Hey everyone, this is Minnesota landlord law where we help investors Buy, sell manage and develop real property. Today, this is the property management series titled new 2020 Minneapolis rental property applicant screening ordinance will go into the specifics. This is not legal advice. Please consult an attorney before any decision. My name is Bradley and Schaeppi. Okay, the basics of the who, what, where, when, and why.
This applies the landlord’s property managers and Rental housing applicants (So those are your new tenants).
New applicant screening criteria for prospective new tenants anytime. You have a new tenant coming forth applying you’ll have to have a new set of criteria that complies with the City Minneapolis ordinance.
City of Minneapolis
June 1st or December 1st, depending on the number of buildings you own.
Security deposit applies June first, we’ll get into that later.
T he city has desired to address racial disparities in rental housing through this new ordinance.
So, HOW do we do this? Right? So it’s best to start off with the fact that the City of Minneapolis created two systems. One’s called inclusive the others called Individualized. Landlord or property manager: You have two choices. You have to comply with the city’s inclusive screening criteria OR apply more stringent criteria through what’s called Individualized Assessment. So, yes, the landlord can be more stringent than the city’s new ordinance, but it requires more than a simple accept or reject. There’s a factor test that we’ll get into. The standard criteria that are addressed or what we all use today in Property Management.
Criminal, credit, and rental history. Briefly, this inclusive component starts June 1st for those with 16 or more units ownership or December 1st, 2020 with less than 15 – again OWNERSHIP. (But the property management company would probably across the city would be wise to implement all at once if they’re large).
Criminal. So the first of the inclusive applicant criteria is what’s called criminal. So the language is drafted in such a way that it purposely ties the landlord or property manager’s hands. You cannot deny a tenant for a very specific long list of things that are generally tied to conviction dates. So for instance, if there was a felony over seven years ago (the conviction date) = no longer deny. You can’t say no felonies ever in the City Minneapolis.
You can potentially if you go to the individualized tests and we’ll get to that later. But the key thing is that the way it’s drafted tenants cannot be denied for their specific list. So you’ll have to be very aware of those and work with your background check company to make sure everything’s buttoned up.
Credit. The main key here is again tenets cannot be denied for credit score comma by itself. So yes in the past. Let’s say a property management company, you had 650 credit score – accept or reject. Really easy, right? Well no longer. The City of Minneapolis wants you to at least work within the credit report to determine if the tenant is fit and the information from the credit report is directly or relevant. A good example would be collections that have not been paid, judgments that are not paid, money owed to landlords /utility companies. And so it also just to be clear. It doesn’t say you cannot use a credit score, but a credit score by itself. So for instance, using a combination of a credit score and a specific item in a credit report could be possible. Another new one here: insufficient credit history. So if there is no credit history that is not a reason a landlord or property manager can deny unless it’s withheld in bad faith in that could have been a reason for denial. Obviously easier said than done if the information is untruthful, you won’t know immediately, but simply no credit history = you no longer can straight up deny an applicant.
Rental history. Again, we’ll just quickly talk about the past. If you had an eviction filed ever that could be a reason to deny. Obviously, there’s folks who disagree with that based upon disparate income and for housing, but that was a standard that many property managers and landlords used any eviction ever. Now there’s three different tiers: File the dismissed or judgment for the tenant = if that ever happened you can’t deny. If it was filed but settled with no judgment or writ a year before the application date. So let’s say April 2019 and eviction action was filed and settled for the tenant but paid all the money and that was over a year ago. You no longer can deny in the inclusive criteria. Lastly, if they let’s say there was an eviction filed for non-payment of rent. If it was three years
and a month ago – so let’s call it March. 2016 – it’s over three years ago and they never paid off the landlord, focusing only on rental history for a moment, that would not be a basis for denial because it was older. A year ago = No problem. Lastly, insufficient rental history. So if they’re saying they’ve never rented before this could be an exchange student is could be a new college student is not a basis for denial. So you’ll have to go into further analysis. If you have questions, you can contact an attorney. Schedule call, I can help you as well, but landlords and property managers will now be in situations where there’s no rental history at all and they have to decide what To do.
They first of all can’t deny because insufficient rental history at all – and also note that there’s a new minimum income test. So essentially it says that if the landlord is asking for 3.0 times the monthly income or higher – And the landlord, let’s say the test is 3.0 x montly income, but The tenant comes in at 2.5. You can’t immediately deny because the applicant can demonstrate successful rent payments in that amount. So let’s say they paid all of their rent over the last year and if they did you’d have to accept that tenant if it was 3.0 or higher. If a landlord decided to have 2.75 as their test, And all of the applicant’s income that qualifies does not meet that test = Then yes, they can be automatically denied with no opportunity to rebut that test.
Denials for the inclusive. You’ve got to make sure there’s written notification within 14 days of rejecting the application. You have to cite a specific criteria they failed to meet. And if the denial was the inclusive criminal, landlord must have considered supplemental evidence submitted at time of the application. So if it was submitted afterward, they don’t have to review that but at the time of the application if the applicants submitted information that helps paint the picture that something about that conviction or it didn’t apply to them, Or that specific criminal issue, then they must have considered as a part of that denial – and lastly retain for two years.
Individualize assessment. So this is again – Yes landlords can use more restricted, meaning higher income or continue to use more restrictive criminal again. Here’s a large but they must accept and consider supplemental evidence and evaluate for individualized factors. Here are the four factors: Nature and severity of incidents, number and type of incidents, time elapsed, the age of the individual at the time the incidents occurred, and notably the supplemental evidence for denial has to be relevant to the applicants predicted performance as a tenant. So again – there’s no bright-line test anymore. That’s why obviously it’s called individualized and so companies will have to decide I’d to they go this route to they not go that route, are they comfortable with the inclusive standards from Minneapolis or they concerned there’s a safety concern of their community on a criminal issue for instance and they want to be more stringent. If they do and they deny there has to be all the four Factor test and the has to follow this denial about predicted performance as a tenant in your building. So here’s the denial of the individualized again. We talked about 14 days, but there’s the added information must be non-discriminatory for FHA, a written denial shall include the basis for denial and the supplemental evidence that was considered and explanation why the evidence did not adequately compensate rejection Factor. So clearly much more time-intensive, but if a company decides that’s what they want to do, You can, but you have to follow this process and retain the information for two years.
In Minnesota, We have a statute that outlines security deposits, interest rate, how you can retain afterward -that’s 504B .178. So this Minneapolis ordinance kind of builds upon that and so what they do is they create limits, they added a definition of what’s called a single month rent. That helps in case if you have non-traditional leases on how often rents paid. We talked about a general limit of one single month’s rent. And if the lease requires dependent to pay more than one single month rent then the landlord may only collect one half single month rent plus first-month rent and allow tenants request to pay over 3 months. A couple of examples here: Example one – Single month rent $1500, security deposit $1500, do at least signing $3000 = No problem, check. That’s fine. Example two – this is non-compliant – $1,500 due in single month rent, two months security deposit of $3,000, due at lease siding is $4500 = no. The main reason this fails is because you cannot collect two months. You can’t go over the one and a half. Example 3 – single month rent 15. Drew one and a half month security deposit 2000 250 total do three thousand seven fifty but here’s how it is compliant at least signing. They only collect 2250 and over the next three months. They collect the remainder. So this process will if you built above one-month security deposit, you’ll have to implement the new strategy which obviously
Means collecting more checks or more see ACH payments processing more information and more time on the property management company.
Q&A. I’ve laid out a few so we’ll go over them.
May I have a mix of inclusive and individualized assessment criteria? So for instance credit versus criminal versus rental history? Yes, not a problem.
May I require a cosigner? Yes, if the applicant fails the inclusive credit history or the individualized credit assessment. Because remember that, No – Credit history is not a reason to deny. So if they deny for a lawful reason.
Can I still use a credit score to deny application? The answer is yes, but only if the credit score denials in combination with negative specific credit report info, we covered that earlier.
Must I accept an applicant convicted of first-degree murder 11 years ago? The answer is yes, unless you are using individualized assessment and lawfully reject under the four factors.
Can I charge first and last month rent As a security deposit? No. the maximum is a one-and-a-half single month rent we talked about.
Can I use four times gross monthly rent test? Yes, but again, we talked about the individualized assessment. So you have to be consistent with all applicants, fair housing compliant, approve or deny based upon the assessment factors and relevant information.
May I deny for no credit history? No – unless the tenant withholds information in bad faith.
M ay I do not for know rental history? No – unless the tenant withholds information in bad faith that would cause a denial.
Do you have any guidance on credit history denial? I do. So the individualized assessment factors layouts of language nature and severity number and type time elapsed. So for example debt owed now on the credit report is much more relevant than old debt that’s been paid. So as I mentioned five year paid off $150 Health Collection is less relevant than $1000 unpaid judgment owed to a prior landlord.
When must I make new criteria available before accepting applications available to all tenants? So these criteria need to be made before so you can’t let them know the application criteria after they apply and let them know that they failed and here are the criteria. They have to see it first. You need to have either it’s the only way or advertising or on the rental application that these criteria need to be there.
Can I just reply application denied? So the answer is no. With both the tests, You need to notify in writing the criteria that was failed or the basis for denial and both are due within 14 days. I have a note here that individualized denial requires that that denial to include supplemental evidence and an explanation in the inclusive denial requires landlord to consider supplemental criminal evidence if submitted.
Okay, folks. So a few here.
Number one – review and select inclusive individualized or a combination. You have to come up with what you’re going to do. If you’re not ready for June 1st or December first, you need to come up with a minimum that complies.
I suggest number two – test run your new rental criteria. If you know that your management company or property owner you have past applicants applications or just a rough idea of edit score background and see and just run some hypothetical applications and test. Obviously you still be submitting information to background check companies, but you’re talking about the answers you receive from them.
Number three – You need to change all online and paper locations of the old criteria to the new. Make sure you have no copies of your old criteria starting June first.
Number four: consider adding credit report criteria. We talked about if there’s something specific on the credit report plus a credit score number that might be a way to have a system within your company that you can replicate and deny.
Again, Minneapolis versus non-Minneapolis – This doesn’t apply to anywhere other than Minneapolis. And so if you prefer to have a bright-line test and another city that still comply with fair housing then, by all means, continue to use that other tests outside of Minneapolis
Educate staff or leasing agents. There’s going to be a lot of time here that’s going to take they got to know how to do this
Lastly – call an attorney with any final questions. This is not easy stuff. If you have a fact-specific question, and I’m an example of where you can call and pay for a Time increment and not just have an open-ended retainer. So how to schedule a consultation? You can click this presentation or go to Minnesotalandlordlaw.com/consultation.
Again, I’m Bradley Schaeppi. I’m a licensed attorney real estate broker and City Minnetonka councilmember and I thank you for your time. This is a reference to the specific new ordinance that we covered today. And thank you very much and have a great day. Thank you.