Key takeaways
- Some landlord-tenant laws in Texas outline specific requirements in the tenant screening process that homeowners should know about.
- Texas screening laws require transparency throughout the screening process, which is why applicants must be fully informed of the screening criteria.
- Homeowners in Texas must also refund the application fee if they fail to provide the screening criteria in writing.
- Homeowners in Texas and other states must follow the Fair Housing Act and avoid discriminatory practices.
The task of managing your properties comes with the challenge of ensuring that your residents are reliable, trustworthy, and able to pay rent promptly. This is where tenant screening comes in. However, landlord-tenant laws can vary depending on your location. If you have properties in the Lone Star State, it’s important to be familiar with the various Texas screening laws to stay compliant.
This blog takes a closer look at the nuances of the tenant screening process in the state of Texas and what property owners need to remember to remain compliant with the state’s landlord-tenant laws.
Basics of tenant screening
The importance of tenant screening for the health of a rental business matters whether you’re a seasoned investor possessing a multi-property portfolio or a newbie homeowner starting out with just one rental. Proper rental applicant background checks weed out residents who won’t be able to take care of your property or will struggle to make rent payments. In a study conducted by the Harvard Joint Center for Housing Studies surveying 2,500 homeowners, it was found that smaller and mid-sized landlords experienced a higher number of rent arrears in 2020. This suggests the urgency of conducting a thorough screening process of rental applicants to avoid any disruptions to the business.
Before honing in on the nuances of Texas screening laws, we outline some steps of the rental applicant screening process that no homeowner should skip!
Credit history
A credit report contains valuable information about a prospective renter’s financial behavior, which gives you an impression of how well an applicant will be able to pay rent. Typically, credit reports will contain the different credit accounts that an individual has, any monthly payments they have to make, and bankruptcies that they’ve filed in the past.
Although a credit check is definitely an important part of the tenant screening process, it’s important to consider that this data alone will not be able to tell you if an applicant is qualified or not. Findings from a study conducted by the Consumer Financial Bureau analyzing the current state of the tenant screening industry even suggest that only a weak link exists between a renter’s credit score and their likelihood to pay rent. This means that each applicant must still be screened holistically, taking into account various aspects of their background and financial standing.
Income verification
One common dispute that arises during a tenancy is late payments. Hence, it’s important to take the necessary steps to confirm during the screening process if an applicant has a stable source of income that will enable them to consistently pay rent. Conducting an employment and income verification can validate their stability and give you a comprehensive overview of whether or not your applicant’s financial standing aligns with your property.
A reliable employment and income verification process takes a look at any documentation that an applicant can provide and confirms this information with their employer. Some documents that can be helpful during this step include an applicant’s paystubs (at least 3 months’ worth), a W-2, and even bank statements.
Next, your process should include confirming these references with the employer that a prospect has listed in their application. There are a number of ways to go about this, such as reaching out to the employer directly or requesting a salary verification letter which should contain evidence of how much an applicant makes.
Criminal background and rental history
Two aspects of a renter’s profile must be carefully considered to make the most appropriate decisions for your rental business: criminal background and rental history. These two records will reveal any patterns of behavior that could raise any potential risks to your business, and even to the community around you.
As part of the tenant screening process, it’s important to take note of any criminal offenses an applicant has been charged for and if they’ve been evicted from their previous rentals. You might be able to determine any patterns of behavior that could suggest that they might break your lease terms during their tenancy.
However, it’s important to note that eviction history and criminal records should not be the only defining factors when it comes to your decision. Apart from assessing each facet of a prospective applicant’s profile, it’s also essential to understand the context of any offenses or evictions that you see on their record. It’s also wise to read up on relevant Fair Housing Act regulations related to screening applicants with criminal backgrounds to ensure that you remain compliant and avoid any discriminatory practices.
A thorough tenant screening process should be able to give you a clear picture of the type of residents you’ll be placing in your rentals. However, if you’re a homeowner with properties in the Lone Star State, then there might be some Texas screening laws that you need to be aware of.
Understanding Texas screening laws
The process of screening and selecting the right resident typically involves the steps that we have outlined above. However, being an efficient homeowner also entails familiarizing yourself with the screening requirements specific to the state you’re in. Texas tenant screening laws require you to be explicit about your rental application process to ensure that selection criteria is communicated to applicants clearly. This minimizes the risk of an applicant paying for application fees for properties that they have no chance of qualifying for. The Texas rental application guidelines also have stringent measures surrounding the application fees and deposits which we will go through in-depth.
Is there a cap on the amount I can charge for an application fee?
Texas screening laws do not indicate a maximum amount for the application fee. However, it is advised that you charge an amount that will cover the entire screening process. Typically, applicants in Texas can expect to pay $15-$50.
However, it’s important to note that the guidelines for this state differentiate between an application fee and application deposit. The main difference between the two payments is that the application fee is nonrefundable since it covers the cost of the tenant screening process. However, the application deposit is usually charged to hold a certain property and can be refunded if the application is rejected.
In what situations can an applicant request a refund of their application fee?
Under Texas screening laws, the application fee must be refunded if you failed to provide your screening criteria in writing.
The state’s landlord-tenant laws also require homeowners to include a clause in their rental application that ensures that an applicant has read and understood the screening criteria. The American Apartment Owners Association (AAOA) provides this example of a clause you can include in your application form:
“Signing this acknowledgment indicates that you have had the opportunity to review the landlord’s tenant selection criteria. The tenant selection criteria may include factors such as criminal history, credit history, current income, and rental history. If you do not meet the selection criteria, or if you provide inaccurate or incomplete information, your application may be rejected and your application fee will not be refunded.”
Failure to refund the application fee and application deposit in this instance can lead to consequences. If an applicant is able to prove that you acted in bad faith and refused their refund, you may be held responsible for $100, three times the amount due for a refund, and the applicant’s attorney fees.
What are the legal reasons for rejecting an application?
The Texas Tenant Advisor cites “criminal background, rental history, income, or credit score” as reasons why a homeowner can reject an application. Fair Housing Act guidelines also apply, emphasizing that homeowners cannot reject applicants based on race or color, religion, sex, national origin, familial status, or disability.
In line with this, Texas law also requires co-applicants to be rejected as a unit. This means that if a group of renters are applying as co-applicants for a property, rejecting one of these applicants means that you’re rejecting the entire group.
Is there a required turnaround time for applications?
Texas landlord-tenant laws do not indicate a strict timeline for the processing of applications. However, homeowners are only given seven (7) days to respond to applicants after they’ve sent in their application. Once the seven days have passed after they’ve sent their application or you’ve collected the application deposit, the application is considered rejected.
Although Texas screening laws can be complex and nuanced, it’s still your responsibility to study these guidelines. In this way, you can avoid lawsuits and place qualified residents in your properties. By adhering to these laws, you’re also creating a fair and streamlined screening process that will benefit you and your prospects.
Protecting your business from discrimination lawsuits
Applicants in the state of Texas are also protected by the Texas Fair Housing Act and the U.S. Fair Housing Act. These guidelines help protect prospects from possible discrimination and give everyone a fair shot at finding a place to live, regardless of their background. The Texas Workforce Commission (TWC) outlines the Fair Housing Act on their website.
Bottom line
Understanding the nuances of tenant screening laws in Texas is crucial for maintaining a compliant and fair rental process. By being knowledgeable about Texas screening requirements, you can avoid legal issues, discrimination lawsuits, and ensure the selection of qualified tenants for your properties. Key considerations include transparently communicating selection criteria, charging appropriate application fees, and adhering to legal reasons for rejecting an application such as criminal background, rental history, income, and credit score.
To avoid legal pitfalls in the tenant screening process, consider working with a tech-enabled property manager like Poplar Homes. Our automated screening process eliminates the need for manually going through your applicant’s records and forms.
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