As a landlord, you can legally reject applicants that don't meet your tenant qualification criteria, providing that these criteria are not in conflict with federal, state or local fair housing laws. In addition, you must comply with laws that govern background and credit checks, as well as the refund of application and holding deposits.
Understand the Law
You cannot legally reject a rental application because of an applicant's race, color, nationality, religion, family status, sex, or disability. Doing so violates the federal Fair Housing Act. Some state and local laws add classes of people to those protected by fair housing regulations. For example, California makes housing discrimination on the basis of marital status or sexual orientation illegal. Review all applicable fair housing laws before you begin to seek tenants.
Establish Business Standards
Landlords are free to reject rental applications for legitimate business reasons. You have the right to set financial standards for tenants, including requiring applicants to have a job, meet income requirements and have good credit. Other common standards include the requirement that the tenant have good references from previous landlords and no criminal background. To prevent lawsuits from disgruntled applicants, Nolo.com recommends consistency in applying your criteria to tenants. For example, if you reject an applicant solely because she recently filed for bankruptcy, maintain that standard for other tenants.
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Comply with Background and Credit Check Laws
The federal Fair Credit Reporting Act governs your use of third-party credit checks and background screenings when choosing tenants. You must obtain permission from the applicant before authorizing a third-party to perform a tenant screening. It is legal to reject an application because of the information uncovered in a credit or background check, but you must notify the applicant that the background or credit check was a factor in your decision. You must also provide the applicant with a written notice that includes contact information for the credit or background check company and information about how the applicant can get a free copy of their credit or tenant screening report.
Refund Application Deposits
Some landlords charge application fees and holding deposits when a tenant applies for housing. Application fees usually cover the cost of evaluating an application and performing a tenant screening. Landlords request holding deposits to ensure that the applicant is serious about moving into a rental unit. In many states, application fees are non-refundable, even if a landlord rejects the application. In California, however, if there is a difference between the cost of the application processing and the application fee, the landlord must refund the balance. Some states, such as Texas, mandate the refund of the holding deposit within a specified period of time. Review the laws in your area and develop a process for refunding fees and deposits promptly.