As 2021 comes to a close, the conversation around housing across North...Read more
The short answer to the question is yes. Property Owners and Landlords...Read more
The short answer to the question is yes. Property Owners and Landlords are underwriting their tenants for a debt of the annual rent. Therefore, they have a legal right (permissible purpose) to screen their prospective tenants to reduce their risk of personal financial losses.
If you are looking to rent an apartment and you've never had a full screening done by a landlord before, don't be surprised that applying for a lease is a process with many checks and balances.
Let's break down the process of applying for a property lease in similar terms: say a car lease.
If you go to any dealership and apply to lease a car, that company will underwrite you (ensure you can afford the full amount of the lease) based on your verified income and credit score. This 'screening' protects the company from leasing vehicles to those with a financial profile that doesn't meet the requirements of the terms for the loan. By doing this, the company protects itself from financial losses as this due diligence is proven to reduce risk by over 80%.
Reading the above process, I'll bet you are not shocked that leasing a vehicle requires a credit pull and/or income verification of some kind.
So our question is to those that feel like this application process is unwarranted: why would a property lease be any different than a car lease?
The property owner is literally underwriting you for a loan of the full lease amount of their property. You (as the tenant) typically get billed for that loan monthly, in the form of rent payments. Similar to a mortgage. Similar to a car lease. Both of those processes require income verification and a credit pull as well.
In order for the property owner to reduce their risk of financial losses in the form of loan defaults (people unable to pay back what they owe), they perform the exact same due diligence that any other leasor would. Property Owners and Landlords need to verify the income claimed and pull a credit score (understand past loan repayment patterns) and they have legal rights in Canada and the US to do so.
Not only is it perfectly legal in all states and provinces, but this practice is also widely accepted all over the US: Canada has simply been a bit of a laggard in adopting it coast-to-coast. This lag of performing due diligence in underwriting tenants has actually cost landlords and property owners approximately $87 million in Ontario alone as of October 2020.
If Toyota lost $87 million dollars in one year due to lease defaults, would you be surprised that their leasing requirements became stricter? Would you be shocked to hear that they've adopted more due diligence in their approval processes? Likely not.
Applying for a property lease should be the exact same experience as applying for a car lease. And a similar experience to applying for a mortgage.
The fact that policymakers in both Canada and the US have slashed investments in providing affordable housing across the board plays a huge factor in the housing shortage many urban centers are facing. Combining that with governments in both countries also choosing to freeze wages so that they don't keep up with inflation adds pressure in a system already in crisis.
Balancing housing affordability doesn't mean that property owners should face financial losses - that's stealing from Peter to pay Paul.
The fact of the matter is that most US landlords did the right thing during the pandemic. A study by the Joint Center for Housing Studies at Harvard University found a dramatic increase in rent forgiveness that landlords have done (at their own expense). A staggering statistic: in 2020 48% of landlords granted rent extensions and 21% of landlords forgave back-owed rent.
Applying for a property lease is a financial agreement that requires one party (property owner) to extend another party (renter) a loan over 12 months - collecting on that loan monthly. As such, it should have the same checks and balances that any other financial agreement would, for the protection of BOTH parties.
Landlords and property owners are simply protecting their personal financial risk by vetting tenants. The housing crisis isn't because landlords are performing due diligence. It's more about policymakers allowing wages to stagnate while at the same time slashing public housing infrastructure investments and incentives.
In the end, screening is a crucial part of the ANY lease approval underwriting and process. Tenant screening is legal, widely accepted in the US and Canada, and understanding your part of the process in the lease agreement includes providing the necessary information about your finances.
For more resources about how to monitor, manage, and build your credit score, visit: https://www.consumer.equifax.ca/en/personal/education/credit-score/
For a full list of your rights under the Fair Credit Reporting Act (US), please visit www.consumerfinance.gov/learnmore
For a full list of your rights under the FCAC (Canada), please visit https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/credit-report-score-basics.html
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