We answer questions from landlords calling in regularly about how to collect past due rent. And while we don’t advertise this, we are quite capable of answering these questions considering just a few years ago we owned a licensed collection agency.
How to Start the Rent Collection Process
Assuming you have screened properly, it’s inevitable you’ll still run into late or non-payers from time to time. To move in order, let’s first discuss how to handle late payers.
Late Paying Renters
Having a late payment policy is one thing, but sticking to it is another. Avoid the temptation to make exceptions and give special arrangements. If your policy is to charge a $20 late fee after the 1st of the month, then enforce it!
Much like parenting, if you allow it once, you’ll be doomed to revisit the problem in short time. People pay their bills in priority and if they know they can pay the rent a few days late without penalty but can’t get the same terms from their car loan, then they’ll surely pay the car loan before the rent every time.
Remember that late fees should be reasonable and cumulative.
So you’ve screened them, stuck to your guns on the late payment policy, and they still haven’t paid. It’s time to issue a 3 day notice to pay or quit and be prepared to evict.
Making your rent payment a priority will be the only way to avoid getting story after story of how they can’t pay but will make payments to catch up. This very rarely happens and you’re only delaying the inevitable. That 3 day notice will be the difference between them paying the car payment late or you getting your rent money. And more importantly, condition them to understand how serious you are about getting your rent on time.
If you evict them you’ll have to file a judgment for a forcible entry detainer. You will be able to eventually attach a monetary judgment to this eviction for the past due money they owe you.
Collecting unpaid rent from a former tenant
You’re going to want to take your former tenant to small claims court in order to obtain a judgment for the unpaid rent.
Without the judgment, you have very little leverage to collect rent from a former tenant who has been hard to track down for unpaid rent.
If your former tenant tries to get a loan for a car or home they could be denied and that’s why people want the judgment off of their record.
How to Execute a Judgment on a Tenant
Having a judgment is one thing, but executing that judgment is another. As of July 2017, the judgment will not affect their credit as it once did.
This unfortunately will make collecting on a judgment more difficult than it once was.
Executing a judgment can be next to impossible, especially with state restrictions on this. In New York, for example, you cannot freeze an account unless it has at least $2500 in it. Which if they had this kind of money in the account, they most likely wouldn’t have defaulted on their rent in the first place.
Every state restricts the ability to garnish wages on someone who is on welfare or employed by the federal government (ie. Post Office, etc.).
How Can I Execute a Tax Refund Garnishment for Past Due Rent?
See our full article on Tax Refund Garnishments for a step by step guide on how easy and effective they can be.
I Don’t Have a Judgment
If you don’t want to waste any more time and money then getting a judgment will be nothing but an aggravation. Most landlords want the judgment simply for the purpose of affecting the tenant’s credit, and if this is the case there is a better and cheaper way of achieving the same result. Most collection agencies will not work on a contingency basis, but will also report to the credit bureaus.
Tenant Moved Out of State; Can I Still Collect on a Judgment?
Even though he moved out of state, the judgment should still be collectible. The only possible way that the tenant could get out of paying is if he can convince the court that the state where he used to live was not the proper jurisdiction. This is very unlikely to happen, however, and you should have no problems collecting the money owed to you.
How to Hire a Rent Collection Agency
To place your account to the collection agency you will need to provide them as much information as possible. This is when your no-blank-spaces policy will really pay off, because the more information the agency has, the better. In addition to the original rental application and lease agreement, an itemized list of all of the charges will help the agency validate the debt in the event the tenant disputes the claim.
Be reasonable and fair, even though your past tenant is not. The biggest problems we would run into while collecting past due rents from tenants was landlords charging ridiculous fees for damages or late fees. Remember the fastest way to de-credit your claim is to exaggerate the charges because you want to “stick it” to the tenant that just stuck it to you.
When a tenant gets the collection letter saying they owe $7,000 for missing a month’s rent and a hole in the wall, they feel they have a good case to dispute the charges. This will only delay the process of you collecting your money. So avoid temptation, put emotion aside, and be fair about your charges.
How to avoid problematic tenants
There’s no question that the collection process starts with the application and screening. In the world of collections, knowledge is power.
So first and foremost start with a no-blank-spaces policy. Every question on the rental application should be answered by the applicant; previous addresses (at least 2) with landlord information, employment, SSN, references etc. If they leave a space blank, kindly hand it back and tell them that ALL the information must be provided to consider them for tenancy.
Having the information is one thing, but verifying it is where it really counts. We catch rental applicants providing incorrect information every day.
Whether it’s done purposely or unintentionally, the fact is the information you were so adamant about getting is useless if it’s not accurate. So take the time to call the numbers, verify the information and cross reference for accuracy whenever possible.
Screening Your Potential Renters
Obviously avoiding the problem tenants is the best remedy for keeping your renter paying regularly. So asking some carefully worded questions could help you to identify these non-payers.
Sometimes setting them up for obvious responses makes the questioning a formality for them. So instead of asking “Have you ever paid your rent late?” try a more creative approach to get the answer you’re really looking for and try “What’s the most you ever paid in late fees?”.
This will get them out of the mindset of simply answering “No, I always pay on time” and open the conversation to your late payment policy.
Our tenant screening 101 tutorial will walk you through entire process.
Landlord Tip: Don’t get attached to the idea your collection efforts will result in you getting all the money that’s owed. Statistically, rental debt has by far the lowest recovery rate in the collection industry. This doesn’t mean do nothing, it just means follow your procedures and don’t waste any more energy on something you ultimately have very little control over.
IN 2012, A TENANT VACATES LEAVING PAST DUE RENTS FOR MORE THAN SIX MONTHS. A SIGNIFICANT AMOUNT. SHE OCCUPIED THE PROPERTY WORKING IN IT THE ENTIRE TIME. CAN I THE LANDLORD TAKE DEDUCTION FOR THE LOSS OF THE PAST DUE RENTS, AND OR CAN I SEND THIS TENANT A 1099-C FOR HER GAIN?
Great question N. Alvarado! My experience in the credit and collection industry can give you the answer, but I would obviously recommend checking with your local laws and/or accounting professional.
So my answer is yes, you can issue the 1099 for her gain and your loss. A key point you mention is that she occupied the unit for the entire time, meaning to me that you’re not charging for the remainder of a lease that she abandoned. In which case, you would likely only be able to charge 2 or 3 months versus the entire 6 months worth of rent.
Given that statistically your chances of actually recovering the past due amount from the tenant are pretty slim, this is not a bad way to go. Just be aware that this means you can no longer pursue the debt because it has been accounted for. If you do decide to try and collect the money, I would recommend looking into a Tax Refund Garnishment. We wrote a step by step instructional guide for it here
I have sued the tenant for the rent money which is above $5000. After reading few posts I came to know that even if the judgement is in my favor I will not get the money and I have to work on myself to collect the money. I am now thinking of hiring a collection agency to get the money back.
My question is if we can do both? Sue the tenant as well as hire a collection agency.
Please let me know and thank you in advance