Landlord Advice, Tenant Advice, Tenant Screening

Should You Care About Your Tenant’s Source of Income?

tenant screening

Most of us tend to do it without even noticing.  When either making conversation, reviewing a resume, or meeting someone for the first time, when we learn what a person does for a living, we immediately start developing thoughts and perceptions about the person.  We live in a society that places a great deal of value on what one does for a living.  The question is, when evaluating applicant’s for your rental property, should you care what your tenant does for a living or where he or she receives their source of income?  While the Fair Housing Act, the law that sets the framework for housing discrimination, does not offer protection to tenants based on their source of income, more and more states and local governments are adding that protection to their own fair housing rules.  As a landlord or property manager, you need to be aware of these discrimination laws and regulations to make sure that your own unconscious biases do not put you in a bind.

For instance, a city in New York recently passed a law that requires landlords to consider rental applicants on government assistance and other forms of income.  In Pennsylvania, another city is debating a similar measure. More than a dozen states and several dozen county or municipal governments already have enacted laws prohibiting source of income discrimination.

Some of these laws specifically define types of income that cannot be the bases for denial, such as child support, alimony, Social Security benefits, disability, worker’s compensation, unemployment insurance, and law suit settlements.  Section 8 vouchers, however, are an area of deep divide.  Section 8 is the federal housing subsidy program that helps families living around the poverty line to afford monthly rent.  In some cases, federal Section 8 voucher holders cannot be discriminated against. Others, however, such as the statewide rules in California, do not include the Section 8 program.

These rules and regulations regarding income discrimination, however, are not limited only to state laws.  On the federal level, the Office on Housing and Urban Development (HUD) recently issued a blanket ban on rental applicants with any criminal history unfairly targets minority tenants. It is possible that the preponderance of tenants who receive government assistance are minorities, women and tenants with disabilities. Therefore, it is not inconceivable that HUD will take a similar position that rejecting tenants due to source of income may be discrimination based on race, national origin, gender, family status, or disability — all protected classes under the FHA.

Property managers and landlords that currently rely on tenant screening reports, and specifically the sections that identify the applicant’s source of income, need to pay close attention to these rules and regulations.  Obviously, there are countless reasons to reject an applicant due to the source of their income.  Perhaps the most common is the increased regulation that comes with accepting a government program such as Section 8. Inspections are rumored to be onerous, the lease agreement may need alteration, and eviction of these tenants can take longer.  Consequently, you may find it just easier in the long-run to avoid renting to Section 8 voucher holders.

But it’s important for both landlords and property managers to be aware that when source of income statutes have been challenged, most courts have ruled that mere “inconvenience” on the part of the landlord or the property manager is in itself insufficient to warrant a rejection of tenants who receive some form of state, local or federal housing assistance.

On the other hand, housing assistance is itself a booming industry.  Property management companies that specialize in affordable housing tout the benefits — a steady stream of prospects to fill vacancies, stable income that is not affected by business closures, and high tenant retention. However, voucher programs remain controversial because some landlords experience delays in payments or other bureaucratic headaches.

Another controversy stems from frequent tenant complaints over the condition of the property. Tenants on vouchers often feel that landlords tend to neglect these properties, while landlords say tenants do the damage, or that they can’t afford to make the litany of upgrades required by HUD.

Because this appears to be an emerging trend, landlords may want to consider how to screen tenants who are on government assistance in order to avoid costly penalties for discrimination.

The best way to avoid discrimination in tenant screening is to treat all rental applicants the same:

The rental ad should not identify any “ideal” tenant but rather describe the property so that individual applicants can decide for themselves. There should be no prohibitions against any particular group, including those on government assistance.

The rental application should not be framed so as to benefit some but not all applicants. Do not create the impression that income must be from employment.

When offering tours and managing the rental property, it’s important not to treat tenants differently or to intimidate any individual tenant.

Regardless of the source of tenants’ income, a rental property must be kept in good condition to avoid injury, loss of property value, and tenant complaints.

Tenants on assistance tend to stay long-term. It’s important to contemplate that in the lease agreement. For instance, work out how routine repairs and updates are to be made, and provide for regular property inspections. Long-term tenants build a strong emotional connection to the property and other tenants, so it’s not a good practice to ignore tenant concerns. A disgruntled tenant quickly can draw in others. This phenomenon can work to the landlord’s benefit — tenant retention improves where tenants are allowed opportunities to build a sense of community.

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