Don't let the screening door hit you on their way out: potentially devastating consequences exist for residential properties that must deal with a long list of rent collections. Stewart shows that by having proper criteria in place and applying it equally and consistently, property managers can greatly reduce this list and avoid vacancies.

The vast majority of people placed for collection by multifamily properties never should have been granted occupancy. Confirming this can be done simply by checking past resident files. Audits performed of these invariably point to several unavoidable conclusions.

* Screening was not perforated because the property's resident service team does not have a standard screening practice; or, no employee had the time to do one.

* The criteria employed during the screening are deficient. Resident service teams should consider the amount of debt and payments in the profile of the resident neighbor, as well as the resident neighbor's timeliness of payment. They should use data or a statistical model that works best for them. They should be strict on credit, and not simply allow lease-breakers to move right in.

* The standards for occupancy might have been compromised or abandoned. This is very, dangerous because every time an exception is made, discrimination has taken place against anyone else who was not given the same consideration.

* The screening being performed was inadequate or inaccurate. When screening is done onsite, it is common to see different staff members interpret the same criteria differently. And, all screening suffers during busy times. It is also not uncommon for leasing commissions and budget-based bonuses to have a negative effect on screening. However, it is usually the loud cry by owners and upper-management for "occupancy" that causes screening programs to be compromised. In those cases, the criteria developed to prevent undesirable applicants from gaining access to the property are abandoned.

Proper resident screening is the only opportunity a resident service team has to avoid the delinquency and bad debt that so devastate the financial well being and effective operation of a property. A weakening or abandonment of screening so as to achieve short-term occupancy goals results in a rise in defaults and delinquencies. Resident service teams must evaluate their screening critically with the intention of identifying what is driving the debt.

To evaluate the effectiveness of a screening program, review a representative sample from collection files. One way to do this is to pick five letters of the alphabet. Choosing the first two collection files whose last name begin with the letters chosen will provide a random sample to review. Add more letters or pick more files to increase the sample. If a small number of files exist, go ahead and review all of them. That will provide a variety of cases and circumstances to review.

Fair Play, Fair Housing

Begin by reviewing the applications. Is the application signed? Are the applications complete or do they contain blanks and incomplete information? Although resistance by applicants is the most common excuse for poorly completed applications, there is no excuse for not obtaining complete disclosure from every applicant. Applications should be completed to the same extent for several reasons, not the least of which is that Fair Housing requires that identical standards be applied to each applicant.

Whether screening is done by a service or by an onsite staff, the results are only as reliable as the information provided in the application. Though some applicants might object, make sure each application is fully completed. Each person must undergo the same level of scrutiny--being held to a higher standard during the application process ensures that discrimination does not occur.

It also is helpful to explain that consistent and stringent screening helps create a positive living experience within a community or property.

Residents also must understand that they are being given control of, and certain rights to, a valuable asset--their apartment. Just as a car loan or mortgage purchaser must be qualified, renters must provide fairly detailed financial and personal information to qualify for occupancy. That "previous owner" information and the phone number of the next of kin are critical. No owner should overlook any omission on an application.

The quality of the application is crucial not only during screening, but also when a file goes to collection. It is the first thing a collector looks at when they review a file. The application is the most useful tool in locating debtors who are trying to hide. The accuracy, amount of detail and content of that application are indispensable when trying to locate people who seem to forget to provide a forwarding address.

License plate information, bank account numbers, references and relatives might seem to be trivial data on an application, but people can be found with DMV and plate information. Bank accounts can be cited and the money owed can be taken out to satisfy a debt. The number of debtors found through checking family and references is amazing. When a financial situation worsens, most people either head for home or contact with relatives. Always require complete disclosure on an application.

The words "ADDRESS CORRECTION REQUESTED" should appear on the lower left-hand side of the envelope in which the Security Deposit Disposition forms are mailed. If former residents have skipped or failed to provide a forwarding address, resident services teams should mail the statement to the respective address that the person held at that community.

If the person who skipped or failed to provide a forwarding address filed a change of address with the post office, the statement sent by the resident services team will be forwarded to them. And the post office will return a postcard to the resident service team's former resident's new address. There is a charge of 50 cents for this service, but it is valuable information for a collector that is worth obtaining.

Why is There Bad Debt?

It is important to examine the Credit Bureau Report (CBR) in each file. Ask, "Did this former resident qualify based on your criteria?" If that cannot be answered, it is likely that no set criteria exist.

Without well-established criteria that are applied uniformly, a resident service team can exercise little control over the creditworthiness of those living in their respective community. Expect to find bad credit, too much credit or no credit at all in the majority of those CBRs. Remaining is the question, "Why did this resident end up in my bad debt?"

Most often, it is found that standards for accepting or rejecting an applicant were compromised. At some point, occupancy concerns outweighed the protection of the screening process that was implemented so that the property and its revenue stream are secure. People who did not meet the property's standards were allowed to move into the property. Rather than simply opening the floodgates to fill much-needed vacancies, adjust criteria to prevent discrimination and protect the integrity of the screening program.

Adjustments may be as simple as increasing the number of 30- to 60-day delinquent accounts that will be accepted on the applicant's CBR, or raising the rent-to-income ratio used to qualify applicants. If standards for accepting or rejecting applicants were compromised, it must be determined if it was done with proper authorization. If overrides become commonplace, the criteria are meaningless. Furthermore, the screening process becomes merely a perfunctory clerical activity with no basis in objective analysis.

If criteria is in written form, determine if they are being accurately and uniformly applied to each applicant and whether the decision to accept or reject the applicant has been carried out or overridden. Files probably exist where a resident service team took a chance on an applicant, just to fill a vacancy, and then later regretted it when that resident lost their job and skipped. Without clearly defined criteria, subjective decisions are made with nothing to justify rejecting one person and not another. That will lead to difficulty if Fair Housing Act complaints are filed.

If the screening process consists of onsite staff pulling a credit report and making verification calls, they may not be performed as thoroughly as the task requires. Time constraints sometimes cause the process to be set aside or compromised. When a family shows up at the leasing center of an apartment community that has an 80 percent occupancy rate at 4 p.m. Saturday with a U-haul truck, the tendency is to not screen the applicant properly. Once these residents are firmly ensconced in the property, lease in hand, a discovery may be made that the family had been evicted or skipped from the apartment in which they previously lived.

In addition, commissions also have been known to play a role in some applicants' ability to gain occupancy. Leasing agents and management personnel whose compensation are based on or enhanced by leasing commissions have been known to "push through" unqualified applicants who later default.

One or two leases sometimes can make the difference in achieving the occupancy or budget goals that earn onsite staff bonuses. This places them at odds with the primary objective of the screening process. Reviewing collection files often explains how defaulted residents gained occupancy.

Dealing with Straight 9s

Resident screening criteria can be extremely complex and detailed, and may provide a wealth of information about applicants in addition to qualifying them for residency. But the things that cause an applicant to be rejected are by far the most important elements of criteria.

Resident service teams should be very specific in determining what is acceptable. Most screening rejections occur as a result of information contained in a CBR. Also this is where the clearest criteria violations are found. It is far better to adjust criteria than to simply disregard it. A documented adjustment to criteria is an accepted business practice and can be defended as such. But, making subjective screening decisions can leave a resident service team defenseless and unable to explain exactly when, how or why a criteria change was made.

Finally, resident services teams must be mindful that applicants with straight "9s" on their CBR did not pay their bills before joining the community. Those 9s become collection accounts with many going on to become garnishments and citations of bank accounts which, in turn, result in the delinquencies and defaults that screening is supposed to help avoid.

Filling occupancy goals or not, when applicants are accepted without proper screening or with terrible credit, bad rental/mortgage histories or no verifiable source of income, the effects of delinquencies, defaults and repossessions will surface within months. Only 14 percent of all collection files placed each year are recovered. There is nothing magic about collections. It requires a thorough understanding of the debt, its underlying documentation, and strict adherence to the law, but it is not rocket science.

If unqualified applicants are accepted into a community, its bottom-line will under-perform. The only legal and effective way to avoid the debts and delinquencies is through reliable resident screening. Otherwise, a team providing resident services is relying on luck and prayer.

F. Chris Stewart, CPM, is Vice President, Superior Recovery Systems, Inc., Schaumberg, Ill. He can be reached at 800/589-2680 or e-mail [e-mail].