Michigan Background Checks

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Michigan Background Checks

Background checks are a vital part of thorough tenant screening. Every landlord needs to know the history of every applicant. Background checks give you a good idea of whether someone makes payment on time, stays out of massive debt, has a criminal past, and a lot more.

 

Background checks reduce the chances of tenant turnover, protect you from liability, and help you and other tenants remain safe.

 

In this article, we’ll help you understand what background checks consist of, how to ensure you get the information you need, and what you need to know about your state’s rules regarding them. 

What are Background Checks?

  1. Credit Report: Aside from a lease agreement, a tenant credit might be the most crucial document for a landlord to understand. This document is one of the best ways to determine whether someone will pay on time and in full. Here are the main components of a credit report:
    • Basic information like former names/aliases, current and previous addresses, etc.
    • Fraud indicators like invalid phone numbers or phony social security numbers
    • Tradeline summaries that give a snapshot of an applicant’s active accounts
    • Inquiries that show a list of companies who viewed an applicant’s credit file over the last two years
    • Credit/resident score
    • Winter weather damage

    The credit score and the resident score are key. A credit score is a numerical value anywhere from 300-850 that helps illuminate an applicant’s creditworthiness. If an applicant has a score of 500 or less, proceed with caution. Most reliable tenants will ave a score above 560. A resident score is similar to a credit score, but more directly reflects someone’s reliability as a tenant. Both scores are proprietary, so the exact formulas aren’t available to the public. That said, resident scores typically include a recommendation on whether to accept an applicant or not (this shouldn’t be treated as gospel obviously, but it’s helpful).

  2. Criminal History: Wide-sweeping national databases, more narrow specific state databases, and granular county records are the main elements of most criminal history reports.
  3. Income Verification: There are several ways to verify income. Let’s look at some of the most common here: whether someone will pay on time and in full. Here are the main components of a credit report:
    • Pay Stubs: Paychecks are the most common way to verify income. Anyone with full-time or part-time employment can make copies of paychecks and send them to you.
    • Yearly Tax Returns: A federal tax return is another option to obtain proof of income. This is often an excellent option because it’s an official legal document, so it’s difficult to fake.
    • W-2 Tax Form: These forms show employer’s withholding payroll taxes from workers’ earnings. This is another good option because it’s a document directly from an employer.
    • Bank Statements: This method is especially effective for self-employed applicants because they won’t have regular pay stubs like those who work for traditional businesses.

    Important Note: Innago’s new income verification feature, which you can learn more about here, makes it easier than ever to ensure your tenants have the necessary funds to pay you

  4. Eviction History: Except in cases where overdue rent went to collections or a previous landlord reports late payments, credit reports don’t usually show evictions.  Federal law typically prevents evictions from being shown on a background check after seven years, but this figure varies by state
    If you cannot see an applicant’s eviction history on a credit report or obtain the information by contacting their previous landlords, then you may pull an eviction report. However, certain states have restrictions on different kinds of reports (we’ll address those if they’re relevant later in this piece).
    Eviction history matters because the cost of an eviction for landlords is often between $4,000 and $7,000 or more. That means that if a tenant was evicted, they likely left their previous landlord with no other choice.
  5. Application: A rental application is a preliminary form used to obtain basic information about an applicant and their eligibility. Most applications ask for this information:
    • Landlord References: Contact previous landlords and get their take on applicants. This is a critical step that some landlords skip over. Make sure you’re not one of those landlords.
    • Employment History: You want to know current and former employers and get consent to contact them.
    • Written Permission to Run a Credit Check
    • Legal Disclosures: Here’s a helpful article on what disclosures to include.
    • Additional Inquiries: Be careful here. Make sure you don’t ask questions that violate laws. Only ask about things like pets or smoking. And make sure you’re consistent.

Why Do You Need to Run Background Checks?

Background checks in general are utilized by a variety of groups: landlords, employers, lenders, licensing agencies, government agencies, etc. Tenant screening or employment background checks are run to ensure that a candidate for a job, license, property, or loan is properly qualified and does not have a history of behavior that would interfere with their ability to perform the duties required under contract. Background checks minimize legal liability, protect companies’ assets and current employees, and are sometimes required by clients.

 

When it comes to landlords, background checks are needed to: 

    • Protect the safety and property of other tenants
    • Reduce tenant turnover
    • Minimize legal liability
    • Increase the likelihood of on-time rental payments
    • Avoid conflict and crime in the rental community
    • Narrow down applicants for a high-demand property
    • Prevent expensive and lengthy eviction processes

Michigan Background Checks

Landlords in the “Great Lakes State” should run background checks on potential tenants as a precaution and general policy. Here are three reasons to run background checks in Michigan: 

  1. Identify rental application fraud 

Rental application fraud, which occurs when a tenant lies on their application or submits falsified pay stubs, bank statements, etc., is on the rise across the country. According to recent data from Snappt, the city of Detroit has an 8.0% rental application fraud rate, the 14th highest among major U.S. metropolitan areas. If a tenant lies on their rental application or submits fraudulent documents in Michigan, a credit check can uncover the truth before you allow the tenant to occupy your property. 

  1. Avoid future evictions 

Running a tenant’s eviction history in Michigan can also help you avoid evictions for nonpayment or criminal activity. Based on county data and statistical modeling from the Eviction Lab, Michigan had a 16.6% eviction filing rate pre-pandemic in 2018, with an estimated 192K eviction filings in that year. Eviction rates across the country continue to rise, making it extremely important to avoid that risk if you can. 

Eviction in Michigan is a long and expensive process, taking anywhere from two weeks to two months. Because tenants with a previous eviction are more likely to be evicted again, running an eviction history is essential component of a Michigan background check and can help you avoid high turnover. 

  1. Learn about the existence or nature of illegal activity 

It’s also important to run criminal background checks in Michigan. According to 2022 data from the Citizens Research Council of Michigan, the state’s three-year recidivism rate is 23.6%. Although this is the lowest it’s been in Michigan history and currently one of the lowest in the country, individuals released from prisons in Michigan still have an almost 1 in 4 chance of reentering the criminal justice system within three years. While landlords cannot have a blanket policy for denying convicts, certain crimes (like sex offenses) restrict convicts from certain housing options and are valid reasons to deny a tenant. 

What do Background Checks in Michigan Cost?

Background checks are relatively affordable across the U.S., but their costs vary depending on the area searched and the level of information requested. Searching national records typically costs between $13-60 per person, while searching an individual state’s records costs between $10 and $25 per person. The Michigan State Police offers state criminal background check reports through the Internet Criminal History Access Tool (ICHAT) for a fee of $10 per report. County records, which tend to be more accurate and up to date, cost $16-$25 per person per county checked. You can learn more about each of these specific types of background checks in our article on the topic. 

Which Laws Apply to Michigan Background Checks?

A state of Michigan background check cannot be used by anyone for any purpose. Due to fair housing and employment protections, the use of credit reports and criminal background checks in Michigan is restricted by several laws. A criminal background check Michigan considers complaint must adhere to state laws. 

Michigan is a “Ban-the-box” state, with state-wide ban-the-box laws in addition to city ordinances and other local laws. Below are Michigan’s major state-wide background check laws, but be sure to check your individual city and/or county for further restrictions. 

Executive Directive 2018-4 

This ban-the-box law applies to public sector Michigan employers and prohibits them from asking about criminal history until after an initial interview or conditional offer of employment.  

MCL § 37.2205A  

This Michigan ban-the-box law prohibits all employers in the state (besides law enforcement agencies) from considering misdemeanor arrests, detentions, or dispositions that did not result in convictions when evaluating candidates for employment (or conditions/privileges of employment). Note that this law does not apply to felony arrests. 

Executive Directive 2019-10 

This law protects gender wage equality by making it illegal to ask about a job candidate’s salary history or current salary during pre employment background checks in Michigan until after a conditional offer of employment is made. 

House Bill 4980 (2020) 

Under this law, Michigan individuals with up to four misdemeanors or up to two felonies will have their convictions automatically expunged from their criminal records. However, they need to be conviction free for at least seven years (for misdemeanor convictions) or ten years (for felonies). Automatic expungement does not apply to certain convictions, including human trafficking, assaultive offenses, crimes involving dishonesty, crimes against children or disabled people or the elderly, and a few others. 

Local ban-the-box laws have also been passed in East Lansing, Genessee County, Kalamazoo, Grand Rapids, Muskegon County, Oakland County, Ypsilanti, Detroit and several other localities. 

Housing in Ann Arbor 

In the city of Ann Arbor, a 2021 ordinance made it illegal for landlords to “inquire in any way about a housing applicant’s criminal history or require disclosure of criminal history, or to deny someone housing if such information is received” (There are a few exceptions). Other cities in Michigan may have their own versions of this law, so be sure to do the appropriate research. 

Adverse Actions 

If you decide to deny an applicant, it’s critical to know rules and regulations regarding rejecting potential renters. Read this article to review legal reasons for denial and how to abide by the Fair Housing Act. If you deny an applicant based on information in consumer reports, you’ll need to send them an “adverse action” notice. Read more about these notices here. 

 

Know Michigan Background Check Laws 

Before you run a background check in Michigan, be sure you’re aware of the state and federal laws that apply to their use. Keep in mind that while all Michigan counties are subject to state-wide laws and executive orders, some counties may enforce additional regulations. Additionally, you must get written consent from a tenant before running a background check. Be sure you’re educated on the law in your region and adhere to the HUD’s recommendations if viewing criminal records is part of your tenant screening process. 

How far back do Background Checks in Michigan go?

When you use consumer reports to make tenant decisions, you must comply with the Fair Credit Reporting Act (FCRA). 

  

Section § 605 – 15 U.S.C. § 1681c of The Fair Credit Reporting Act (FCRA) applies in all 50 states and mandates a seven-year restriction on reporting certain background check information like civil suits, civil judgments, and arrest records (except in certain cases where an employer is hiring for a job with a salary more than $75,000). The FCRA doesn’t have similar timeline restrictions on criminal convictions, but some states restrict reporting conviction information at the state or local level. 

 

Michigan is one of the states with additional restrictions. Several “Clean Slate” bills passed in 2021 limit how far back employers can look into some criminal records in Michigan, such as first violations and juvenile records: 

  • House Bills 4219 and 4220 make certain first violations of operating while intoxicated eligible to be set aside. 
  • Michigan Clean Slate legislation (effective April 2023) automatically sealed certain non-violent convictions from public criminal records if the person has not been convicted of any other crime for seven years (for misdemeanors) or ten years (for felonies). 
  • Public Act 361 concerns the juvenile record set aside process, allowing applications to be filed for expungement one year after the termination of court jurisdiction over the person. It also created a process for automatic set aside of juvenile records. 
  • Public Act 362, effective in March 2021, sealed juvenile court records from public access. 

How to Run Background Checks in Michigan?

When you need to conduct background checks in Michigan, most people either conduct a DIY background check or use a third-party provider. If you run a DIY background check, your best bet is probably to request criminal history from the Michigan State Police, contact an applicant’s former landlords and employers, obtain a credit report (Equifax, Experian, and TransUnion are the three major credit reporting agencies that compile credit information), verify income, look at the sex offender registry, and ensure you have all the information you need to conduct thorough tenant screening. DIY checks can be risky, though, because it’s easier to run afoul or relevant laws inadvertently (unless you’re very well-versed in the law).  

The better option for running a background check is to partner with a third-party provider, who often bundle credit, resident, criminal, and eviction histories together as a package. You can select the kind of reporting you need and let the third-party take care of the collection process. 

Background Checks with Innago

At Innago, we’ve partnered with TransUnion SmartMove to help you review background check information and identify high quality applicants. Running a background check through Innago allows you to quickly and easily identify the best applicants and ensure their application information is accurate. Likewise, Innago’s income verification feature helps our users verify reported income by connecting to their bank account, payroll provider, or by uploading documents. 

 

Disclaimer: This article is for educational purposes only and does not constitute legal advice. We recommend you consult with professional counsel if you have legal questions regarding your specific practices and compliance with relevant laws.