One of the worst hazards to navigate happens before a tenant even signs a lease: rejecting a rental application. If your pre-screening process is pretty stringent, this may not be as much of a problem- but, every now and again, it happens and handling it the right way is pretty important.
Everyone deals with this in different ways, depending on the situation. Some might choose to send a reason for rejection letter, while others may not. There are a number of property management firms and landlords who are now sort of reaching a middle ground on this- and offering to provide that reason for denial if the applicant asks for it in writing.
For the most part, though, you do not have to provide this. There is however, one situation in which you absolutely have to provide the rejected tenant with what’s known as an adverse action letter. This involves the Fair Credit Reporting Act.
If in the course of your screening, you have determined something within the applicant’s credit report is the reason for your rejection” then you do need to let them know that they were denied, even in part, by something you obtained from their credit report. This notice has to have certain pieces of information. (No, you cannot just send them a note saying, “Your credit stinks, sorry!”)
Drafting an adverse action notice will require the following information:
- Name, address and telephone contact information for the credit agency in which you got the credit report from. (ie: TransUnion, Equifax, etc)
- Something that says the credit reporting agency didn’t influence your decision to reject their application.
- A paragraph advising the applicant that they have a right to dispute the correct/completeness of said information, and that they have a right to get a free copy of that credit report within 60 days from the agency.
You don’t have to include any reason you did deny their rental application- but it can tell them that at the very least, part of that reason was because of something you found on the credit report. Here’s where things get tricky and you might want to consider a lawyer if you intend to give rejected applicants reasons: if you cannot legally justify the reason behind your rejection- don’t give it. Whenever you do give a rejection letter, you have to remember that this puts exactly what you mean in writing- and act accordingly.