1. The Tenant Application Process Presented by Abby Lee, Senior Associate Counsel February 17, 2016

2. Webinar Outline The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fees & Application Deposit Tenant Selection Criteria and Acknowledgement Photo ID Accepting or Rejecting a Tenant

3. Overview of Lease Application Process 1. The Applicant is provided with a rental application.

4. Overview of Lease Application Process 1. The Applicant is provided with a rental application. 2. The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy.

5. Overview of Lease Application Process 1. The Applicant is provided with a rental application. 2. The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy. 3. Applicant must then sign an acknowledgement indicating the notice was made available.

6. Overview of Lease Application Process 1. The Applicant is provided with a rental application. 2. The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy. 3. Applicant must then sign an acknowledgement indicating the notice was made available. 4. The Landlord will the process the applications internally or send them to a tenant screening agency.

7. Overview of Lease Application Process 1. The Applicant is provided with a rental application. 2. The Landlord makes available the printed notice of the tenant selection criteria and grounds for denial to the Applicant, as well as the Landlord’s privacy policy. 3. Applicant must then sign an acknowledgement indicating the notice was made available. 4. The Landlord will the process the applications in-house or send them to a tenant screening agency. 5. Finally, the Applicant is either approved or rejected as a tenant. If approved, the Landlord and Applicant enter into a lease agreement. If rejected, the Landlord has certain obligations…

8. The Lease Application What is it?

9. The Lease Application The Texas Property Code defines a “rental application” as a written request made by an applicant to a landlord to lease premises from the landlord.

10. The Lease Application TAR form 2003

11. The Lease Application When discussing the TAR Residential Lease Application, some key issues are… Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fee & Application Deposit Tenant Selection Criteria & Acknowledgement Photo ID

12. The Lease Application: Age Under the TAR Residential Lease Application, each occupant and co-applicant 18 years or older must submit a separate application. Why? You should know whether the occupant poses a risk to the landlord, particularly if the occupant has a prior criminal record or a bad rental history.

13. The Lease Application: Authorizations The TAR Residential Lease Application contains two different types of authorizations:

14. The Lease Application: Authorizations The TAR Residential Lease Application contains two different types of authorizations: 1. Page 3 – “Authorization”

15. The Lease Application: Authorizations The TAR Residential Lease Application contains two different types of authorizations: 1.Page 3 – “Authorization” 2.Page 4 - “Authorization to Release Information Related to a Residential Lease Applicant”

16. The Lease Application: Authorizations

17. Webinar Outline The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fees & Application Deposit Tenant Selection Criteria and Acknowledgment Photo ID Accepting or Rejecting a Tenant

18. The Lease Application: The Credit Report What is a credit report ?

19. The Lease Application: The Credit Report A credit report, or consumer report, means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s: Credit worthiness Credit standing Credit capacity Character General reputation Personal characteristics Mode of living

20. The Lease Application: The Credit Report How is credit reporting regulated?

21. The Lease Application: The Credit Report Credit reporting agencies are regulated by the Federal Trade Commission (FTC) under the Fair Credit Reporting Act (FCRA). FCRA was created to protect the privacy of consumer report information and to guarantee that the information supplied by credit reporting agencies is accurate.

22. The Lease Application: The Credit Report What does credit reporting have to do with the lease application process?

23. The Lease Application: The Credit Report It’s everywhere in the lease application process Where?  Texas Property Code § 92.3515(a) - Grounds for denial of an applicant may be based on an applicant’s credit history.  TAR’s Model Tenant Selection Criteria – Landlord will obtain a credit report to verify an applicant's credit history  TAR Residential Lease Application – Asks about the applicant’s credit problems & authorizes a landlord to obtain a copy of the credit report.

24. The Lease Application: The Credit Report What are different ways a landlord can assess an applicant’s credit? 1.Credit reports from a credit reporting agency, or credit bureau, like Trans Union, Experian, and Equifax; 2.Reports from a tenant-screening service that contain rental history and/or credit history; 3.Reports from a reference-checking service that contacts previous landlords or parties listed on the application.

25. The Lease Application: The Credit Report What does the law require when a landlord requires a credit report in the lease application process?

26. The Lease Application: The Credit Report 1.A landlord should obtain an applicant’s written authorization to run a credit report. The TAR Residential Lease Application contains an authorization allowing the Landlord (or agent) to obtain a copy of the applicant's consumer report.

27. The Lease Application: The Credit Report 1.A landlord should obtain an applicant’s written authorization to run a credit report. The TAR Residential Lease Application contains an authorization allowing the Landlord (or agent) to obtain a copy of the applicant's consumer report. 2.If the landlord rejects an applicant based solely or partly on information obtained from the credit report, the landlord must inform the applicant and provide certain required information (“Notice of Adverse Action”). TAR form 2212, Adverse Action Notice and Credit Score Disclosure complies with the FCRA requirements.

28. The Lease Application: The Credit Report What does adverse action mean?

29. The Lease Application: The Credit Report An ‘adverse action’ is any action by a landlord that is unfavorable to the interests of an applicant, which includes: denial of an application; requiring a co-signer on the lease; requiring a deposit that would not be required for another applicant; requiring a larger deposit than might be required for another applicant; and raising the rent to a higher amount than for another applicant. Under the Fair Credit Reporting Act, a landlord must provide a “Notice of Adverse Action” to an applicant who is rejected based in whole or in part on information obtained from the applicant’s credit report.

30. The Lease Application: The Credit Report If the landlord sends the applications to a tenant screening agency, their service may include a written notice of denial. If the landlord or property manager processes the applications in- house, the landlord or property manager should prepare a notice of adverse action to be sent to applicants denied solely or partly because of their credit report. TAR form 2212 satisfies this.

31. The Lease Application: The Credit Report If you do not use TAR form 2212, what must the landlord provide the applicant? 1.Oral, written, or electronic notice of the adverse action; 2.Written or electronic disclosure of the applicant’s credit score used in taking any adverse action, range of possible credit scores, key factors adversely affecting the credit score, the date the credit score was created, and the name of the person or entity that provided the credit score; and 3.Oral, written, or electronic disclosure of the following information: The name, address, and telephone number of the credit reporting agency that furnished the report, including a toll-free telephone number established by the agency if the agency compiles and maintain files on consumers on a nationwide basis; A statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; Notice that the applicant has a right to obtain a free copy of the credit report by contacting the credit reporting agency which furnished the report within 60 days; and Notice that the applicant has a right to dispute the accuracy or completeness of any information in the credit report with the consumer reporting agency that furnished the report.

32. The Lease Application: The Credit Report Liability for failure to comply with Fair Credit Reporting Act: Actual damages (in some cases no more than $1,000), Court costs and reasonable attorney’s fees, and Punitive damages. Landlords might be subject to other actions depending on the circumstances by the Federal Trade Commission, other agencies, or even the state.

33. Webinar Outline The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fees & Application Deposit Tenant Selection Criteria and Acknowledgement Photo ID Accepting or Rejecting a Tenant

34. The Lease Application: Privacy Policy & Business Records What do you do with the information provided in a lease application or other documents, like a credit report?

35. The Lease Application: Privacy Policy & Business Records A person may not require an individual to disclose the individual's social security number to obtain goods or services from or enter into a business transaction with the person, unless the person: 1)adopts a privacy policy; 2)makes the privacy policy available to the individual; and 3)maintains under the privacy policy the confidentiality and security of a social security number disclosed to the person. The policy must include: how the information is collected; how and when it is used; how it is protected; who has access to the information; and the method of disposal. If you are using TAR’s Residential Lease Application, you must have a privacy policy in place because the application requests the applicant’s social security number.

36. The Lease Application: Privacy Policy & Business Records TAR 2003, Residential Lease Application TAR Model Privacy Policy

37. The Lease Application: Privacy Policy & Business Records Failure to comply with any of the requirements could result in a civil penalty not to exceed $500 for each month during which a violation occurs (however, this penalty may not be imposed for more than one violation that occurs in a month) or the attorney general could bring an action to enjoin.

38. The Lease Application: Privacy Policy & Business Records What if you are not using the TAR Model Privacy Policy? Can a landlord receive a copy of applicant documents, like credit reports or applications, if a property manager is authorized to maintain those records? Property managers are free to discuss pertinent information related to a tenant with a landlord, particularly during the application process. There are other considerations, however, a property manager may want to take into account, even if not using the TAR Model Privacy Policy: Credit reporting agencies may have additional limitations? Does the landlord also need a privacy policy? Is the landlord equipped to protect this information and dispose of it securely? These considerations might make it less appealing to provide actual copies of documents to the landlord.

39. The Lease Application: Privacy Policy & Business Records How long should you keep applicant information?

40. The Lease Application: Privacy Policy & Business Records TREC requires that the following records be kept for a minimum period of at least four years from the date of closing, termination of a contract, or end of a real estate transaction: Disclosures Commission agreements such as listing agreements, buyer representation agreements, or other written agreements relied upon to claim compensation Work files Contracts and related addenda Receipts and disbursements of compensation for services Property management contracts Appraisals, broker price opinions, and comparative market analyses Sponsorship agreements The Model TAR Privacy Policy provides that written files are protected under lock and key and electronic files are protected by name and password.

41. The Lease Application: Privacy Policy & Business Records What is the proper way to discard this information?

42. The Lease Application: Privacy Policy & Business Records Both state and federal law require that when a business disposes of records, the business must take appropriate or reasonable measures to protect against unauthorized access to sensitive consumer information.

43. The Lease Application: Privacy Policy & Business Records Under the federal Fair and Accurate Credit Transactions Act (FACT Act) and the rules of the Federal Trade Commission adopted under the FACT Act, any person who maintains or otherwise possesses consumer information for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal. “Consumer information” means any record about an individual that is a consumer, or credit, report or is derived from a consumer report.

44. The Lease Application: Privacy Policy & Business Records The Texas Business and Commerce Code requires businesses to take certain steps when handling business records containing certain types of information. For example, § 72.004 requires that when a business disposes of a business record that contains “personal identifying information” of a customer of the business, the business must shred, erase, or by other means make the information unreadable or undecipherable. Alternatively, a business may also comply with the law by contracting with a person engaged in the business of disposing records. Similarly, §521.052 requires a business to implement and maintain procedures to protect from unlawful use or disclosure of any “ sensitive personal information ” collected or maintained by the business in the regular course of business and also requires a business to destroy (or arrange for the destruction of) customer records containing “ sensitive personal information ” within the business’s control that are not to be retained by the business by shredding, erasing, or otherwise modifying the information to make it unreadable or indecipherable through any means.

45. The Lease Application: Privacy Policy & Business Records What happens if you fail to dispose of this information correctly? Failure to comply with any of the requirements under state law could result in civil penalties, possible injunctive relief, court costs, and reasonable attorney’s fees being charged to the business.

46. Webinar Outline The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fees & Application Deposit Tenant Selection Criteria and Acknowledgement Photo ID Accepting or Rejecting a Tenant

47. The Lease Application: Application Fee & Application Deposit What is an Application Fee ?

48. The Lease Application: Application Fee & Application Deposit Application Fee: A nonrefundable sum of money that is given to the landlord to offset the costs of screening an applicant for acceptance as a tenant.

49. The Lease Application: Application Fee & Application Deposit What is an Application Deposit ?

50. The Lease Application: Application Fee & Application Deposit Application Deposit : A sum of money that is given to the landlord in connection with a rental application and is refundable to the applicant if the applicant is rejected as a tenant.

51. The Lease Application: Application Fee & Application Deposit Security Deposit vs. Application Deposit A security deposit is any advance of money, other than a rental application deposit or an advance payment of rent, that is intended primarily to secure performance under a lease of a dwelling that has been entered into by a landlord and a tenant. TAR Residential Lease requires the tenant to pay a security deposit on or before the execution of the lease. An application deposit is a sum of money that is given to the landlord in connection with a rental application and that is refundable to the applicant if the applicant is rejected as a tenant

52. Webinar Outline Finding a Tenant: The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fees & Application Deposit Tenant Selection Criteria and Acknowledgement Photo ID Accepting or Rejecting a Tenant

53. The Lease Application: Tenant Selection Criteria & Acknowledgement What is Tenant Selection Criteria ?

54. The Lease Application: Tenant Selection Criteria & Acknowledgement The tenant selection criteria consists of the factors a landlord will consider when selecting a tenant. If the tenant does not meet this criteria, the tenant can be rejected.

55. The Lease Application: Tenant Selection Criteria & Acknowledgement Texas Property Code § 92.3515 Notice of Eligibility Requirements: (a) At the time an applicant is provided with a rental application, the landlord shall make available to the applicant printed notice of the landlord’s tenant selection criteria and the grounds for which the rental application may be denied, including the applicant’s: 1.criminal history 2.previous rental history; 3.current income; 4.credit history; or 5.failure to provide accurate or complete information on the application form.

56. The Lease Application: Tenant Selection Criteria & Acknowledgement TAR has created a Model Tenant Selection Criteria

57. The Lease Application: Tenant Selection Criteria & Acknowledgement Texas Property Code § 92.3515 Notice of Eligibility Requirements: (b) If the landlord makes the notice available under Subsection (a), the applicant shall sign an acknowledgment indicating the notice was made available. If the acknowledgment is not signed, there is a rebuttable presumption that the notice was not made available to the applicant. (c) The acknowledgment required by Subsection (b) must include a statement substantively equivalent to the following: "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."

58. The Lease Application: Tenant Selection Criteria & Acknowledgement Texas Property Code § 92.3515 Notice of Eligibility Requirements: Cont’d… (d) The acknowledgment may be part of the rental application if the notice is underlined or in bold print. (e) If the landlord rejects an applicant and the landlord has not made the notice required by Subsection (a) available, the landlord shall return the application fee and any application deposit.

59. The Lease Application: Tenant Selection Criteria & Acknowledgement Page 3 of TAR form 2003 Residential Lease Application

60. The Lease Application: Tenant Selection Criteria & Acknowledgement Steps required to be in compliance with Texas law regarding tenant selection criteria : Step One: Landlord or property manager will make available to the applicant a printed notice containing the landlord’s tenant selection criteria and the grounds for which a rental application can be denied when the applicant receives the tenant application. See TAR Model Tenant Selection Criteria.

61. The Lease Application: Tenant Selection Criteria & Acknowledgement Step Two: The applicant must sign an acknowledgement indicating the notice was made available. If it is not signed, there is a rebuttable presumption that the notice was not made available. The acknowledgment must include a statement substantively equivalent to the following: “Signing this acknowledgement 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." The acknowledgment may be part of the rental application if the notice is underlined or in bold print. TAR form 2003 contains the necessary language and a place for signature.

62. The Lease Application: Tenant Selection Criteria & Acknowledgement What happens if the landlord fails to follow these steps?

63. The Lease Application: Tenant Selection Criteria & Acknowledgement If the landlord rejects an applicant and the landlord has not made the notice of the landlord’s tenant selection criteria available, landlord shall return the application fee and any application deposit. If an applicant requests a landlord to mail a refund of the applicant’s application fee to the applicant, the landlord shall mail the refund check to the applicant at the address furnished by the applicant.

64. Accepting or Rejecting a Tenant A landlord who in bad faith fails to refund an application fee or deposit as required by law is liable to the applicant for: An amount equal to the sum of $100; Three times the amount wrongfully retained; and Reasonable attorney’s fees.

65. Accepting or Rejecting a Tenant Question: What if the tenant-selection criteria wasn't made available to the applicant when he received the application?

66. Accepting or Rejecting a Tenant Answer: At the time the applicant was provided with a rental application, the property owner was required to make available the printed notice of the owner's tenant-selection criteria. If the applicant was rejected and the property owner failed to make the criteria available, the application fee and any application deposit must be returned. Any wrongful withholding will subject the property owner to liability. The Texas Association of REALTORS® has developed a model tenant-selection criteria form for members' use.

67. The Lease Application: Tenant Selection Criteria & Acknowledgement Question: Are there any limits on how many applications can be accepted at one time? Does the landlord have to accept only one application at a time?

68. The Lease Application: Tenant Selection Criteria & Acknowledgement Answer: No. There are no limits on how many applications a landlord can accept at one time, thus the landlord does not have to accept only one application at a time. However, some landlords may find it easier to only accept one application at a time in order to make sure all applicable rules and laws, including fair housing laws, are complied with. Remember, if applicants are rejected, the application deposit must be returned.

69. The Lease Application: Tenant Selection Criteria & Acknowledgement In summary… 1.Provide applicant with TAR form 2003, Residential Lease Application. 2.Make available to the applicant the notice of the landlord’s Tenant Selection Criteria. 3.If the landlord fails to make available the notice of Tenant Selection Criteria AND the landlord rejects the applicant, the landlord cannot keep any application fee or deposit.

70. Webinar Outline Finding a Tenant: The Lease Application Overview Applicant’s Age Authorizations The Credit Report Privacy Policy & Business Records Application Fees & Application Deposit Tenant Selection Criteria and Acknowledgement Photo ID Accepting or Rejecting a Tenant

71. The Lease Application: Photo ID If you request a photo ID from an applicant, make sure the purpose of the request relates to an actual verification of the applicant’s information. Be uniform and consistent.

72. Accepting or Rejecting a Tenant After the applicant has submitted his or her application, the landlord can either approve or reject the applicant … If approved, the Landlord and Applicant enter into a lease agreement. Use TAR form 2001, Residential Lease. If rejected, the Landlord notifies the applicant of his or her denial and any refund of fees. If the applicant is rejected, either in whole or in part, because of information contained in his or her credit report, use TAR form 2212, Adverse Action Notice and Credit Score Disclosure. If the applicant is rejected because he or she failed to meet one or more of the landlord’s tenant selection criteria, you may also use this form. Otherwise, you may notify the applicant in writing or orally that they have been rejected (or you may do nothing and the applicant will be deemed rejected after seven days). There is no TAR form for this.

73. Accepting or Rejecting a Tenant After the applicant has submitted his or her application, the landlord can either approve or reject the applicant … An applicant is deemed rejected by the landlord if the landlord does not give notice of acceptance of the applicant on or before the seventh day after the: Date the applicant submits a completed rental application to the landlord on an application form furnished by the landlord; or Date the landlord accepts an application deposit if the landlord does not furnish the applicant an application form. Rejection of one co-applicant shall be deemed as rejection of all co-applicants.

74. Accepting or Rejecting a Tenant After the applicant has submitted his or her application, the landlord can either approve or reject the applicant … A landlord can give notice of the applicant’s acceptance or rejection by phone or regular mail. If an applicant requests that any acceptance or any refund of the application deposit be mailed to the applicant, the landlord must mail the refund to the applicant at the address furnished. If by mail, the notice must be postmarked on or before the end of the seven-day period. If the date of required notice of acceptance or required refund is a Saturday, Sunday, or state or federal holiday, the required date will be extended to the end of the next day following the Saturday, Sunday, or holiday.

75. Accepting or Rejecting a Tenant A landlord who in bad faith fails to refund an application fee or deposit as required by law is liable to the applicant for: An amount equal to the sum of $100; Three times the amount wrongfully retained; and Reasonable attorney’s fees.

76. Accepting or Rejecting a Tenant Question: I'm a listing agent for a property owner who is renting his home. I received a rental application and presented it to the owner. He wants to wait a week or two before deciding on this applicant to see if a better match to the tenant-selection criteria comes along. How long does the owner have to make a decision?

77. Accepting or Rejecting a Tenant Answer: The property owner has seven days to make a decision on that rental application, otherwise the applicant is deemed rejected. The seven-day clock begins on the date the applicant submits a completed rental application on an application form furnished by the property owner, or the date the property owner accepts an application deposit if the property owner did not furnish an application form Any application deposit should be refunded to the applicant if the applicant was rejected. Remember, an application deposit is a sum of money that is given to the property owner in connection with the rental application that is refundable if the applicant is rejected, whereas an application fee is a nonrefundable sum of money given to the property owner to offset the costs of screening an applicant.

78. Accepting or Rejecting a Tenant Question: What if the landlord rejects the tenant for a reason other than that listed as a tenant selection criteria (i.e. the landlord had two great applicants and just randomly chose one)? Does the landlord still need to provide TAR form 2212?

79. Accepting or Rejecting a Tenant Answer : No. TAR form 2212 is only required if the applicant is rejected due in whole or in part to the applicant’s credit report and can be used for failing to meet other tenant selection criteria. If the applicant is rejected simply because several applicant’s applied and someone had to be rejected, the landlord could notify the applicant orally or in writing they have been rejected (or do nothing as applicants are deemed rejected after seven days from the date a completed application or application deposit is submitted). Notifying the applicant they have been rejected is the better practice.

80. List of TAR Forms The following TAR Forms are available for member use only: Residential Lease Application (TAR 2003) Authorization To Release Information Related To A Residential Lease Applicant (TAR 2003, last page) Residential Lease Guaranty (TAR 2007) Application For Guarantor of Residential Lease (TAR 2007) Adverse Action Notice and Credit Score Disclosure (TAR 2212) Request For Rental History (TAR 2214) Request For Employment Verification (TAR 2219)

81. Tying it all together… 1.Before the landlord or landlord’s agent receives applications: Establish tenant selection criteria. Create privacy policy

82. Tying it all together… 2.When the landlord or landlord’s agent receives interest from a prospective tenant: Give the prospective tenant Residential Lease Application (TAR form 2003). Make tenant-selection criteria available. Make the privacy policy available.

83. Tying it all together… 3.Screen or review applications within seven days of receiving completed application from the prospective tenant or from receiving application deposit if no application was furnished. Discuss findings generally with the landlord. Do not give a copy of the credit report or the application to the landlord.

84. Tying it all together… 4.Accept or reject the applicant: If you accept the applicant, sign the Residential Lease (TAR form 2001). If you reject the applicant because of the applicant’s credit report, or if they failed to meet one or more of the tenant selection criteria, notify the applicant with the Adverse Action Notice and Credit Score Disclosure (TAR form 2212). i.If you failed to make available to the applicant the tenant selection criteria, you must refund both the application fee and any application deposit. ii.If you made available the tenant selection criteria, you may keep the application fee, but must refund the application deposit. If you reject the applicant for any other lawful reason, you may notify the applicant in writing or orally (or if you do nothing, the applicant will be deemed rejected after seven days). You must refund any application deposit.

85. Tying it all together… 5.Keep all documents, including notes, related to an applicant and/or tenant for at least four years, then discard properly. Be sure to correctly dispose of the documents that contain personal identifying information or sensitive personal information by making unreadable.

86. The Tenant Application Process Questions?

87. Conclusion Thanks for your participation in our webinar! Future Webinar Dates: May 18 August 17 October 19 December 14 Questions ? Contact the Legal Hotline at 512-480-8200 Give us your feedback! Complete the survey in the follow-up email