Use of Consumer Reports in Determining Approval for Sales and Leases – Is your Association in Compliance?

Community associations have an interest in the safety and integrity of their communities. Generally speaking, boards of community associations would like to be reasonably certain that potential owners, renters and other occupants have the financial capability to meet their financial obligations. Also of concern are potential purchasers’ and tenants’ criminal backgrounds, if any, so as to avoid endangering the overall safety and welfare of the community.

To address these concerns, many associations have purchaser and tenant approval procedures set out in their governing documents, usually the declaration, which often authorize the association to obtain “consumer information reports” on all applicants as part of the screening process. This leads to the question of when and how a community association can utilize a background check that includes both a credit report and criminal history.

The first step is to determine if the governing documents provide for the approval process. The second step is to ensure there is meaningful criteria by which to evaluate the results of the consumer information report. The consumer information report (a/k/a the background check) is typically compiled by a consumer reporting agency or company, which is engaged in the business of gathering credit scores, reports on previous rental history, criminal background information, employer history, and verification of income amongst other information. The consumer information report cannot be used for any other purpose other than for the determination of approval. Importantly, it cannot be used in a discriminatory manner to reject housing based on race, color, religion, national origin, sex, disability, or familial status.

If the community association makes an unfavorable determination on the applicant’s status based on information contained in the consumer report, then the association MUST provide certain information to the applicant pursuant to the terms of the Federal Fair Credit Reporting Act.

1. The association must provide the applicant verbal or written notice that the applicant was denied based on the information supplied in the consumer report.

2. The verbal or written notice of adverse determination must include:

a) the name, address, and phone number of the consumer reporting company that supplied the report,
b) a statement that the company that supplied the report did not make the decision for the unfavorable action and cannot give reasons for the denial;
c) a notice of the applicant’s right to dispute the accuracy and completeness of the information in the credit report and that the applicant may request a free report from the credit reporting company within 60 days.

For the protection of the association, this notification should always be done in writing so as to provide proof positive of compliance with the Fair Credit Reporting Act. Additionally, there are local Broward and Miami-Dade County Ordinances requiring that a written notice be mailed to the rejected applicant which provides with some degree of specificity the basis for the disapproval, in addition to the notice required by the Federal Fair Credit Reporting Act.

The information that the association relied on in making the adverse determination CANNOT be released to the applicant, but the applicant may request from the credit reporting agency to see the information in the consumer information report and correct any inaccurate information. Even if the information provided a small role in the total determination of the application, the applicant must be provided the required notice by the association.

What is to be done with the consumer information report after a decision has been made? The general rule is that all information in the consumer report must be destroyed in such a manner that it cannot be reconstructed. But arguably, Florida law requires community associations to keep such records, as all written records of an association must generally be kept for seven years. Therefore, the association will want to store the consumer report in the applicant’s file, which will need to be designated as confidential with restricted access. It is NOT part of the official records open to inspection and, thus, not available upon a request to inspect the association’s official records.

If a declaration has general language providing for the purchaser and tenant approval but does not provide the standards and procedures necessary to make such a decision, then in all likelihood, the association’s approval is on thin ice and subject to challenge. This is a good time to check your declaration and seek advice from the association’s lawyer as to whether your association’s declaration approval process needs to be updated.

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