A public record refers to any city, state, or federal court record available for public viewing. These records are not considered confidential, and the information is used commonly for credit scoring and background checks. Public records represent significant, useful information when you're screening a tenant interested in your properties, since rental and financial red flags show up from this documentation. These public records will stay on a potential tenant's credit report for approximately seven years, if not longer.
You should first search for any eviction records. Unless the eviction happened long ago, or the tenant was experiencing a medical emergency or traumatic life event, a previous eviction is the biggest red flag you can find with public records. If you choose to rent to a tenant with an eviction record, you may want to get a higher security deposit up front, or request prepayment of several months' rent.
A foreclosure is another major red flag, as it indicates the prospective tenant was unable to make housing payments. The foreclosure process spans over a significant period, with some regions averaging several years before the foreclosure process completes. There are many red flags with this type of public record, especially if you are the first rental property the tenant has approached since the foreclosure.
Bankruptcies occur for many reasons, from financial irresponsibility to overwhelming medical bills. The mere presence of a bankruptcy may be enough to disqualify the tenant, but it doesn't necessarily mean the tenant is unable to pay bills. The more telling aspect of a bankruptcy is whether the tenant makes consistent payments after the bankruptcy discharge with a Chapter 7, or if the tenant makes regular bankruptcy payments with a Chapter 13. Ideally you have a credit report to go along with this public record, which lets you examine thoroughly the tenant's payment history and credit usage post-bankruptcy. Keep in mind bankruptcies affect credit scores for seven years, although the impact goes down the further away the individual is from the bankruptcy.
Garnishments and Civil Judgments
Wage garnishments occur when a creditor has a civil judgment against the prospective tenant. As part of the court-ordered payment, this creditor could attach a wage garnishment to your prospective tenant to recover the costs. Wage garnishments are also associated with delinquent tax payments, child support payments, and student loans.
Tax liens are another aspect of delinquent tax payments attached to the tenant's credit report and any real property assets he or she holds. The tax lien only comes into effect if the tenant tries to sell a car or another asset with the lien attached, but it does indicate a major red flag.
If the tenant isn't paying regular tax bills, he or she may not have the financial responsibility to pay your rent on time. Additionally, the IRS, state governments and city governments may pursue a wage garnishment or recover funds directly from the tenant's bank account as part of collection activities. The tenant may suddenly be unable to pay rent, as these agencies do not need to warn the tenant ahead of time before a hold is placed on the account.
Public records help you establish a clearer picture of the tenant's financial history and whether the tenant is trustworthy. While public records alone don't tell the full story, they help fill in the gaps from credit reports and background checks.
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