Thursday, March 21, 2013

Internet Screening for Tenants?

Q: With all the information you can get on the Internet these days, I always run a Google search on apartment applicants. I've heard that there's a legal risk in doing this -- that I may learn things that I'm not legally allowed to rely on when choosing applicants. But I sometimes find information that's contrary to what applicants report on their applications. How can I use the Internet safely? --Brian G.

A: You're not the only one who can't resist a quick Internet search on a person of interest -- be that a prospective tenant, employee, or even a date. And there's no disputing that often, you find information that's not only relevant, but crucial.

For example, imagine an applicant who tells you that he has lived and worked in the area for the past several years, but whose Facebook page says otherwise -- you'd be justified in suspecting that this person is hiding an unsavory rental past and may be supplying you with bogus prior landlords.

The problem with social media screening, however, is that you're apt to come upon information that is not only not true, but if true, should have no bearing on your decision as to whether to rent to this person. You'll likely discover information about race, age, religion, and the characteristics of the applicant's friends and family. Making rental decisions based on the race, religion, ethnicity and so on of the applicant (or the applicant's associates) would be a violation of the federal fair housing laws. Many states extend the list of "protected classes."

So, if you know that you can't consider these factors when screening an applicant, you can just ignore them, right? Well, yes, but suppose you're challenged by the applicant, who learns that you accessed social medial for this information? You'll be in the tricky situation of having to argue that you put the information out of your mind. But it's not so easy to "unring the bell," and more importantly, it's practically impossible to prove that you did so.
Does this mean that employers and landlords should never access social media for screening purposes? Not exactly. The critical thing is to separate the social media searcher from the person who makes the decisions, so that any irrelevant information discovered in the course of the search never gets to the person making the hiring or renting solution.

One way to do this is to hire a third party, a screening firm, who will pass on to you only the information that you can legally rely on when screening applicants. When you do that, the firm complies with the disclosure and reporting requirements of the Fair Credit Reporting Act.

Another tack is to have someone on your staff do the screening and report to you, keeping back irrelevant information. It's essential that you train this person on the legalities of screening and fair housing laws. Keep in mind that many states protect more classes than the federal law; for example, extending protection to people on the basis of gender identity, matriculation status (students), and immigration status. If your front-line screener doesn't know what information is legally off-limits, you will have lost the protection that the screener was intended to provide.
Q: I rent a small one-bedroom and from time to time my grandson, who has had some trouble with the law, stays with me. A month ago, he was arrested on the property for dealing drugs, but the case was dismissed because there wasn't enough evidence. Even so, my landlord is evicting me. Can he do this? --Alice F.

A: I'm guessing that the case turned on the validity of the search performed by the police. Generally, police need probable cause, or a good reason, to search someone without a warrant -- facts that would lead a reasonable person to conclude that a crime is being committed, and that the person about to be searched has evidence of it. Observing someone dealing drugs will qualify, but short of that, mere suspicions that illegal activity is taking place won't pass muster.

The judge who heard the case probably concluded that the police did not have enough facts to justify the search (or should have obtained a warrant), and as a result, the judge excluded the fruits of the search -- the drugs. And without this evidence, the prosecutor may have decided that there was not enough evidence to go forward with the case.

Although the prosecutor is bound to follow the judge's exclusion of the evidence, your landlord is not. Many states allow landlords to terminate tenancies when tenants, or their guests, break the law on the premises, and some do not require that the tenant or guest be convicted in criminal court. Most simply don't give a rule. As a consequence, landlords in those states are able to use the standard they see fit, be it a conviction, an arrest, a "stop and frisk," or even their own belief that illegality is taking place, without law enforcement involvement.

Tenants whose guests are the law-breakers are sometimes caught in an unfortunate position. Residents who know that the guest is up to no good can fairly be expected to suffer the consequences; but sometimes, tenants have no idea what their guests are doing, and have no way of finding out. While it is harsh to evict an "innocent host," landlords will respond that it's worse to allow the situation to continue.

Tuesday, March 19, 2013


Q: The owners of the house we rent told us they'll be selling the property even though we have a year left on the lease. I have a medical problem and need quiet so that I can rest. But showing the house is going to be disruptive. Can we stop it? Actually, we want to get out now -- do we have grounds to break the lease? --Mary F.

A: Most states have laws governing when, for what reason, and with how much notice a landlord may enter a tenant's home. Entry to show the property to prospective buyers is always on the list of permitted reasons. As a general rule, as much as you might not like it, if your landlord is planning on following your state's access rules, there's not much you can do.

But wait. Your condition may qualify you as a person with a disability as that term is understood by the Fair Housing Amendments Act. Do you have a physical or mental condition that substantially limits one or more major life activities? If so, the owners are legally bound to adjust their business practices -- including showing a home to potential buyers -- so that you can live safely and comfortably in your rented home. This accommodation should mean at the minimum a willingness to work with you to minimize the disruptions caused by showing the property.

You may also be entitled to leave the rental without responsibility for future rent, i.e., to legally break the lease. That's because, if you're legally disabled, you can expect the landlord to accommodate a reasonable request that he vary his policy of holding you to the terms of the lease -- specifically, its end date. Ironically, allowing you to "safely and comfortably live in the rental" requires, in this instance, letting you leave. The variation, called an accommodation, would be to allow you to terminate your lease without financial liability.

Q: I rent out a small commercial space, and questions have arisen as to who has responsibility to replace fluorescent light tubes, maintain toilets in working order, and replace high-efficiency filters in the heating/air conditioning system. We have a standard written lease but it doesn't get down to that level of detail. Can you suggest who is responsible? --Bob D.

A: To be blunt, the person responsible for this problem is the one who chose the "standard written lease," which was undoubtedly you. This lease, which you probably purchased online for a few bucks, was woefully inadequate. Doubtless full of legalese, it skipped the part about everyday repairs and maintenance, and probably more issues, too.

Now you find yourself with no guidance, and it's unlikely you'll find it in the law. Were this a residential rental, you could look to your state's laws on upkeep and habitability, and would probably learn that landlords are responsible for upkeep that's necessary to keep the rental safe and habitable. Tenants normally perform minor upkeep (light bulbs, minor plumbing, and filters). But in a commercial rental, it's up for grabs. That's because legislators have decided that when the transaction is "B2B" (between businesses), the parties are likely to have equal bargaining strength and sophistication, and should be allowed to craft their own deal.
By contrast, residential renting often involves a substantial imbalance of power and sophistication, and concerns a basic and important human need (housing). So, legislators decide who does what; the law is less likely to set the ground rules when the fight is over the look of a shop or the cost to fix a company's sign.
You and your tenant will just have to work it out. Next time, look for a more robust lease, or consult either a good self-help legal resource or a lawyer. Heed the real estate lawyer's mantra: The best lease is one that leaves you with no surprises.

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at

Friday, March 15, 2013

The Two Groups Most Affected by New Mortgage Rules

The Two Groups Most Affected by New Mortgage Rules

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Published: Friday, 15 Feb 2013 | 8:01 PM ET
By: Polyana da Costa
Narvikk | E+ | Getty Images
The home loan industry will soon have to adapt to new mortgage rules that will offer borrowers much needed protection against lender abuses and reckless lending standards. But the changes may not please all borrowers.
Some of the new mortgage rules the Consumer Financial Protection Bureau has issued this year will influence qualification requirements and the types of mortgages that borrowers get. The new standards go into effect next year -- but expect lenders to start adjusting to the new policies in coming months.
The gist of one of the main rules is simple: Lenders will be required to ensure that borrowers have the ability to repay their mortgages. In return, lenders will be protected from borrower lawsuits so long as they issue "safe" mortgages that follow guidelines.
These safe mortgages are what the CFPB calls "qualified mortgages." As defined by the CFPB, only 12.8 percent of new mortgages in 2012 met the "qualified mortgage" standard, according to real estate data provider CoreLogic.
The new mortgage rules won't affect the majority of people seeking to buy a home or refinance their home loans, because lenders have already tightened their lending standards since the financial crisis.

What will change for jumbo loans?

CFPB Tightens Mortgage Lending Rules
CNBC's Diana Olick reports a U.S. consumer watchdog group has made mortgage policy changes on banks in an effort to protect borrowers from the ills of the past decade.
But certain groups of borrowers will notice a difference, analysts say. This is especially true for borrowers seeking larger mortgages. Self-employed borrowers also may need to jump through additional hoops to get a home loan.
"There are all sorts of ways to prove income, but what's no longer at the table is just asserting that you make X dollars per year," says Julia Gordon, director of housing finance and policy for the Center for American Progress and former manager of single-family policy at the Federal Housing Finance Agency.
Mortgage professionals in high-cost areas say they worry that the new rules may create obstacles for some borrowers seeking large loans to buy or refinance a home. That's partly because a mortgage that falls outside of the conforming and Federal Housing Administration loan limits (which vary between $417,000 and $729,750) will not be considered a qualified mortgage if the borrower's debt payments exceed 43 percent of monthly income.
About nine percent of jumbo loans issued in 2012 went to borrowers with debt-to-income ratios higher than 43 percent, CoreLogic data show.
"A 45 percent debt ratio seems to be slightly more common than a 43 percent ratio these days, so lenders will most likely reduce their max ratios for nonagency loans," says Matt Hackett, operations manager for Equity Now in New York City.

Interest-only loans will be harder to find

Borrowers who rely on interest-only loans will see changes, because loans that don't require borrowers to pay principal during an initial period are not considered a qualified mortgage under the CFPB's rules.
These loans were widely available during the housing boom and contributed to the crisis, as many homeowners couldn't handle the larger payments once the initial interest-only period expired. Most lenders have stopped offering interest-only loans, but they are still popular for jumbo mortgages and in high-cost areas.
"I think this could be a bigger issue than the (debt-to-income) cap," says Mathew Carson, a mortgage broker for First Capital Group in San Francisco.
Carson says the majority of his clients rely on interest-only loans. They include middle-class homeowners who choose this option to free up money for other expenses or investments, he says. About 14 percent of the jumbo loans issued in 2012 were interest-only, according to CoreLogic.
Wealthy borrowers and borrowers with substantial assets will always find lenders willing to go outside the qualified mortgage requirements to meet their needs, says Joshua Weinberg, senior vice president of compliance for First Choice Loan Services in New Jersey. "But an average-income earner in the high-valued areas is going to potentially have a more difficult time to get approved" under the new standards, Weinberg says.

Self-employed borrowers

The new ability-to-repay rule means it will be nearly impossible for a borrower to get a mortgage without documenting income. Not that it's easy to get a low-documentation loan today. But more than ever, self-employed borrowers will have to make sure they can document at least two years' worth of sufficient income to get a mortgage.
If you earned $50,000 in 2011 and $100,000 in 2012, the bank will average the two and use an income of $75,000 to process your application, says Jason Auerbach, divisional manager for First Choice Loan Services in New York City. For borrowers with a W-2, the lender uses the current annual income to determine how much the borrower can afford to pay.

Protection against some servicing abuses

Separate from the qualified mortgage rules, the CFPB has issued regulations to protect consumers from abuses by the companies that collect their monthly payments.
The new servicing standards that go into effect next year require lenders to take extra steps before foreclosing on a borrower's home.
Servicers will have to reach out early to borrowers who are struggling to pay their mortgages. This gives borrowers a better chance of working out a solution, such as a loan modification or short sale, to avoid foreclosure.
"Homeowners now have some rights they can enforce if their servicer doesn't review them for a foreclosure alternative," Gordon says.
The new rules don't force the servicer to offer the borrower options when the lender doesn't have workout solutions available. But as long as workout options are available, lenders will be prohibited from foreclosing on a borrower's home until the borrower's application for a loan modification or short sale is processed and the borrower receives a response.