Best Practices For Responding to Income Verification Discrepancies

In the property management world, ensuring that renters have the financial stability to meet rent obligations is essential. Income verification is a customary part of the tenant screening process.

However, landlords sometimes encounter discrepancies during this process. Effectively addressing these variations is key to maintaining a smooth, legal rental business.

This article highlights several best practices for responding to income verification discrepancies.

Common types of income verification discrepancies

When screening applicants, it’s essential to verify their income to ensure they can afford rent accurately. Here are some common types of income verification discrepancies to be on the lookout for:

Falsified Pay Stubs. Some potential tenants might edit the numbers on their pay stubs to show higher income, while other candidates might provide fabricated pay stubs from non-existent or unverified sources.

Inflated Income. Applicants might exaggerate the number of hours worked or their hourly wage/salary. They also might include irregular or one-time sources of income as if they were regular.

Inconsistent Information. Look for discrepancies between the income stated on the application and what’s presented on pay stubs or bank statements. Some applicants may provide false or misleading contact information for employers to avoid verification.

Unreported Side Jobs. Income from unreported or cash-based jobs not documented in official records is a red flag.

Self-Employment Issues. Check for inconsistent income from self-employment – this can make it difficult to determine a steady income level.

Outdated Documents. If an applicant hands over outdated documents that don’t accurately reflect current income status, it’s important to dig deeper.

Bank Statement Manipulations. Some applicants might edit bank statements to show higher deposits or more frequent income.

Initial steps after spotting discrepancies

Landlords should approach any discrepancy calmly and professionally. Jumping to conclusions or getting confrontational can lead to unnecessary tension. Instead, give tenants the benefit of the doubt and consider the possibility of an honest mistake or misunderstanding.

Before contacting the rental applicant, double-check the information you have on hand. Ensure that the data you are comparing represent the same periods and that there are no admin errors on your part. This strategy can help prevent embarrassing mistakes and ensure your concerns are legitimate.

Here are several additional steps to take after you detect any discrepancies:

1. Request Additional Documentation. If you suspect any issues or errors, ask the applicant for additional documentation. This might include pay stubs, bank statements, or a letter from their employer. Be very specific about what you need and the reason why. Most prospective renters will understand that this is a typical part of the process and will cooperate.

2. Use a Consistent Process. A consistent process income verification process for handling discrepancies can prevent discrimination allegations. Use the same criteria and steps for every potential tenant. Always document your process and keep records of all communications and documents exchanged.

3. Communicate Clearly and Transparently. Explain the discrepancy, why it’s a concern and what additional information you need to resolve it. This approach helps develop trust and shows that you are fair and thorough in your screening process.

4. Consider the Whole Picture. Income verification is merely one part of the tenant screening process. It’s also important to consider the applicant’s entire financial picture, including credit history, employment stability and rental history.

5. Be Aware of Legal and Fair Housing Considerations. It’s crucial to comply with Fair Housing Laws, which prohibit discrimination based on race, color, national origin, religion, sex, familial status or disability. Ensure that your income verification process and any actions taken in response to discrepancies comply with these laws. You can also consult a legal professional familiar with landlord-tenant law to help navigate complex situations.

6. Set Clear Policies and Share Them. Before any discrepancies occur, clear policies regarding income verification should be set and communicated to all applicants. This strategy can minimize misunderstandings and provide a reference point if a discrepancy does arise.

7. Document Everything. Keep detailed records of all interactions, documents and steps you take to resolve the discrepancy. This can be invaluable if there’s ever a dispute or if you need to show your compliance with fair housing laws.

8. Know When to Move on to the Next Candidate. If a prospective renter can’t provide satisfactory evidence of their income or if the discrepancy can’t be resolved, it may be wise to move on to another applicant.

How to properly communicate with the applicant

Effective communication with prospective renters during income verification ensures transparency, trust, and accuracy.

Let applicants know upfront that you will verify their income as part of the screening process. Always provide a clear list of the documents you will need, including pay stubs, bank statements, tax returns, etc. Carefully describe why income verification is necessary and how you will conduct the process. Let applicants know how long the process will take and when to expect a decision.

Be extremely specific about the exact documents needed. For example, you may want to request the candidate’s last three months of pay stubs, a letter of employment, or recent bank statements. If an applicant can’t provide a specific document, suggest acceptable alternatives.

It’s important to remain professional. Write emails or letters to request and follow up on documents. Ensure all communications are polite, kind, and respectful of the potential tenant’s privacy. Send gentle reminders if you don’t receive documents within your specified time frame. And if any documents are unclear or incomplete, respectfully ask for clarification or additional information.

Make sure that you send and receive sensitive information via secure channels to protect the applicant’s privacy. You can assure them that their personal and financial information will be kept confidential and used exclusively for verification purposes.

Keep potential renters informed about their application status and any pending documents. Always communicate the final decision promptly, providing specific reasons if you deny the application due to income verification issues.

How to verify the authenticity of the documents and cross reference other documents provided

Want to minimize the risk of rental income loss? Here’s how to effectively verify the authenticity of applicant documents and cross-reference them with other provided materials:

Verify Pay Stubs. Ensure that the appearance, such as formatting, fonts and layout, is consistent across multiple pay stubs. Also, confirm details like employer name, pay period dates and tax deductions – any irregularities or signs of alteration can be red flags.

Contact Employers. Reach out to the employer directly using a verified phone number or email found on a legitimate company website. You can also request a letter of employment on official company letterhead, including salary details, position, and length of employment. Additionally, many landlords use third-party employment verification services to confirm an applicant’s employment status and income.

Review Bank Statements. Double-check that income deposits match the amounts stated on pay stubs or other income documents. Another tip: look for regular income deposits and compare them to the pay schedule. Keep an eye out for unexplained deposits or irregular income patterns that don’t align with the provided pay stubs.

Analyze Tax Returns. Ensure that the income on tax returns aligns with other documents like bank statements and profit and loss statements. Review tax returns (Form 1040 and Schedule C) for self-employed applicants to verify income claims.

Utilize Professional Verification Services. Use a comprehensive tenant screening service that includes income verification part of its checks.

Inspect Bank Statements Thoroughly. Make sure consistent monthly payments align with the prospective renter’s stated income. Always question the applicant if you notice edited or tampered statements – and verify with the bank if needed.

Conduct Comprehensive Background Checks. Perform credit checks to assess the potential tenant’s financial history and current obligations. Verify rental history with previous landlords to evaluate reliability and payment consistency and conduct personal and professional reference checks to gather additional information on financial stability and their character.

How to assess the applicant’s explanation for the discrepancies

If you discover discrepancies in an applicant’s income verification documents, carefully assessing their explanation is crucial. Here are some suggestions on how to evaluate these explanations effectively:

Request Clarification in Writing. Ask for a written explanation for the discrepancies to ensure clarity and provide a record of their response.

Evaluate the Explanation. Determine if the explanation is consistent with other information provided, staying focused on whether you receive logical, plausible reasons. Still in doubt? Ask for additional documents or evidence to support the explanation, such as additional pay stubs, updated bank statements or employer letters.

Consider the Nature of the Discrepancy. This can include simple clerical errors or minor inconsistencies, each of which is understandable and can be easily clarified. However, if you detect significant discrepancies, like large differences in reported income or questionable alterations in documents, require a more thorough investigation or deny the applicant.

Cross-Reference Information. Confirm the applicant’s explanation by reaching out to third parties – think employers or financial institutions – using verified contact information. You can also use public records or professional verification services to cross-check the prospect’s claims.

Use Professional Judgment or That “Gut Feeling.” Trust your instincts and experience as a landlord. If something feels off, it’s important to investigate further. Don’t hesitate, if needed, to consult with property management professionals or legal advisors for guidance on handling complex discrepancies.

Making a decision and next steps

Handling income verification discrepancies with professionalism, consistency, and transparency can help ensure a fair, legal tenant screening process.

When making your final decision, remember to consider any explanation as part of a holistic evaluation of the applicant, including income, credit history, rental history, and overall reliability. At the end of the day, always weigh the risks associated with any discrepancies and the applicant’s explanation versus the benefits of accepting them as one of your renters.

By following the above best practices, you can make informed decisions that protect your investments while maintaining positive relationships with prospective tenants.