Property Damage: Who Is Responsible? (Podcast #328)

What happens when your tenant’s renters insurance or your homeowner’s insurance doesn’t cover an unexpected sump pump flood? In this latest podcast, host Andrew Schultz talks about insurance coverage for property damage and how to manage tenants who refuse to take responsibility.

Plus, we’ll chat about what to do with potential tenants who recently decided to change careers. Should you lease to them? Listen in below.

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Show Transcription:

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number three 28, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about property damage and renters insurance, renting to applicants who are changing careers, and tenants who argue over the responsibility from damages. We’ll get to all of that right after this.

Voice Over: (00:24)
Welcome to the Rent Prep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:29)
Before we jump into the podcast, I did want to take a second to mention the Rent Prep for Landlord’s Facebook group. If you’re not already tied into the free resources over at facebook.com/groups/rentprep, you’re really missing out. We’re just shy of 12,000 members in that group right now. And there’s a ton of different people with different sets of experiences as landlords from all over the country. So if you find yourself in a situation where you’re not sure how to proceed, or you want other people’s opinions on a particular issue that you’re experiencing, that is an excellent place to go put a post up, get some perspectives from other people from around the country and to help you make a better, more informed decision. Check it out today. Over at facebook.com/groups/rent prep

Voice Over: (01:17)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (01:25)
Today’s forum. Quorum comes to us from the Rent Prep for Landlords Facebook group reads as follows. Our tenants flooded our finished basement three days before moving out. They forgot to put the sump pump hose back after mowing this week. And it backed up into the house. It was hours before anyone discovered it. We’ve ripped up all the carpet and called a company to come dry out the walls, but they’ve estimated $5,000. And couldn’t even guarantee that there won’t be mold in the future. We have an estimated 10 to $15,000 in damages. They had renter’s insurance, but they won’t cover it. And our home insurance won’t cover it either. Is there anything we can do to have this covered or are we basically out of luck? So I’m not entirely sure why neither insurance company is picking up the tab on this. I’m not an insurance expert by any stretch of the imagination, but it seems to me as though this is something that should be covered under one of the two policies that you had mentioned, either the tenants’ renter’s insurance policy or by your homeowners’ insurance policy.

Andrew Schultz: (02:22)
And even if your homeowners’ insurance picked up the case. And ultimately if the insurance company finds that you’re not the person at fault for this issue, if it is actually the tenant’s fault, I would think that the insurance company would then turn around and try to go after the renter’s insurance company, in order to get the claim paid for essentially a happens very, very frequently, especially with car accidents and things like that. It’s a very common tactic in insurance. But if this is a situation where you have no liability, I’m not entirely sure why your homeowners’ insurance isn’t picking it up and going after the tenants, renter’s insurance, to try to cover these damages. It seems to me as though this is the type of damage that should absolutely be covered by an insurance policy. I could be completely wrong. Like I said, I’m not an insurance expert by any means, but it seems to me like this is the exact type of reason that insurances are supposed to exist.

Andrew Schultz: (03:14)
So I would continue to push it a little bit. I’m not sure if this is the type of situation where having a public insurance adjuster come out to look at the damages might be of use. Honestly, it doesn’t sound like anybody has even gotten to the point where they’re willing to say, Oh yeah, there’s damage in that. We’re going to take care of it. So I’m not sure if you’re at the stage where a public adjuster would make sense. Typically you would bring a public adjuster in after an insurance. Company’s given you some sort of a, a quote as to what they’re going to payout. And it comes in drastically different than what you’re expecting. That’s when you would bring in a public adjuster to go through the estimate with a fine-tooth comb, find all of the things that the insurance company missed, or maybe put into the quote wrong and really fight to get you the absolute maximum when it comes to settling an insurance claim like that, you know, generally, the public adjuster is going to work off of some kind of a fee based on what they either the total cost of the job or the increase in value of what they were able to get.

Andrew Schultz: (04:12)
You that’s generally how a public adjuster is going to wind up being paid. So it might be worth it. It might not be worth it when you get to that stage. But right now I would say your biggest challenge is getting one of these two insurance companies to step up to the plate and actually do something about the damage that’s occurred in your home

Voice Over: (04:29)
Water cooler wisdom expert advice from real estate pros.

Andrew Schultz: (04:36)
We have two water cooler wisdoms this week. We’re going to jump right into the first one. Both of these were again pulled from the Rent Prep for Landlord’s Facebook group. Definitely check that out. If you haven’t already, the first one reads a potential tenant. This is a screening question. A potential tenant with a career change has returned his pre-screening. He believes that he has a credit score of seven 89. We’ll be moving from another city and we’ll be self-employed. He’s willing to show me accounts to verify his solvency. I’ll be doing a credit and background check. What else should I do? I usually do first month and security deposit. Should I do first month, last month, and security deposit? So the first thing I’ll mention is make sure you’re following whatever your written criteria are. Every single time, if you don’t have a set of written screening criteria, that should be your priority.

Andrew Schultz: (05:21)
Before you put an apartment up for rent, don’t just take who the first person that comes to the showing and appears to be a good tenant, make sure that you have a process in place and make sure that you’re following that process every single time, it goes a long way in preventing fair housing complaints. All of that being said, there’s really not enough information in here to answer the question as to whether or not this person qualifies as a tenant. So we’re just going to go by what we have in front of us believes he has a credit score of seven 89 moving from another city and we’ll be self-employed and he’s willing to show you accounts to verify his solvency. So the way that we verify self-employed individuals, the income of a self-employed individual here at own Buffalo is pretty straightforward. When a self-employed applicant applies for one of our apartments, we tell them upfront, and it’s actually in our screening criteria that they sign off on when they submit their application.

Andrew Schultz: (06:15)
But we tell them upfront that we want to see their last two years of taxes unredacted. So a complete tax return for the last two years, we want to see a financial statement for the business though. I don’t know if this individual would have on, because it sounds like he has not actually started being self-employed yet, but we would want to see yeah. A financial statement prepared by a CPA and yeah, [inaudible], you know, what the, what the business is doing and how the business is doing. Yeah. Depending on the time of year, we may actually ask for an updated year to date. So at this point in the year, we’re in August, I would probably be asking for a year to date financial statement as well, just so that I can see what’s the most current data that we have available to us. One thing, you know, one other thing, the thing that we can do to verify income is we’ll ask for six months of bank statements and we’ll make sure that the person has had you know, eight months of rent in the bank for a period of six-plus months.

Andrew Schultz: (07:13)
Think of it the same as if you were taking a gift of funds for purchasing a property, those funds have to be seasoned if you will. That’s why we look to make sure that they’ve had the funds in their account for an extended period of time. And what we found is that it lends itself to the stability, the other tenant, when they can show that they’ve had, you know, some of capital on deposit for an extended period of time, without having to draw against that capital on a frequent basis, it shows some financial responsible ability and it shows that the tenant more than likely is going to be able to sustain the rent on the unit, the course of that full-year lease term in terms of what to do with regards to security deposit and rent. If you’re in a state where you can do either a double security deposit or a first last security, that’s not a bad option here, it just gives you that much more of a buffer.

Andrew Schultz: (08:03)
You know, if the tenant starts to starts to get out, starts to not be able to make rent payments on, on time, you still have another full month of rent the hopper and you have a security deposit on top of that. Or maybe you have a double security deposit so that you have an extended amount of time to work on an eviction of that tenant if you need it. So that’s definitely one of those things that is state law specific, double-check the laws in your state, make sure that you’re not in violation and then do what you need to do in order to feel safe and comfortable taking that tenant on and putting them into one of these, your units. Our next water cooler wisdom is a dispute between two tenants over who’s responsible for damage done to a property tenant onsite. A informed us, someone hit the mailbox, tenant onsite, be set.

Andrew Schultz: (08:47)
A guest of site a was the one who hit the mailbox side aide denies. It was her guest. Lisa specifies damages caused the tenant or guests of tenant is the tenant’s responsibility. Any suggestions on how to handle getting the mailbox fixed or replaced? So I would probably start by asking both tenants if either one of them filed a police report when the mailbox was damaged. And the reason I would ask this question is because more often than not if a tenant is the root cause of an issue, they’re not going to call the police and blow themselves in. They may have also thought, Oh, it was such a minor damage that we don’t need an accident report or whatever the case may be. It could have very well been a hit and run type of situation where they didn’t discover it until, you know, a couple hours after the damage occurred or whatever the case may be.

Andrew Schultz: (09:32)
You don’t really know who it was that hit the mailbox. And the tenants are basically doing, he said, she said, in order to put the onus back on you to decide what ultimately is going to happen, I’m going to review this through the same lens that I would review a plumbing issue. So our policy is if we have a duplex, a two-unit property, and the sewer main gets clogged up by the tenants, you know, it’s cooking grease, it’s a feminine hygiene products. It’s whatever, it’s not something that’s our issue like roots in the line or something like that. If we can’t determine after talking to the tenants, which tenant it was that caused the damage. We split the bill in half and bill, both tenants and tenants. Don’t like it. They really don’t like it, but it’s literally the only way that we have found to apply a fair process to a situation where two parties are being less than truthful with regards to what information they may have.

Andrew Schultz: (10:29)
Generally speaking, what will wind up happening is you’ll get more complaints from the people who are not responsible and you might not get complaints at all from the people who were responsible because ultimately they know they were responsible and they’re not going to complain about it. Basically they just kinda got caught. So even still, unless somebody really sits in and actually admits to the fact that they were responsible, you’re never going to know who to charge in a situation like this. With 100% accuracy, the tenants have a responsibility to the building while they’re living in it. I would charge this back to the tenants, split the bill in half. If that’s what you have to do, charge it back to the tenants and let them continue to argue it out amongst each other, as to which one was responsible for the damage. That pretty much wraps things up for this week’s episode of the Rent Prep for Landlords podcast.

Andrew Schultz: (11:21)
We’ll be back next Thursday with an all-new episode. So be sure to tune in and listen to that. If you’re looking to get in contact with me, I can be reached over at ownbuffalo.com. There’s links to our YouTube page and our Facebook page there, which is where we’re posting the bulk of our content right now. And if you’re looking for excellent tenant screening services, head on over to rentprep.com, take a look at all the different services that they have available over there. And also don’t forget the Rent Prep for Landlord’s Facebook group. Again, coming up on almost 12,000 members, you can find that free resource over at facebook.com/groups/rent prep. We’d be glad to see you over there. It’s a great opportunity to network with a lot of awesome people. Thank you all so much for listening. We really do appreciate it. I’m Andrew Schultz with own Buffalo for rentprep.com, and we’ll see you next week.