When are denial letters required?

Question

Hi Everyone 
I'm new to BP so I hope it's ok to jump in and ask a related question here. I own 3 rental townhomes and my primary residence. I recently received an application with no fee via fax. If there are no reasons to decline based on the info indicated and a google search on the applicants I would request the fee for the background and credit check, and then order the report. I do it this way to help save the fee for the prospective tenant.
It turns out that one applicant has a prior eviction and the co-applicant has prior judgments( I found this info via google) There were also blanks on the application and some inconsistencies on the info received. 
I advised one applicant on the phone that I was unable to move forward with his application. He said he understands. But I received a call from the co-applicant later that afternoon demanding a denial letter in writing. (Along with my policies) 
Am I required to issue a denial letter in writing under the fair housing rules or fair credit rules? I was planning to make record of reason in my file just keep all of the support in case it is ever needed. Does it matter if i did not receive an application fee?  Your thoughts and suggestions are greatly appreciated. 
Thank you in advance. 
Alex

Mike Hurney · Answer

Hey Alex S,
There's a huge amount of misinformation on this topic. Everyone tells you what to do and how BUT you'll be left "holding the bag", so to speak, when you step on the wrong landmine (like the MCAD Mass Commission Against Discrimination) here in Massachusetts of course.

IMHO I would interview several local Property Management firms, having them cover liability, discrimination, defamation, etc. for your own property. Eventually generating your own guidelines and procedures, of course. By the way, when you have someone that may need PM (older Landlord you might know) refer them to that company that was most helpful.

Also go to the Housing Court and hear some of the cases (Do Not be discouraged and get out of the business then;-)
Finally have a short consultation on your paperwork with an Eviction Attorney.
Good Luck Investing, Mike

Uwe K. · Answer

The fee should be mostly irrelevant (but see also notes below) to your decision whether a letter is required or not. There are places that do not require a fee, for example. Also, I take a fee, but sometimes refund it if I see disqualifying factors (resulting in a denial) before running the credit check.

I am actually not sure of the legal requirement, and it may depend on your state, too. In WI, for example, you are not required to give the reason for denial. As a default, I always send a letter and then state a reason (or the main reasons, as sometimes you have a whole book of reasons ;)

I also reserve the right to deny an app simply because it is not complete. And not paying the fee means not complete. So if you have that, then the fee could become relevant as a reason, if you wish to use that.

The tenant asking for policies could be a red flag. It is always advisable to have a written policy and actually give that with the application forms. That way they cannot complain if they are being denied because of an eviction last year, since it was stated clearly. You are not required to have a written policy, but it's like an insurance. For example I heard of a landlord in the area who only rented to people with a certain min. income that was quite high. One day he denied a couple with kids, based on the income only. They sued for discrimination because of the kids, and they won. It came out that in the past, his tenants always happened to be couples with no kids (coincidence) and he could not provide a written policy that established a history for his reasons.

I am not saying you have that problem, but you have to check your state laws to see what's required. Otherwise, I would just send him (or both) a denial with the reasons (eviction), and don't bother about he policy. Did you state in the listing or somewhere else "no evictions?" You could refer to that.
Or you write up a brief half page list of bullet points with potential reasons for not approving and call it policy and send it (and use it in the future, too).