How a Letter of Explanation Can Save a Troubled Tenant Application

VOLUME VII

By Nikki Davidson

Landlords are protective of their property when deciding if a potential tenant will be a good fit for their rental. They'll likely run a criminal, credit and eviction background check to dig up any possible dirty laundry. Unexpected red flags can get an application thrown out quickly. If a Realtor knows something unfavorable will appear on a hopeful tenant's paperwork, be straightforward.

According to a TransUnion’s SmartMove report, nine out of 10 landlords conduct credit and criminal background checks on their prospective tenants. But that doesn't mean a rocky past is an automatic rejection. A Letter of Explanation is an opportunity to explain suspicious reports and give the landlord the full context of the situation.

The following is a list of what should and shouldn't be included in the letter to help a tenant secure the rental.

Give Context to Criminal History

The National Conference of State Legislatures reports that 77 million Americans, one in three adults, have a criminal record. However, landlords can't legally decline a tenant for that reason alone. In this case, a Letter of Explanation can be a game-changer.

Under the Fair Housing Laws, landlords must consider individuals on a case-by-case basis, and evaluate the nature and severity of the crime and when it was committed. The laws about how landlords should evaluate drug- or alcohol-related offenses are especially complex.

The National Association of REALTORS reports that it's reasonable that landlords avoid tenants convicted of selling or manufacturing drugs. However, if the conviction was only for possession of illegal substances, they must be given different considerations as the charge doesn't constitute the same danger to people or property at the rental.

No matter the crime, a Realtor can help the landlord understand the situation by providing a Letter of Explanation highlighting how long ago the offense occurred, if tenants have had a clean record since then and if they've completed a rehabilitation process.

Explain a Poor Credit Score

It's terrible timing for a tenant to have a bad credit score because the national average is currently sitting at a record high.

According to data from consumer credit reporting agency Experian, more than two-thirds of the country had "good" credit in 2021, with an average score of 714 in the third quarter. Florida experienced one of the highest credit score increases in the nation, jumping up six points in 2021 to 707. The average credit score also increased in Texas; it rose four points to an average of 692.

Meanwhile, personal finance company Credit Karma reports that "bad credit" is typically any score below 600. If the tenant has a low score due to one-time or extenuating circumstances such as medical debt after a lengthy hospital stay, a sudden job loss or even identity theft, a Letter of Explanation might save that application. The letter should explain what has changed and what will be happening in the future to repair the tenant's credit.

If a tenant has a low score due to a repetitive history of missed payments, maxed-out credit cards or other money mismanagement, the letter will have to take a different approach. It may be better to note that the tenant is willing to pay a higher security deposit or pay the last month's rent to give the landlord an increased level of protection.

Reveal a Broken Lease or Eviction History

A past eviction can be the biggest red flag on a potential tenant's application. But the reality is that many tenants may not be financially prepared to go to court. According to the Lawyers’ Committee for Better Housing, eviction trials usually happen on the first court date and are often the sole opportunity for a renter to fight the case.

Renters may also have to prepare to pay for a jury trial instead of one with just a judge, including filing for an “Appearance and Jury Demand” at least 14 days before the trial. With all of these moving pieces, some tenants may choose to just move out.

According to the Eviction Lab at Princeton University, tenants with legal counsel are less likely to be evicted. However, fewer than 10% have access to legal counsel during pending eviction cases, compared to 90% of landlords.

Either way, if past-due money owed has since been paid, the Letter of Explanation should highlight that and briefly explain why the eviction happened and why it won't happen again. If a friend or family member is willing to co-sign, that could also help sweeten the potential lease arrangement.

If the tenant broke a lease for an unforeseen circumstance like a job loss or family separation, that should also be explained in the letter. Additionally, the applicant could note if the fees and amount due to the landlord were paid promptly.

Ultimately, even a well-written Letter of Explanation may not be enough to get an application approved. However, honesty upfront may save a tenant the cost of processing a full background check, which could allow them to spend that money on an application with a higher likelihood of approval.

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