No, this is not some new fangled material for your three season porch to keep the mosquitoes out!

This is a new technique that some associations are using to manage the flow of tenants into their buildings and neighborhood.  Here is how it works:

• All building owners agree to collective tenant screening.   Occasionally, the association may require this via a covenants or rules change.
• When you have a vacancy, you notify the association.  You still do all the showings and advertising yourself, but when you get a prospective tenant that is interested in your property, this is where things changes compared the typical screening process.
• The prospective tenant fills out an application.  That application is actually sent to either the association management company for the credit, criminal, and housing checks or you do it yourself.
• If you wish to rent to this tenant, that application is then reviewed by an association board that looks at the application to see if the tenant meets the neighborhood standards.
• The board votes if they will allow you to rent to this tenant.

A slick part of this process is that the association keeps a running list of all tenants that have ever lived in the property.  This prevents bad tenants from moving from one building to the next in same neighborhood, which can often happen because the neighboring landlords were not talking or comparing notes.

Additionally, this association group can do a better job of seeing through the tenant application faleshoods.  I have seen this problem frequently, where Jane gets evicted from 1500 Main Street for lease violations such as criminal activity or bad behavior.  Interestingly, Suzie applies for and gets accepted on an apartment at 1520 Main Street, but does not disclose that Jane will be living with her (basically moving the problem down the block).

While this process may not work in all associations, it can be very effective where there are consistent tenant problems.  It can also have a big impact where the density of housing units makes one problem tenant frustrating for all the residents.

As I mentioned in a previous post, the Minnesota State Legislator passed a set of new laws that are being called the Tenant’s Bill of Rights.  The Minnesota Multi-Housing Associations represented all landlords and help the authors tweak and streamline the bill to lessen any undue impact on landlords.  We thank them for that as most of the items are simply clairifications of how we already do business as landlords.

One important section is worth exploring in more depth.  There were many shady things happening with screening fees and how tenant applications were being reviewed prior to this law being enacted.  This law cleans up any areas for abuse or discrimination against the tenants.  Here are some of the major points (these only apply when a landlord charges an application fee):

• A landlord may not collect or hold a tenants’ application fee without providing a written receipt for the fee if the tenant’s asks for it.  This seems pretty easy and obvious.
• The landlord may not cash, use, or deposit the application fee until all prior applicants have either been screened and rejected or they have been offered the unit and they have declined to take the unit (did not sign a lease).  This is a significant change as it was a previous unwritten rule to screen one applicant and only take that money until you have exhausted all options with that applicant, then move onto the second application.  Some landlords were cashing all the application fees, running all the tenant applications and picking the best one.
• A landlord must return the application fee if the prior applicant is offer the unit and accepts; subsequently entering into a lease agreement.  You can’t keep the application fee.
• You must disclose to the tenant, in writing, prior to taking the application or fee the criteria that your rental decision will be based upon.  I have been doing this for many years as it was required in certain cities, but this becomes a statewide requirement.
• If you reject a tenant application, you must notify the applicant within 14 days of that rejection as well as identifying the criteria that the tenant failed to meet (you should be citing something on the above written application screening criteria).  If you are rejecting the applicant for something that is not on the screening criteria document, you must return all their application fee.
• A prospective tenant who materially provides false information or omits information on the application is liable for damages, plus a civil penalty of up to $500, plus court costs.  I am not sure how this one is going to be regulated or tracked, but it could be interesting if some applicant lies to you and you can prove it.

These are some small, but important changes to how we as landlords run out investment properties.  You should make sure you thoroughly understand these.

On May 11th, Governor Pawlenty signed a new bill into law.  Although the official name is HF2668, most are calling it the Tenant Bill of Rights.  It is the first change to landlord/tenant regulations and law in over a decade.  As a landlord, you should be aware of these changes as some will come as a surprise.  Some are tougher rules, more are neutral and others are simply clarifying unwritten rules and rumors we all assumed were true.  Most of these changes go into effect on August 1, 2010:

• Tenants living in homes in foreclosure will have the right to stay in the property until the end of the term of their lease or 90 days, which ever is longer.  This brings state law inline with current federal laws.
• Property left behind by a tenant had to be stored by the landlord for 60 days.  This has been changed to 28 days, but now a landlord can be held liable for disposing of the property early in the amount of triple the damages or $1000, which ever is greater.
• Not returning the proper amount of security deposit at the end of the lease has a penalty that is not at $500, up from $200 previously.
• Division of Utility Costs is not very common from what I have seen, but now if the tenant can prove that the landlord has improperly divided the utility costs, the landlord is liable to the tenant for triple the damages or $500, whichever is greater.
• If tenants can be forced to pay Attorney’s Fees if they lose a court case and your lease contains that language; now, if the tenant wins, they can force the landlord to pay the attorney’s fees also.
• Tenant Screening Fees and Criteria have changed. While I thought most of this was already law, it appears they have clarified it further:
  • The landlord must use a clear and consistent screening process for all applicants.
  • Landlords much provide the criteria in written form upon which they will screen applications, prior to accepting and screening fee.   It is thought that if they read the criteria and see something that will disqualify them, they may not then chose to pay the fee and apply.  [In my experience, they will apply anyway!]
  • You must process applicants in sequential order as you cash their check or take their money.  You may NOT take all the applicants money, process all of them and then compare the applicants choosing the best one (and keeping all the money).
  • If the tenant is reject for any reason other than what was specified on the written screening criteria form, the landlord must return the application fee.
• Tenants that knowingly provides materially false information on the application or omits information can be held liable to the landlord for damages plus a civil penalty of up to $500, court filing fees, and attorney fees.  Not sure how you prove this or get the civil penalty charged against them.
• Tenants must be given a receipt if they pay with cash.
• Late fees will now be capped at 8% of the rental amount. This provision begins on January 1, 2011.  You can not charge daily late fees either.

Make sure to start integrating these new changes into your leases and tenant screenings.  You do not want to be the first test case for this new law!