Real Estate Rental Background Check: Written Communication Required

Using a background check in the real estate sector is standard practice in the rental market. Landlords want to understand the individuals who wish to occupy their property, and some believe that a criminal record is a fundamental element to assess before signing a rental agreement. In conducting these checks, landlords may think they’re only exercising their rights — but those undergoing screening have rights, too.

Several federal government departments, such as the Federal Trade Commission, recently published guidance on this process. There is a growing concern that landlords may not fully understand or appreciate that their use of background checks subjects them to abiding by specific federal laws—laws that often have considerable penalties for violations. 

Simultaneously, there has been a trend among landlords in recent years to avoid written communication with tenant applicants in an effort to minimize potential liabilities. Denial of rental applications often occurs without a stated reason. The federal government reminds all property managers that doing so means potentially flouting the law.

Why is written communication so crucial for rentals?

Landlords must obey the Fair Credit Reporting Act (FCRA) when using a real estate background check, which the FCRA defines as a consumer report. The FCRA stipulates extensive regulations for written communications with applicants during the process, beginning with obtaining consent and notifying an individual of their rights. These regulations apply to all companies and extend into every decision-making step. 

This law prescribes that you must inform candidates of your intention to take adverse action against their application due to information obtained in a consumer report. Even if a candidate’s criminal background check was not the primary reason for your denial, you must still report it to the candidate as a factor. Failure to do so means breaking the law.

Giving adverse action notices

The Federal Trade Commission (FTC) and the Department of Housing and Urban Development (HUD) recently published statements reminding landlords that they can’t avoid or ignore adverse action notices. What does that mean? Here’s a quick overview of the adverse action process in a rental setting, beginning with your decision to deny the applicant.

• Provide a written pre-adverse action (declining the application) letter stating your intent and a copy of the consumer report. Applicants have a right to dispute their report.
• Wait at least five business days to evaluate any extenuating or supplementary information the applicant provides.
• If your decision remains the same, issue a final adverse action notice and include a further statement of the candidate’s FCRA rights.

Creating a compliant tenant screening process

To avoid potential civil lawsuits from maltreated candidates – or enforcement action from the government – landlords must provide written communication during the application process. The law is clear: you must give adverse notices if a report factored into your decision. 

While this adds extra steps for using a background check in real estate, you can choose tenants confidently in your compliance. Review your policy and procedures today and consider the value of a partner in the process. With no national criminal database, promptly acquiring records is essential.

Unfortunately, backgroundchecks.com can no longer offer services for tenant screening or related credit reports, effective September 2024. Because of the rapidly growing and diverse regulations in the sector, we opted to focus on our core offerings going forward.