. I know all landlords want to select the best applicant from a pile of applications, but if you do so, and in a timely manner, I suggest you not disclose other applications or your process as that can lead to problems, simply say it has been leased to a prior applicant, or, approve them as they are received which is best practice.

I have ignored medical judgments, by other landlords that is a quick "NO".

For those doing lease-options, beware that judgments must be paid prior to that buyer obtaining an equitable interest as a lien holder may have the right to encumber their assets, including that contract.....that may become know by filings, so pay attention. UCC filings can place liens upon assets held now or acquired in the future. :)

Elizabeth Colegrove · Answer

What class of rental do you have? We have class A tenants and get enough people with great credit that we would not accept outstanding judgments or evictions. With the right information bankrucpy and short sales have been accepted.

That being said my rule of thumb has always been, figure out the "true story" and than see if you can accept it! If you are okay with it great, if you are not, than disqualify them. We have a no eviction or criminal record so it makes it really easy!

Lauren Frost · Answer

It really depends on the type of property that you have. I currently manage homes in middle to high income areas where credit checks are not only warranted, but expected. If I see any judgement from any landlord, its an automatic "no". Even if the person doesn't have a judgement but they have been filed against in court for non-payment of rent within the last 3 years, I usually say "no" to that as well (with VERY limited cases of exemption). I really like the idea that @Michele Fischer has about using a point system and I completely agree that medical bills and regular consumer debt (car payment, credit cards that are not delinquent, etc.) isn't necessarily a reason to deny them automatically, but you want to make sure that they are making their payments on time and aren't up to their eyeballs in debt. I got started in the property management business with low-income housing, which used a completely different system all together. I would have never been able to find tenants if I checked credit scores or went off the basis of judgements, so in those cases it may be more risk involved. However, if the person had landlord judgements or chronically didn't pay their rent on time resulting in multiple court filings, the rule still remained the same.

Kimberly T. · Answer

Judgments aren't an automatic deal breaker for us, we just assess how much it is for and how recent it is.  Our primary criteria is their credit score, not all the little nitpicky details on their report, although having some bad recent stuff on their will cause us to decline them even if their score meets our criteria.

Jennifer T. · Answer

I haven't had it come up with a prospective tenant yet, but I personally have had collections put on my credit report twice that were totally unfounded and erroneous.

In one of them, the bank forced me to pay the $100 amount in order for me to close on my house.  It was a totally false charge, btw.  And then, I actually called the collection agency and left a dozen messages for them to please call me so I could pay off the collection.  No return call ever.  How is that for ironic?  I finally just two-day aired them a check with a letter in it to PLEASE deposit my check as soon as possible, so it would clear through my account asap.

And then, although that collection was then satisfied, it still showed on my credit report as unpaid until it finally dropped off two years later, because it was finally 7 years old at that point.

The point of my long rambling is, our current credit system is so inaccurate and such a ridiculous mess, that I would take most judgments/collections with a big grain of salt.  The only things I would even look twice at is if there are a significant number and/or a large amount owed.

Any evictions, whether on a credit report or not, is pretty much a no, unless it was way in the past (over 10 years).  Any evictions 3-10 years old, I might consider with either a substantial security deposit or prepaid rent.  But then I also live in a state where it is fairly fast and easy to evict someone for non-payment of rent.

Matthew Paul · Answer

For me it depends if the judgment is for them or against them .

Jeff S. · Answer

Judgments are a no no.

How do your rental criteria view judgments?

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