How Portland’s FAIR May Affect Lane County
Oregon is now getting its first taste of statewide rent control laws, but more could be coming. Portland has new ordinances governing tenant screening and rental application processing ready to go into effect in March 2020. Learn about those rules and their potential impact, and why Lane County investors may have to contend with them in the future.
What You Will Learn in Episode 3:
- Fair Access in Renting (FAIR), which is set to go into effect in Portland in March 2020
- The issues apartment owners will likely have with FAIR’s impact:
- 72-hour notice before taking first application
- Processing one application at a time (which means elimination of open houses for rentals)
- The need to explain why you have denied an application
- Tenants will only have to earn two times the monthly rental amount to be considered
- Changes in the credit score that landlords can require for tenants to rent their properties
- The importance of using the Housing Bureau’s rules for screening out applicants
- The need for multifamily owners to keep good records and save them
Apartment investors in Lane County should keep an eye on the new laws (known as FAIR) set to take effect in Portland in March 2020 and their effects. What happens In Portland often becomes law statewide within 12 months. These new laws in Portland will have a profound impact on tenants and landlords alike. As a multifamily owner, it’s critical to stay informed.Read the Full Transcript
New Portland Screening Ordinances
Barry MacGuire: Welcome to the Disruptions In Oregon Real Estate Podcast with your host, René Nelson, helping you stay in the driver’s seat of your investment portfolio.
As a commercial real estate broker and investor herself, author, René Nelson’s passion is to keep your hard earned real estate investments working for you. Her goal is to help Oregon real estate investors analyze and measure the value of their current real estate portfolio while exploring available opportunities. And now your host, René Nelson.
René Nelson: Thanks Barry. Today I’d like to talk about the new Portland screening ordinances that are currently being reviewed right now by the Portland Housing Bureau. This recording is happening in December of 2019.
So whenever you listen to this podcast, just be aware that the decisions were made in December and they go into effect in March of 2020.
Barry MacGuire: First thing I want to ask you, I’ve heard the acronym FAIR, F-A-I-R. What is FAIR? And is it fair?
René Nelson: Well, let me tell you the top three things and then we’ll discuss it and decide if it really is fair. So that stands for Fair Access In Renting, and Portland really felt like tenants were struggling to meet criteria for landlords.
And so that’s one reason that the city counselors put this on the docket and on their agenda to pass. And so they have passed this and approved this. It is now with the Portland Housing Bureau where they are now refining the law and it will go into effect in March of 2020.
Barry MacGuire: How is this going to affect landlords?
René Nelson: Substantially.
Barry MacGuire: Really?
René Nelson: Yeah, it really will. So I brought just a couple of the top three to five things that I think will be a big game changer for a lot of people.
And let me mention, if you want to read these in depth, you can go to the City of Portland’s website and it’s portlandoregon.gov. portlandoregon.gov, and look for the Portland Housing Bureau icon or tab that’s on the front of that webpage. And you can look at the FAIR housing rules and what they’re looking at right now. And then what will ultimately pass as law in March.
So here’s some of the top things that in my opinion will be of issue or concern for apartment owners.
Barry MacGuire: Okay.
René Nelson: You are now going to have to give 72 hours of leeway before you can take your first rental application. So you’re going to have to post a property that it’s available and you have to wait 72 hours before you can take your first application.
Barry MacGuire: Why?
René Nelson: Because they want to make it fair, F-A-I-R, to all applicants. So they feel like if a landlord just takes the first application, maybe they took the easy road and didn’t give all applicants an opportunity to apply.
Barry MacGuire: Okay. I think that’s a little long, but what do you think?
René Nelson: Well, and really one of their main criteria also is they built some of these rules because they’re also trying to make sure that people with handicaps and different things have fair access to housing.
And I can honestly tell you that every landlord that I know automatically factors that in for their tenants. Because we’re all regulated by HUD on a federal level. I mean the chance that a landlord is going to discriminate is right at none. I mean every now and then maybe they make a mistake.
But we love people that are in need and that come to us and say, I just need a great place to live. Yep, you can make an application. And for some people in Portland, I guess maybe that wasn’t happening.
I don’t know exactly, but I know that that was one of the things that the city counselors felt was not happening. That maybe people that had some disabilities were not getting a fair chance to look at housing.
Barry MacGuire: Okay. 72 hours, fair enough. What’s next?
René Nelson: 72 hours. So the next thing is how the applications are processed and the order that applications are being considered. So how this is going to work is you can only process one application at a time.
So I have had landlords who have held open houses. Hey, I’m going to be at the property from ten to noon on Saturday and just pop by and you can take a rental application. They’re not going to want to do that in the future. You’re going to want to process one application, the first application that comes to you.
You need to look at it and decide if that tenant passes your criteria and then make the decision, either you’re going to rent to them or you are not. Because tenants have felt like that they made an application, but maybe their application got pushed to the bottom and the landlord took somebody else’s application instead. So now you can only process one application at a time.
Barry MacGuire: So no more open houses?
René Nelson: No more open houses, not for renting.
Barry MacGuire: Really?
René Nelson: Yeah.
Barry MacGuire: Thoughts?
René Nelson: I believe that you’ll still be able to do open houses if you want somebody to tour it and look at it. But why would you do that? With Craigslist you can just post all the pictures that you need. Don’t open yourself up and be liable as an apartment owner and a landlord. Follow the rules.
Barry MacGuire: Okay.
René Nelson: And so from this point forward, I’m just telling all my clients, don’t do the old school. Do it the way you now need to do it to keep yourself out of trouble.
Barry MacGuire: All right. One applicant at a time.
René Nelson: One applicant at a time and you have to either approve it or deny it. And that’s the third thing. If you deny it, you have to explain the process of how and why you denied the application.
Think about it just like if you were applying at a local credit union for a car loan or a signature loan and they said, gee, I’m sorry you’re declined. You want to know why?
Barry MacGuire: Sure.
René Nelson: Same situation. If your potential landlord says, I’m sorry, you’re denied, they’re going to have to give you written documentation why they’re denying your application.
Barry MacGuire: Okay. Just real quickly, going back to the one applicant at a time, I’m not a landlord so I’ve never done this before, but doesn’t that put the landlord on the spot to actually make a decision right then and right there? I mean can’t they wait for a day or two before they accept whoever they want for that particular residence?
René Nelson: Yes. I probably wasn’t clear on that, so that’s great clarification. Yes, you can actually take your time, pull a credit report.
So it’s not like you have to decide right on the spot, but you also don’t want to take three applications all at the same time. So maybe somebody emails you one and someone hands you one or you have two or three people at an open house and they’re literally at the kitchen table or on the counter.
Barry MacGuire: That’s what I was thinking right there.
René Nelson: Filling out the application to hand it to you. Once somebody hands you the application with their screening application fee or their credit check fee, you better process that one that you have right there in your hand and just tell everybody else, just take it and I’ll call you if this first applicant doesn’t meet the criteria. I will call you, write down your phone number. That’s really all I want from you at this point.
Barry MacGuire: Sorry to backtrack on you.
René Nelson: No, no, that’s great.
Barry MacGuire: So you have to give reason. You have to stay reason which I think is fair.
René Nelson: I do too. I do too. Now the Portland Housing Bureau is going to put out the requirements. So as an example, in the past, most landlords would use a rule that you had to earn three times the rent in gross income. So if the rent was $1,000 you had to prove that you earn $3,000 between you and whoever else was going to live in the house.
Portland felt like that that was a barrier for a lot of people to get into housing. So they lowered that to two times the rent. So that will be one of the criteria that’s coming out.
Now, one other thing that I’ve heard that in my opinion will be a game changer is they’re lowering the credit score requirements and we touched on that in the last time.
Barry MacGuire: Yes we did. They’re really lowering it, down to something like 500 right?
René Nelson: Yes, that is correct. And in the past, most landlords had a requirement in the 640 to 675 credit score requirements and the Portland Commissioners just felt like that was too much of a barrier.
So that’s why they’re now lowering it. There’s nothing specifically right now on the Portland Housing Bureau website that I could find today.
Barry MacGuire: Sure.
René Nelson: But yes, in the notes and the minutes from the Portland Commissioners meeting earlier this year, they had talked in the 500 range.
Barry MacGuire: Wow. And so the national average is 695. What’s the range where it’s kind of iffy? People are going like month to month to pay their bills and stuff like that.
René Nelson: Yeah. You typically see that range in about 625 to 645. It’s where you can start to tell that people are struggling, they’re going to miss a car payment or they’re going to miss a student loan payment. And they’re starting to really juggle what gets paid. And unfortunately I think some of it is going to be rent payments in the future.
Barry MacGuire: Sure. Yeah, you’re setting yourself up for a lot of problems down the road, I think.
René Nelson: Yes. Yeah, I would agree.
Barry MacGuire: So what’s next? We got through three I believe?
René Nelson: Yeah. And I would say that the last criteria that is, in my opinion, going to give some apartment owners heartburn. Let’s go back to denying credit. If you choose not to use the Housing Bureau’s requirements that they’re going to put out, then you have to give your own list to a potential tenant of how you’re screening that person.
So think about it, Barry. You now have declined someone and they have a list in front of them of what you’ve used for requirements. They’re going to go to an attorney and say, I was discriminated against.
So I would not use your own criteria. I would follow the rules for the Housing Bureau and really learn those rules and follow them to a T because it’s really expensive. You can be sued for three times the rent in damages plus attorney fees. It’s expensive if you make a mistake.
Barry MacGuire: A lot of landmines out there.
René Nelson: Really. It’s going to be a game changer for a lot of landlords, especially people that have self-managed. A lot of the larger apartment complex clients that I deal with, they have a manager, but you have to make sure that even your manager is staying up to date and knows what’s coming down the pike for changes.
Barry MacGuire: All right, so this is happening in Portland, but why should anyone outside the Portland area even care about this?
René Nelson: Well, because normally what happens in Portland passes statewide and it’s typically within 12 months.
Barry MacGuire: It’s going to trickle down.
René Nelson: It’s going to trickle down. 2021 is a short legislation year, so we may not see it statewide until 2022 but I do believe that once Portland gets these new screening laws in place and they start tracking them, then it’s going to pass statewide.
Barry MacGuire: Have you noticed over the years, once something happens in Portland, what’s the next market? Is it Eugene, is it Salem? Is it Bend or Medford that usually follow suit right after that?
René Nelson: Yeah, that’s a good question. Ironically, when Portland passed the rules that if you were going to give a no cause notice to a tenant, then you had to pay relocation fees. Bend passed it shortly thereafter.
Barry MacGuire: Bend? Okay.
René Nelson: Well, Eugene was kind of slow to pass it and then it passed statewide and so that’s typically what we see as it goes Portland, Bend and then it normally goes statewide.
Barry MacGuire: How’s this going to impact a apartment owners going forward in the future?
René Nelson: They need to be educated and know what’s happening. Again, if they use a professional management company, they’re probably going to be okay, but if you are self-managing, you need to be really educated on what the lies and what has changed and how to protect yourself against that.
Barry MacGuire: All right, so a lot to digest here in this podcast. First and foremost, let’s do a little recap of the new screening laws have been approved in Portland, correct?
René Nelson: Yes.
Barry MacGuire: All right. Apartment owners, they need to be aware of the changes and the impact of these changes, correct?
René Nelson: Correct.
Barry MacGuire: Arm yourself. Knowledge is key. You’ve got to arm with knowledge and stay out of trouble because there are those landmines, right?
René Nelson: There are definitely landmines.
Barry MacGuire: Anything else you can add just to before we wrap things up here today?
René Nelson: Yeah, I think probably the biggest takeaway is keep really good records and save those records because a tenant has up to 12 months to come back and dispute something with you and say, hey, you gave me a no cause notice. Or you raised my rent unfairly within a 12 month time period. I’m going to sue you. So as a landlord you need to keep your records for at least 12 months.
As a real estate agent, I have to keep my records for six and seven years. So I have boxes and boxes of records. And I love it because I know if somebody has a dispute with me, I could always go and pull that file out and dig through it. And I’ve got all that documentation there.
As a landlord, I want that same peace of mind. So I typically save my rental agreements for the same time periods, six years, while I’m saving my real estate records.
Barry MacGuire: That’s a good idea. Not only legally, but I think down the road, if anything comes down with the IRS, it’s always good to have documentation of everything that has gone on in that property. Right?
René Nelson: It really is. You don’t need it until you need it. And then when you need it, you want to put your hands on it. So if you’re kind of a sloppy bookkeeper, hire somebody.
Barry MacGuire: Sure, exactly.
René Nelson: Hire a U of O kid at 15 bucks an hour to come in and help you create a bookkeeping system, a record keeping system. It’s really not as tough as it sounds. If paperwork isn’t your forte, hire somebody.
Barry MacGuire: Words of wisdom. René, what’s the website once again?
René Nelson: Yeah, you can go to stoprentcontrol.me and download a free copy of my book, Disruptions In Oregon Real Estate.
Barry MacGuire: What are some of the other things on the website?
René Nelson: Yeah, so I put a little tab or an icon up at the top that has all the information about the Senate bill 698 in relation to rent control. I also have articles on there about what landlords can do to protect themselves.
I try to keep as many articles and information on there of different things that I see that impact landlords and apartment owners. And just what we’re seeing with the general appetite, with the changes in the industry and how it could impact people.
Barry MacGuire: René, thank you so much.
René Nelson: Yes, thank you.
Barry MacGuire: Once again, check out the website, a great resource. It’s stoprentcontrol.me, and while you’re there, download the free copy of René’s new book, Disruptions In Oregon Real Estate. She covers lots of good information in the book about rent control and how it impacts Oregon real estate. And the best part is you can get a free copy of it right now. That’s stoprentcontrol.me. Thanks for listening.
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