As a landlord, your resident screening process is a potential target for a discrimination lawsuit. To protect yourself as the landlord, keep a paper trail that documents the procedure you use to screen every prospect’s rental application along with any paperwork that process generates.
As a result, you must save records for both approved and rejected applicants. Keep them on file for the minimum length of time required by your state.
Keeping records for rejected applicants
For each rejected applicant, set up a separate folder that contains the following:
The rental application
Credit report and any other reports you obtained
Notes on conversations with previous employers, prior landlords, and personal references
Notes on your conversations at the showing
Criteria you used in deciding to reject the applicant
A record and receipts of any application fees charged, collected, and refunded (if any)
Organize the folders by year and then alphabetically by last name for easy reference. To reduce the paper storage and to make your records easier to search, consider scanning and storing documents electronically. Again, create a separate folder for every year and include a subfolder for every applicant. Just be sure to back up your records regularly and store the backups offsite to prevent loss.
Maintaining residents’ files
For each applicant you accept, set up a separate folder that contains all of the items listed above plus the following items as they become available:
The original signed lease or rental agreement and any riders
The lease package your tenant received upon moving in
The move-in and move-out inspection checklists and any before and after photos that pertain to those lists
Any other documentation generated over the course of the individual’s residency
Keep folders for approved applicants separate from those for rejected applicants. Again, organize them by year first and then alphabetically by last name.
Securing sensitive information
Rental applications, credit reports, leases, and rental agreements contain a lot of personal information about applicants and tenants. Although you need to store these records to defend yourself in the event of a lawsuit, you must also safeguard these records to prevent identity theft and any unauthorized access to someone’s personal information.
The first order of business is to find out how long you need to store the records. By destroying them as soon as you possibly can, you have less information to protect. Contact your state and local housing authorities and ask what the statute of limitations is in your state for filing fair housing discrimination complaints.
Generally, as soon as that time has passed, you can safely destroy the records regarding denied applications. When an applicant becomes a resident, the statute of limitations for a written contract is four years.
According to the Disposal Rule of the Fair and Accurate Credit Transaction Act (the FACT Act, a federal law passed in 2003), old records must be burned or shredded. Tossing them in the dumpster is prohibited.
Next, decide how to secure the files you have on hand most effectively. Keeping the files in a locked filing cabinet in a secure office location is sufficient. If you store data electronically, take proper precautions, including operating behind a firewall and using anti-virus and anti-spyware software. Use encryption features on your computer or special encryption software to password-protect the contents of folders that store sensitive resident information.
However you choose to store applicant and resident information, limit access to that information to only one or two other people. Property managers and other workers have been known to steal resident IDs for their own use or to sell to others online. You may not entirely be able to prevent such theft, but you can limit it by restricting access to only a couple of necessary individuals.
If you discover a security breach, immediately notify anyone whose personal information may have been compromised, including rejected applicants. Many states require prompt notification; visit the Consumer Action Website to find out details that apply to your state.