Note: Judgments & Liens were removed from the TransUnion Credit Report in July of 2017. As of March 2019 you can now order a TransUnion Full Credit Report, formerly known as SmartMove, report through RentPrep and add a Judgments & Liens search to your report for $7.00 (chargeable direct to the tenant).
Turns out mortgage lenders have figured out that judgment and lien data is extremely accurate in predicting the probability that a mortgage borrower will default on their loan. Learn more about why this data was pulled from credit reports by clicking the green play button below.
Resources Mentioned in this Episode
00:00 Hey everybody. Welcome back to another episode of RentPrep for landlords. This is episode number 246 and in today’s episode we’re going to be talking about the impact of judgments and liens being removed from credit reports and what that has meant not only to landlords but real estate professionals in general. Uh, if you recall in episode number 149 we talked about these credit changes that were coming down the pipeline that was back in April, 2017 these changes that are going into effect July of 2017 so now that we have over a year of data to look at, we’re going to take a look at not only how these changes have affected credit scores, but also people that are trying to borrow a for a mortgage. Because I’ve got a really interesting stat that I’m gonna share with you as soon as we get back to the podcast after our sweet, sweet intro landlords podcast.
00:54 1,2,3,4 ya ya ya…. Welcome to the RentPrep for landlords podcast. And now your host, Steven White and Eric Worral.
00:56 Well, first things first, I have to apologize. I am a little bit stuffed up this week. Um, been traveling a lot. I’ve got to go down to Florida for a little bit. And then Steve and I flew out to California to Facebook’s headquarters. Uh, it was really cool honor. Uh, they invited us to an event called the Facebook community summit and we were invited because of our Facebook group rent prep for landlords. We had to apply and go through a couple rounds because they ended up paying for everything, hotels, flights, meals. That’s really neat. Um, and at the three day event, uh, all the big wigs came out including Mark Zuckerberg and talk to the crowd of about 400, uh, which I’m sure he was like, why am I here? This is the only 400 people. But, uh, it was pretty neat., being able to be a part of that. And uh, I just mentioned it because if you’re not part of our group are RentPrep for landlords already. You can go and check that out to join the group. You just have to have your login details from rent-prep. Uh, so you just need to know your email address that you signed up for an account with us, and that’s all free. And that group is a tremendous resource for landlords, real estate professionals, and property managers. So I’m a little bit course just from doing a lot of traveling and kind of getting over a head cold, so you’ll have to bare with me.
02:09 But as I was mentioning in the intro of today’s podcast, we’re gonna be talking about judgments and liens that have been removed from credit reports back in 2017. Uh, we talked about this in episode 149 and we’re saying that you’re going to see an increase in credit report scores due to this, and how is it going to affect landlords and real estate professionals? So I wanted to kind of a double back on that, and I have good reason why, and, uh, we’ll get to that later in the episode. So first things first, if you’re not familiar, there is a plan. It’s called the national consumer assistance plan. So that is where the three major credit bureaus kind of joined together and they decided to uh, include a series of actions and policy changes that are intended to improve credit reporting, data accuracy, quality and consumer credit education. So part of this plan was that the tax liens and civil judgments on your reports can lower credit scores. So some of this information is being removed.
03:05 So according to enhance public record data standards applied to new and existing bankruptcies tax lien in the civil judgment data, consumer credit reporting databases. So they had these standards that they must meet and if you have a bankruptcy your credit probably won’t be affected by these changes. But the bureau’s anticipate that over 95% of civil judgment records and over half of tax lien records don’t meet the enhanced data requirements. So what this means is that information will no longer be included on consumer credit reports. So that is huge because if you have a tenant applicant who has a civil judgment from a previous landlord for not paying rent, that’s not going to show up on a credit report anymore. If you have an applicant who has a tax lien because they haven’t paid their taxes, there’s a good chance that that will not show up on a credit report. Uh, all of this information being removed from credit reports is a harmful for landlords because you can’t get as clear and accurate picture of your tenant applicant. And at the same time, you’re also going to see potentially an inflated credit score. So some of this, I apologize, but it mentioned this earlier, I’m reading a lot of this from a credit Karma article by a Louis DeNicola.
04:15 It’s kind of funny because sometimes we tell our clients and not people reaching out do not trust the Credit Karma score. the reason we say that is if you have a tenant that presents you, hey, here’s my credit score. You don’t need to run a background check or a credit report there’s two reasons that you don’t want to accept that. One very basic. You know, you probably could have guessed this, but, uh, it’s very easy to doctor those images. You know, it’s just a screenshot or whatever they printed out. They could have just changed this score on it very easily. Not hard to do these days. And the other reason is that when you’re using a service like credit Karma, they do not use stringent credit scoring criteria. So there are different fico models here at Rentprep. We use a classic 04 50 model 04 meaning 2004 and the reason we have selected that scoring model with that Fico model is that it is the most stringent. That’s the same one that banks are going to use. If we tried to go in and get you know, a mortgage, they’re going to assess your credit worthiness based on the Fico 04 model. A lot of these services like Credit Karma, what they do is they use a very weak scoring model and the reason they do that is it’s nice for people to see, oh I am a 700 credit score where this other service that I’m six 80 I mean which one do you going to like more? The one that says your 700 or the one that says your 680. I actually used to work with a local credit union, uh, at a previous job and they say that this was actually pretty big issue for them because people would constantly come in and say, what do you mean my credits only Xyz? I’ve got my credit Karma score here is much higher. And they’d have to explain this to them each time and they’d kind of get upset and feel like the bank was pulling a fast one on them when really, uh, that service was just kind of inflating their credit scores. So that’s worthy of bring it up on this podcast because this is all about inflated credit scores and what you can see when we’re talking about these judgments and liens being removed.
06:11 So here is some interesting data here. Uh, it says that the average score increase will be modest and says that bold transunion and Equifax found that about 9% of people in the national consumer credit database have either a tax lien or judgment reported on their credit file. So that’s almost 20 million people who could be affected by the change. Two of the biggest credit scoring models, the United States fico in vantage score, both analyzed credit files to see how the changes might affect consumers. If I go ran a study based on a national representative random sample of about 10 million credit files from each credit reporting agency, it used the information from credit bureaus to distinguish between public records that will and won’t be removed. The study found that 67% of the people who fico can score had a judgment or tax lien removed from their file as result of the enhanced public record standards. So fico also found that the same people tend to have other derogatory information and their credit file, which can lead to low credit scores even if tax liens and judgements aren’t included. So That’s interesting. And that’s, you know, pretty large number when you’re talking about the actual numbers, 19.8 million people who can be affected by this change. It might not sound like a huge number, 9%, but I’m just kind of guessing here. So this is a little bit conjecture, but typically homeowners have better credit scores just because they have the mortgage payments on their history. Typically homeowners are a little bit more affluent. I mean, this is changing because there are more people that are choosing to rent instead of own homes. Uh, but when you’re looking at the 9% of people who have a tax lien or judgment report and then their credit file, I’d be willing to bet that that number would be slightly higher for renters and slightly lower for homeowners. Same way that a credit scores are slightly higher for homeowners and slightly lower for renters. So when it came to the fico scores and the results of their study, they found that over 75% of the people impacted may see their scores increased by fewer than 20 points, 5 to 1%. It could have a fico score increase of 20 to 30 a to 20 to 39 points. And about 0.2% of people who have a fico score, nine may see their scores increased by 60 or more points.
08:22 So typically you’re probably looking 10 20 points for about three quarters of the people. They may jump up their credit score because of these tax liens and judgements being removed from their report. So moving a little further down the article, there’s a section here that is talking about that lenders may still considered tax liens and civil judgments. The lenders that it is referencing our mortgage lenders. So if you’re trying to buy a home and you’re looking for a mortgage lenders, a lot of times they’re still going to look into tax lien or civil judgements that may no longer appear on a credit report. And the way that they can do this is by going through a separate channels. So on here it’s saying that Lexis Nexis, uh, which provides a information on this, found that mortgage borrowers who have a judgment or tax lien are five and a half times more likely to go into pre foreclosure or a foreclosure.
09:16 I’m going to read that one more time. Mortgage borrowers who have a judgment or tax lien are five and a half times more likely to go into pre foreclosure or foreclosure. Mortgage lenders therefore may still want to see this information when reviewing an application. So I thought this was extremely telling and a really interesting piece of data if you’re a landlord who runs background checks because if you had that information, I mean how much more likely is a tenant not to pay rent on time for the length of their residency? Uh, if they have a judgment or tax lien that don’t have that information because that doesn’t always get reported back anywheres but the fact that somebody who has a judgment and tax and is five and a half times more likely to go on a pre foreclosure foreclosure to me is extremely, extremely telling that that is very important data, not only to lenders for mortgages, but also landlords who are looking to rent out an apartment or a single family rental. So the thing that I want to get back to here and why we’re kind of a doubling back on this episode, if you are already part of our newsletter or you are part of our Facebook group, you may have seen this already but a couple of weeks ago, uh, we launched a new platform and part of the reason that we’re doing this, not only to make the design and user experience better on the back end of our website, you know, we call it the client area, but also so that we can start enhancing the offerings that we have at our site. So if you are familiar with our service, you know that we’ve been offering smart move for close to two years now. But one of the limitations of smart moves since July 1st, 2017 is that these judgments, uh, and these liens, or at least half of these liens in 95% of these civil judgements had been removed from the credit report. So including smart move reports. So what we’re doing now is because of this new platform is we can offer these searches separate from a smart move report. The way it works is if you order a smart move report through rentprep, the processes is the standards to process, you put your tenant applicant’s email in, you put your property address information and a little bit more information and I’ll email you attendant applicant when they get that email, they’ll have to do a few things on their end and you get to decide if you want to pay for the report or have the tenant pay for the report. As soon as that report is done, you’ll get an email saying your report is ready to view. However, 495 you can add on a judgements and lien searches and the way that works is once your tenant applicant a finishes, they’re part of the report. Our screeners will get cute in and say, Hey, this report is ready. You can start running these judgment and lien searches. So we will manually run those searches and be able to see if they have any judgments and liens information that may not have shown up on a credit report. So as I was mentioning earlier, almost 20 million people have a civil judgment or tax lien on their record, about 9% of the population. So for an extra four 95 which can be charged directly to your tenant, uh, we will run that report for you and include that in your report notes. So that’s the part of the reason I know it’s self serving, but this is something that really matters and it just kinda got swept under the rug. Uh, not a lot of landlords and real estate professionals even realize that this information was removed from credit reports back in 2017 but we’re doing our part to try and make the most comprehensive reports for you as possible. So that is one add on that is available on smart move reports. We’re also working to add income verification in as well. If you’re not familiar, this is where our screeners were actually called the current landlord, previous landlord and current employer. And what we’re going to do is we’re going to verify information collected through your rental application. So this is, you know, did they live at those addresses to, they have a positive recommendation from those landlords. Uh, do they work full time, part time? What is their actual income? Can we verify their employment status? We’re going to ask a bunch of questions. We compile that data inside of your report as well. So I wanted to share all this with you. If you guys have never ran a background check with us before, maybe you’ve run your background checks through smart mood directly through transunion.
13:12 It’s the same report through us except you get that additional search that they’re not going to offer because it requires a human element. It requires one of our screeners to do those searches manually and add that to your report. So I’m going to leave you with that, but I’m just wanting to share that information with you guys. And, uh, we look forward to sharing future updates on our platform in ways that we’re looking to improve our services to make it, you know, the best screening service for you that you can find anywhere in the beautiful worldwide web. And we believe that because we do have screeners support, we actually have people that can hand compile, answer questions. You can latch at us, email us, call us whatever you’d like. We’re here for you. So, and again, uh, one last call to action. If you guys haven’t joined the Rentprep for landlords Facebook group, go ahead and check that out. That’s great way to connect with other landlords and crowdsource your questions and get some immediate feedback on the situations and issues that you might be dealing with as a landlord or property manager. All right guys, until next week, take care and thanks for listening.