Best Practices When Rejecting Applicants

And denying admissions into the Multifamily Housing program.

Earlier this year, the White House published a “Blueprint for a Renter Bill of Rights” that was intended to support the development of policies and procedures that promote fairness for those living in rental housing. In support of this initiative, HUD recently issued messages to public housing agencies and site owners to remind them of their obligations and to share best practices for informing rejected applicants about why they were turned down for housing.

Throughout the housing industry, HUD acknowledges that owners and agents rely on tenant screening reports as part of their selection criteria. But research has shown that these reports often provide inaccurate information in credit history, eviction records, and criminal records, which raises costs and barriers to quality rental housing. If the prospective renters are given an opportunity to review and potentially correct the information in these reports, housing providers may find more qualified applicants.  

The legal requirements regarding the use of tenant screening reports and the disclosure of the contents of those reports to applicants must be considered when rejecting an affordable housing applicant. In addition, it’s critical to know the rules regarding when an applicant for housing can be rejected. We’ll go over some reasons you may reject an applicant, notification requirements regarding denial of admissions, and owner obligations under the Fair Credit Reporting Act (FCRA).

Reasons to Reject an Applicant

HUD regulations have three key requirements when rejecting applicants. Owners must not discriminate against an applicant based on race, color, religion, sex, national origin, familial status, or disability. Also, HUD requires owners to comply with the Violence Against Women Act (VAWA). The VAWA protects victims of domestic violence, dating violence, or stalking, as well as their immediate family members, from being denied housing assistance if an incident of violence is reported and confirmed. An applicant’s status as a victim of domestic violence, dating violence, or stalking isn’t a basis for denial of rental assistance or for denial of admission, if the applicant otherwise qualifies for assistance or admission. And, last, owners must notify the applicant promptly in writing of the denial of admission [HUD Handbook 4350.3, par. 4-9(A)].

Consequently, owners may reject an applicant if the applicant:

• Doesn’t meet eligibility requirements for a particular unit or site;
• Is unable to disclose and provide verification of Social Security numbers (SSNs) for all household members, except for those household members who don’t contend eligible immigration status or tenants who were 62 or older on Jan. 31, 2010, whose initial determination of eligibility was begun before Jan. 31, 2010;
• Doesn’t sign and submit verification consent forms or the Authorization for Release of Information (forms HUD-9887 and HUD-9887-A);
• Has household characteristics that aren’t appropriate for the specific type of unit available at the time, or has a family of a size not appropriate for the unit sizes that are available. Here, the owner may deny the applicant admission to a specific unit, but the applicant may continue to wait for another unit; for example, if there’s an accessible unit available and the applicant’s household doesn’t need the accessible features of the unit and there are other applicants or tenants on the site waiting list who need such a unit;
• Includes family members who didn’t declare citizenship or noncitizenship status, or sign a statement electing not to contend noncitizen status. But an owner should permit families to revise their application to exclude proposed family members who don’t declare citizenship or eligible noncitizen status; or
• Doesn’t meet the owner’s tenant screening criteria [HUD Handbook 4350.4, par. 4-9(B)].

Whatever reason you have when rejecting an applicant, you can’t immediately give an available unit or waiting list spot to the next eligible applicant after you send off the rejection letter. HUD rules give rights to assisted site applicants that most would-be renters don’t have, including the right to appeal your rejection.

HUD Rejection Requirements

As previously discussed, under HUD rules, owners must promptly notify applicants in writing of the denial of admission [HUD Handbook 4350.3, par. 4-9(A)(3)]. In addition to the written notice requirement, HUD requires the notification of applicant rejection to satisfy the following requirements:

• The specifically stated reason(s) for the rejection;
• The applicant’s right to respond to the owner in writing or request a meeting within 14 days to dispute the rejection; and
• That persons with disabilities have the right to request reasonable accommodations to participate in the informal hearing process [HUD Handbook 4350.3, par. 4-9(C)(2)].

If an applicant decides to appeal a rejection and requests a meeting, a staff member other than the one who initially rejected the applicant must conduct the meeting [HUD Handbook 4350.3, par. 4-9(D)(1)]. And you must send the applicant a written final decision on his appeal within five business days after getting the applicant’s written response or holding an appeal meeting [HUD Handbook 4350.3, par. 4-9(D)(2)].

In these instances, be sure to go through the entire appeal process before giving the unit or the applicant’s waiting list spot to another individual. You may think that once you reject an applicant, you can rent an available unit to another applicant or place the next applicant in the rejected applicant’s waiting list spot during the appeal period. Although the Handbook doesn’t state that you must hold a unit vacant or keep a waiting list spot open during the up-to-19-day appeal period, if you give away the unit or the applicant’s waiting list spot while an appeal is pending, the right to appeal is meaningless.

Rejected applicants could complain to HUD that you treated them unfairly, or even claim that you discriminated against them based on, say, race or religion, if you give away “their” unit or spot to other applicants before considering their appeal. Therefore, you should hold a rejected applicant’s spot until after the appeal process is complete or until after the 14-day period ends with no appeal.

Fair Credit Reporting Act Obligations

You have additional obligations to consider if your site runs a tenant background check using a company that compiles background information. Tenant background check reports are consumer reports. A consumer report may contain information such as a person’s credit characteristics, rental history, or criminal history. And when you use consumer reports to make tenant decisions, you must comply with the FCRA.

Under the FCRA, owners or management agents must inform rental applicants of the factors that played a role in them rejecting a rental applicant or taking another action unfavorable to the applicant. This requirement is known as the adverse action notice, and failure to provide the notice correctly may subject the multifamily assisted property owner to legal liability under state and federal law. As Federal Trade Commission guidance explains, the adverse action notice must communicate the following:

• The name, address, and phone number of the consumer reporting company that supplied the report;
• A statement that the company that supplied the report did not make the decision to take the unfavorable action and can't give specific reasons for it; and
• A notice of the person's right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get a free report from the company if the person asks for it within 60 days.

The adverse action notice is required even if information in the consumer report wasn’t the primary reason for the decision. Even if the information in the report played only a small part in the overall decision, you must notify the applicant.

Recommended Best Practices

You should provide written adverse action notices as part of your denial letter. While oral adverse action notices are allowed under the FCRA, HUD emphasizes that written adverse action notices are the best practice and benefit both you and the applicant. Along with the notice, you should also provide a copy of any tenant screening report you relied on when making an adverse action determination to an applicant. 

A written notice paired with a report copy allows you to provide proof of FCRA compliance. Written notices also better enable applicants to assert their rights and to dispute any errors in the report. For an example of a FCRA notice, see FTC Issues Screening Guidance for Owners.