How to Screen a Tenant: The Importance of Proof of Banking

By: Donald Shelton

While there is always more to learn, years of comparing background checks of prospects to the results we’ve had after they became tenants have taught me a few things of value to share. The entire subject of how to screen tenants is more than can be covered in a single post, so this is one of a series.

If you aren’t insisting on proof that your applicants have current banking/savings accounts, you’re missing out on an important screening tool.

While some prospects will tell you they only deal in cash, with some plausible reason (don’t trust banks, don’t like fees, etc.), in the vast majority of cases this is hooey. The reason they don’t have a bank account is because they’ve done something that prevents getting one, or they messed up so bad the bank closed it down. We’ve gone from considering the presence of a healthy (functioning) bank account as a small bonus for a tenant prospect to more recently considering it almost a requirement.

Banks Have Changed

While once upon a time banks thought almost nothing of opening a new account for almost anyone with a few dollars to make the initial deposit (free toaster with new account!), now they are much more demanding and sophisticated. Part of this is because they are required to do more under Homeland Security and other laws, but on their own banks have begun to treat bank accounts more like a privilege similar to a credit card and police them accordingly. Bounce a bunch of checks, run a negative balance, try some check kiting, and then think you can just close those account(s) and find a new bank to move to; that won’t work so well these days. The banks talk to each other more now (like landlords should do more of at sites like www.jessaminelandlords.com) so it’s a good chance that when you try to open the new account you’ll get turned down. If the banks are doing so much of this already, why not take advantage of it for our own screening. It’s a numbers game; a higher percentage of tenants in our experience who don’t have bank accounts turn out to be skip-outs that we’re unable to enforce a judgment against. The presence of a bank account tips a few percentage points in our favor of a better tenant.

In our screening we insist now on a voided check and the two most recent statements. Here’s why: a voided check by itself could be on a closed account. Also, the statements will show you if they’ve been bouncing checks recently, and what their typical balance is (how close to zero do they live day-to-day).

The Bonus

There’s another reason to have bank account information: though it is arcane and seldom used, Kentucky has a law allowing for a pre-judgment attachment for rent. This is a powerful tool in some cases, allowing you to freeze their bank account fairly quickly when they skip out (and as it says, it is pre-judgment – this is done in a few days, often without requiring a hearing, and often without the tenant knowing – since they’ve skipped and are hiding from you – until it is too late for them to pull money out). All the details would require a few more articles to cover, and a pre-judgment attachment isn’t the easiest court procedure (though it’s primarily just paperwork), but the first thing you need is the tenant’s banking information. Might as well get that up front, when they are trying to look like a good prospect and work with you to get approved, than trying to get it when the tenant has gone deadbeat. We have used this process with some good success in some (but not all) cases. You’ll have to decide for yourself it it’s worth it, but instead of letting tenants walk all over you, wouldn’t you enjoy imagining the look on their face when they find out the money in their account is frozen and will be going to you after all?

Solid banking information gives you a better chance at a good tenant, and a better chance of nailing them if they aren’t – a nice two-for-one.

Category: Property Management, Tenant Screening

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