October 2018 Newsletter

Use of Consumer Reports in Determining Approval For Sales and Leases
– Is your Association in Compliance?
By: Jeffrey A. Rembaum, Esq
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 on 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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