When it comes time to rent to a new tenant, there is a lot to take care of. Everything from applications and fees, to credit checks, to background checks, and more will have to be dealt with before renting to the perfect candidate.

Of course, unlike the old days when you could just rent to anyone based on whether you felt they were a right fit in your gut, landlords, and property management companies now have to follow a wide and sometimes complex set of regulations. Among the most important are the regulations pertaining to the Fair Credit Reporting Act, and the Equal Housing Opportunity Act.

What is an Adverse Action Notice?

An Adverse Action Notice is a letter that is required by federal law which tells someone that they are being denied or conditionally accepted for residence based on information provided from a credit report or background check.

The letter must be given to any rental applicant on whom a credit report or background check has been run and the landlord intends to either:

  • Deny for rent
  • Alter the terms of the lease agreement for in order to accept them as your tenant

When is an Adverse Action Notice Needed?

While applicants who have been turned down for the rental should receive this notice, landlords or property management companies are also required to provide an Adverse Action Notice to an anyone who is being accepted but have set additional conditions for that acceptance that you may not have set for other applicants.

A few examples of other instances that could require an Adverse Action Notice would be:

  • If the landlord is charging a higher deposit due to something found on the screening
  • If a co-signer is required due to something found on the screening

A Rental Applicant Can Be Legally Denied Based On:

  • Information found in their credit report – Landlords are allowed to set minimum requirements for credit scores, negative trade lines, or anything else found within their credit history.
  • Information found in their criminal report
  • Rent versus income ratio – If the applicant does not make enough money at their current employment position to adequately cover the debts they owe and rent every month, they are not a good choice for the rental property.
  • Prior evictions

Conclusion

Taking the time to properly provide a correctly formatted adverse action notice letter to each applicant who is denied (or who faces altered rental terms) can save you a great deal of headaches. It will also help you to build a professional reputation that will lead to you attracting a higher class or potential tenant, and reduce empty time for your units.