Use Form Letter to Reject Applicants, Avoid Disputes

If applicants fail to meet your tax credit site’s eligibility requirements or if they can’t pass your site’s screening criteria, you don’t want them arguing with you over the rejection, or worse, filing a fair housing complaint. But that can happen if you leave it to your staff to write up the reasons for a rejection each time they send out a rejection letter.

A staff member might mistakenly give an invalid reason for the rejection. Or a staff member might state a valid reason unclearly, leaving an applicant uncertain about why you rejected him or leading the applicant to conclude that the rejection was discriminatory. In addition to lawsuits and possible fines from HUD or your local fair housing commission, you also face consequences from your state housing agency and the IRS if they find you’ve violated fair housing law.

The easiest way to avoid these problems is to use a form rejection letter that lists all the valid reasons for rejecting applicants and has a check box next to each one. A form letter ensures that rejections are uniform and based on acceptable reasons. You can have your staff check off the one or more reasons that apply to a particular applicant. To help you comply with fair housing law and avoid fights with applicants, we’ve put together a Model Letter: Have Staff Check Off Rejection Reasons.

How Form Rejection Letter Avoids Trouble

You may have a perfectly valid reason for rejecting an application that has nothing to do with the applicant’s race, sex, religion, family status, etc. But you can still get into trouble if you don’t communicate that reason clearly. If the applicant doesn’t understand the valid reason such as a bad credit report, he may think he’s being rejected for discriminatory reasons.

Sending a form letter can make your job easier and help you avoid these types of disputes in the first place. If applicants understand the reasons you’re rejecting them, they’ll be less inclined to argue or file fair housing complaints. And if they do sue, the rejection letter should help your case by showing HUD or a court that you apply the same rental qualifications to all applicants. Using a standard rejection letter for every applicant can also help satisfy state housing agency auditors that your site handles tax credit applicants fairly and give a good general impression of your site’s tax credit compliance.

If your rejection is based entirely, or in part, on an applicant’s credit report, you must comply with a federal law called the Fair Credit Reporting Act (FCRA). In this case, you must send an additional letter at the same time as the rejection letter, spelling out the applicant’s rights under the FCRA. The notice or letter must include:

• The name, address, and telephone number of the credit reporting agency that supplied the consumer report, including a toll-free telephone number for credit reporting agencies that maintain files nationwide;
• A statement that the credit reporting agency that supplied the report didn’t make the decision to take the adverse action and cannot give the specific reasons for it; and
• A notice of the applicant’s right to dispute the accuracy or completeness of any information the credit reporting agency furnished, and the applicant’s right to a free report from the credit reporting agency upon request within 60 days.

What Are Valid Reasons for Rejection?

It’s easy to tell applicants why you’re rejecting them if your letter has a checklist of valid reasons for rejecting applicants, and all your staff has to do is mark off the right ones. Our letter lists 11 specific rejection reasons, but your letter may have more or fewer reasons, depending on the eligibility and screening criteria your site uses.

The rejection reasons are based on the two general grounds for rejecting applications to tax credit sites. To avoid fair housing problems, you must base your rejection on one of these two grounds. They are:

Applicants are ineligible. You must reject an application if the household income exceeds the income limits for the tax credit program, or if the household is comprised entirely of full-time students and doesn’t fall under any of the exceptions allowed under tax credit rules. You can also reject an application if household composition doesn’t meet the requirements of other programs in which you participate. And you can reject an application if your site doesn’t have an appropriate unit size to accommodate the household or if your waiting list for the appropriate size unit is closed.

Applicants don’t meet site’s screening criteria. If applicants meet your site’s eligibility requirements, you must still reject them if they don’t meet the screening criteria spelled out in your site’s resident selection plan. For example, your site may reject applicants who have a criminal record or who have been evicted by prior landlords.

How to Spell Out Rejection Reasons in Letter

If applicants aren’t eligible, you have a cut-and-dried reason for rejecting them. Most managers don’t bother going through the time and expense of getting credit reports and references for such applicants. If applicants meet eligibility requirements, you can reject them only if they don’t meet the screening criteria spelled out in your resident selection plan.

When you send out the rejection letter, check off all the reasons for rejection that apply. If you can document a particular reason for rejection, go ahead and check it off even if you’ve already checked off other reasons. This will help you deal with the applicant in one fell swoop. If you hold back on informing an applicant about a valid rejection reason, you could make more paperwork for yourself or open the door to fair housing trouble.

For example, suppose an applicant meets your site’s eligibility requirements, but a credit check reveals that she has a bad credit history, and a landlord reference reveals that she routinely damaged property at her previous site. In your rejection letter, you check only the box relating to a bad credit history. If she gets the credit bureau to revise her credit report, so that it now meets your standards, and if you subsequently reject her based on the bad landlord reference, you’ll have to send out a second rejection letter. This could give the applicant support for a fair housing complaint that you’re harassing her by looking for rejection grounds rather than dealing with her fairly.

Consider Giving Applicants Chance to Appeal

Our Model Letter gives rejected applicants a chance to appeal within 14 days of getting the rejection letter by responding in writing or requesting a meeting with you. This is something HUD requires owners of federally assisted housing sites to do. But it can be a good idea for tax credit sites, too. It may be good business, since it shows that you’re open-minded and fair. Those who do appeal may want to explain personal circumstances such as big medical bills or a divorce that may have hurt their credit rating. This kind of information is useful and may warrant a reappraisal of the application.