Can a lease application be denied because the tenant has a poor credit score?

By August 26, 2012Articles, News

Q. Our homeowners association requires a lease application for rentals, a criminal background check and a credit check. Recently, a Realtor seeking approval of a lease told us that denying a tenant based on credit score is illegal. Is this true? – P.L.

A. There are a lot of conflicting opinions on this issue, so your question is timely. Community associations cannot deny a renter for illegal discriminatory reasons such as race, religion or national origin. However, a tenant’s financial history can be proper for a lease application provided the governing documents give the association the clear ability to reject a tenant based on a history of financial irresponsibility. The key is clarity in the governing documents and consistency with decisions. The association can review credit scores, but the better approach in our opinion is to look at whether the applicant has multiple blemishes indicating a history of serious financial irresponsibility. These applicants are more likely to be problematic tenants. If an applicant has a single short sale and one past due credit account but is otherwise a law-abiding applicant, the board should consider whether denial of that applicant is really in the best interests of the community. After all, many people who need to rent in this economy may have a short sale or bankruptcy in their past and cannot currently qualify to buy a home. However, if the applicant has a bankruptcy and multiple accounts in collections, which a credit report will show, we think it is proper and legal to deny on that basis provided there is clear authority to do so in the association documents.

Q. Our community declaration is very old and we are in the process of amending and redrafting the documents to bring them current. One of our members has raised the possibility that our rules and regulations may not be valid due to the age of our documents. However, our bylaws have been amended in the last five years and they authorize our board to adopt new rules. Do you think that our rules are also outdated and need to be renewed? – B.G.

A. If your community is currently amending your declaration, it is probably a good time to also revisit your rules and regulations, but it may not be legally necessary. It is unusual that your bylaws were recently amended without also amending the declaration, but the bottom line is that your board likely has the authority to adopt new rules and regulations if so authorized by the bylaws of the corporation. Before completing the amendments to the declaration, your counsel should make sure that the rules and regulations are consistent with any new provisions in the declaration because the declaration will take precedence once it is finalized and recorded.

Q. Our master association operates a country club and has a large staff. We are concerned about our employees using social media tools like Facebook and discussing work-related issues with co-workers on these websites. Is there anything our board can do to protect the club? We are trying to recruit new members and we would like to prohibit our employees from talking about the club on their personal time. – C.T.

A. Restricting the use of social media sites for your employees is not easy. Many companies have a computer policy, which restricts the use of personal websites and email during the workday, but many of these policies may be illegal based on recent rulings by the National Labor Relations Board. Corporate policies on social media websites that completely prohibit the use of these sites for connecting with coworkers or discussing company issues are illegal. Many employers believe it is absolutely legal to prohibit negative or derogatory remarks about the company on the Internet, but they do not realize that employees actually have the legal right to discuss wages, hours and employment conditions with co-workers and this right extends to the use of social media sites like Facebook. Your company can develop a legal policy that provides guidance to your staff, but you should consult with a labor attorney or other specialist before enforcing such a policy.

Q. Our community has several serious delinquencies. One of the units has been in bank foreclosure for several years and our association now has title from the lien foreclosure process. Our association is renting the unit. We recently had an incident with the tenant because the bank changed the locks to the unit and some of the tenant’s property was removed. Now the tenant is threatening to sue the association. We do not believe that the bank has actually completed its foreclosure case, so we are not sure if this legal. What can we do? – J.S.

A. This is happening a lot with abandoned units in associations and it is difficult to stop. The question of legality generally depends on whether the homeowner has actually abandoned the unit. Most mortgage documents allow the lender’s agents to enter the property and take steps that are necessary to protect and preserve the property. Thus, when banks prepare to foreclose and take control of the unit, they often hire home preservation companies to protect their collateral. These companies make sure that the homes are not vandalized, squatters have not taken over and appliances are not stolen. However, if the home is now owned by the association and occupied by a tenant, the bank’s entry was probably not legal unless the bank obtained a court order in advance or has completed the foreclosure. In these situations, we generally send a letter to the bank’s attorneys putting them on notice of the bank’s trespass and demanding keys to the unit. If this does not produce a favorable response, the association will have legal remedies as it is entitled to possess and rent the unit until the bank completes the foreclosure.