Understanding resident credit screenings
Q: I would like to know why a rental community can tell you that you can not live there because they feel that you do not make enough money when, in fact, we actually did. Also, why do they need to request a credit report, and after looking at it, decide that you cannot live there because you have had a bad credit history? Sorry if these questions may be out of line, but I would really like to know.

A: You've asked some good questions, and I'll try and give you some answers. For the most part, rental property owners are just like you and me. They have bills to pay, and they have problems if they don't pay them.

For example, most rental home property owners depend on the rent payments to pay the monthly mortgage on the rental. If they don't pay it, they'll lose it to foreclosure. While many of them might be able to make the mortgage payments without the rent for a few months, they can't do so indefinitely. The property owners also have property taxes, repairs and maintenance expenses, and management expenses such as advertising.

In a bigger apartment complex, the property owner may have a little more leeway. But, if too many apartments sit vacant or too little rent gets paid, they'll have trouble too. (In my other life, I'm a business bankruptcy lawyer, and I've seen more than a few apartment complexes in bankruptcy.)

I don't know what the statistics are, but I'd venture to say that a large portion of the country's rental housing is owned by small owners rather than large corporations. It may be a business that owns as many as several apartment complexes or just an individual that has a couple duplexes. So, it's likely not a huge company that just has piles of cash sitting around.

Of course, they also want to make a profit. They spent money to buy or build the rental with the expectation of earning a profit. If this motivation didn't exist, it's doubtful that sufficient rental housing would exist in this country. But, that's another discussion.

So, property owners evaluate tenants largely on whether they will pay rent on a timely basis each month and properly care for the rental unit. To do this, they compare your monthly income to the expected rent. It's a generally accepted guideline that housing costs should consume about one third of a household's net monthly income. In addition, they examine your credit report. Finally, they'll talk to your prior landlords to see what kind of tenant you are. How often did you pay your rent on time? How often did you complain about problems? How often did you cause problems with the other tenants?

Based on this information, and their own intuition and judgment about what kind of tenant you will be, they decide whether to accept you as a tenant. In many areas these days, it's a landlord's "seller's market" rather than a renter's "buyer's market." Because of this, landlords can often afford to be choosy about who they rent to.

If you aren't a model tenant now, it's not too late. You can work to become one. See our renter's resume for what you need to know to portray a favorable image to a prospective landlord.

Renting after bankruptcy
Q: I just went through a nasty divorce. My home is going into foreclosure. I have to file for bankruptcy. I want to move up to the Clermont, Florida area. I work for Albertson's and want to transfer. Will I have a tough time renting a house or apartment with my credit destroyed by my ex-husband?

A: Is Al Gore a sore loser(man) (with apologies to my Democratic friends and readers)? You're right if you guessed that the answer to both questions is "yes." But, that's not to say your task is impossible.

A divorce is one of the most common reasons for a bankruptcy. Once spouses split up, they usually can't handle the expenses of two separate households plus whatever debt they accumulated from the marriage. So, a trip to the neighborhood bankruptcy lawyer often results.

You haven't filed bankruptcy yet though. So, if you can stand waiting, I would find an apartment before you file bankruptcy. You may be just slightly better off even though your credit record already looks poor. But, some landlords might wonder what kind of problems your past due debt will create for them.

When you look for apartments, do as much as you can to look professional. Treat it like a job interview. Emphasize all of the positive aspects that you can about your situation.

Be sure you have your job transfer in order. Don't try and rent someplace that will cost you more than the one-third net income guideline. You might even supply them with personal references, such as a boss or community leader. Encourage them to contact the references regarding your own personal responsibility.

You should also be sensitive in your conversations with landlords. Some will be more sympathetic to your situations than others. They're the ones who'll overlook the marriage-related credit problems and look at your own personal responsibility. See if you can feel them out as quickly as possibly during your initial meeting. Experiment to see how different methods work if you run into a brick wall the first few attempts.

I say this because most landlords will require an application fee or a credit check fee or both. You don't want to waste your money applying for apartments where you know the manager won't approve you. So, you might discuss your general credit situation to see how they react. Only then, if you still think you have a chance, should you pay the fees to apply and obtain the credit check.

Finally, be willing to accept a lesser place than you might otherwise. Yes, the best apartments go to those with the best ability to pay for them. But, it's only temporary housing. After you establish a track record of paying your rent on time, your landlord should give you a good reference when you move to a nicer place.

Rebuilding your credit doesn't happen overnight. It's a slow and steady process that demands discipline. You can blame one incidence of financial catastrophe on a divorce. But, after repeated financial problems, people will begin to assume it's your personal financial irresponsibility. And you can bet the Florida Supreme Court won't rule in your favor then. Don't let that happen to you!

Disclaimer
Information provided by Phil or Greg should not be construed as real estate or legal advice. State and local laws may vary, so please consult legal counsel in your area with respect to your individual situation.

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