Do Your Own Credit Check Before You Rent

August 14, 2013

I knew I needed to have pretty good credit before I rented my home, but I never thought I’d have to check the credit of my landlord.  This was a lesson I learned several years ago after losing my security deposit to a landlord that eventually filed for bankruptcy. It all started six years ago when my wife and I moved to North Carolina. We were looking to purchase a home, but with so many on the market, we didn’t want to rush to buy, so we decided to rent for a few months.

Most apartment complexes were looking for a one-year agreement, but we didn’t plan on renting for that long, so we were pleased to find a landlord that was willing to rent a home on a month-to-month basis. We lived in California at the time, so we contacted the landlord by phone to make arrangements.  We never physically visited the place, but we did have a friend check it out, and we did see pictures online as well as through email. We figured it would be short term, so we agreed to the terms: first and last month’s rent, plus a one-month security deposit.  We signed the agreement, and for five months, we rented a house.

Eventually we purchased a home of our own, and after giving the landlord 30-days notice, we packed up our stuff and moved out.  Normally, the landlord would be there when you leave to inspect the property and to make sure it was left in the same condition it was found. However, this landlord never showed up and simply asked us to drop off the keys with his dad.  That was the last time we ever heard from the landlord.

Without boring you with details, for the next several years we attempted to collect our security deposit, including taking the landlord to small-claims court.  We received a favorable judgment, but we still never heard from the landlord until one day we received a letter in the mail telling us that the landlord was filing for bankruptcy and that our judgment was included in the petition. Needless to say, we were not the only ones this person owed money to so we accepted the fate of our security deposit and learned a valuable lesson: when renting from an individual, check THEIR credit.

In reality, if you ask a private landlord for permission to run a credit check, they’ll probably tell you to take a flying leap, so here’s what you can do instead.

1. Ask for references.  A good landlord should have plenty of good references.

2. Agree upfront that your security deposit will be held in an escrow account and ask to see monthly statements verifying the funds are there.  A good landlord should not have a problem with this request.

3. Watch for the following warning signs that may tip you off that the landlord may be having financial issues:

• The home was not well kept. Susan and I knew the risk of renting a home site unseen, and in hindsight I may have wished we had just rented an apartment for a year, but you know what they say about hindsight. My suggestion: never rent a home site unseen.  How well the home is kept may be indicative of how well they run other parts of their lives, including their finances.  If the home is in disarray, imagine what their finances are like.
• The owner was never around, and his dad came around most often. When there was a problem, the landlord had his dad show up to fix things. Maybe that’s because the dad is a better handyman, or maybe it’s because the landlord does not want to be seen. Either way, it’s generally not a good idea to do business with someone that operates in the shadows.
• We began receiving calls from creditors looking for the owner. This should have been the biggest clue. Once our phone service was established, we began getting calls from companies trying to contact the landlord or his wife. It was obvious they owed money, so my spider senses should have kicked in at that point.
• The landlord never answered the phone. It didn’t dawn on us at the time that we always left messages and then received calls back. This is typical behavior of someone that is trying to avoid being contacted by creditors. Looking back, these things seem obvious, but at the time, we were naïve. We’d rented before and never had a problem so we didn’t even think that such a problem might occur.

The worst part was that we would have been sympathetic to the landlord. If he had just told us that he was having financial problems, we would have at least tried to work with him to make payments or accept an offer in compromise, but he just ignored us, and that made it so much worse. As I mentioned, we took the landlord to court, which cost us money, and we never received a dime. It would have been better to just let it go, but it would have been best to never do business with this person in the first place.