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 by Christopher Benedict Buying rental properties can be a great way to build your wealth. However, as in most real estate investments, it is sometimes difficult to know if you’ve found a good deal – especially the first time, and if you aren’t working with a good property management company. Here are some things to look for to be sure that rental is a great investment. Location. If traffic is heavier, rentals are easier to rent. A sign will often pull more response than an ad in the paper. If it is a nice locale, it will usually rent faster. This is also true of places close to amenities. Numbers. Run the numbers. Get every last expense figured into your calculations, and be sure that you will have positive cash flow from the start. High home prices. Look in towns with high home prices, as this creates rental demand. What do people do when they can’t afford to buy? They rent. Low maintenance buildings. Avoid cedar-shake roofs, and wood-sided buildings. Look beyond current expenses to how much maintenance the building will need. Low maintenance means less headaches and more profits. Good rental history. Ask to see the rental history. Note how long residents are staying on average, and how well they pay on time. Below market rents. Buying rental properties with below-market rents means you get to raise rents. Raising rents means you immediately raise the value, because rental property values are based on income. Complies with zoning and fire codes. Have it inspected, and ask local officials if there are any problems. Less than 20 years old. This is somewhat arbitrary, but if you limit your search to newer buildings, you will be less likely to have building code and maintenance problems. Owner/manager that is out of state. These properties are often the best deals, because it is tough to manage a property from far away. An out of state seller is often more concerned with a quick sale than a high price. Neighborhood is stable or improving. Stable is okay, but if you can buy in a neighborhood that is improving, you’ll rent the units more easily, and therefore get automatic appreciation in value with time. And of course, have in place a good property management team in place. They can reduce your headaches, and keep you out of the landlording business! Christopher Benedict is a broker and property management with Main Line Real Estate in Philadelphia. American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org. Innovative Tamper Proof Thermostat Limits Temperature Settings to Prevent Energy Waste by David Lowe Property owners around the nation are all too familiar with the skyrocketing utility costs from wasted heating and cooling usage in their properties. Today, ControlTemp Thermostats is introducing a new lower-priced tamper proof thermostat designed to help property managers unleash technology to reduce property utility costs. The intelligently designed CT100 thermostat is a simple, effective way to reduce utility costs in leased office space, retail space, apartments, and vacation homes where the property owner not the tenant pays the utility bills. The seven day programmable tamper proof thermostat has a built in maximum heat limit of 72 degrees and a minimum air conditioning temperature of 75 degrees. These settings still allow the tenant to be comfortable by being able to make small temperature adjustments however the maximum and minimum settings prevent excessive energy waste commonly found in the rental market today. Landlords and property managers come to us looking for solutions to drive down their utility costs. Unfortunately, most tenants think because utilities are included in their monthly rent that it is okay to turn up the heat while leaving the windows open or run the air conditioning continuously. Not only does it cost property owners hundreds or thousands more per month in wasted utility costs, it also causes excessive carbon emissions and excessive wear and tear on their HVAC system. The key with the CT100 thermostat is that the temperature limits for heating and cooling are hard coded into the unit and can’t be changed or tampered with by the tenants. The CT100 also has a seven day programmable schedule. The schedule is preset to the EnergyStar guidelines to automatically adjust the thermostat temperature setting throughout the day and on weekends. The schedule feature can drive significant savings by ensuring that the temperature is adjusted when the space is unoccupied. An analysis developed using tools by the Department of Energy and the Environmental Protection Agency estimated that landlords and property managers can reduce their heating and cooling costs as much as 32 percent by using the CT100 programmable tamper proof thermostats compared to a non-programmable thermostat. The thermostats can also help property managers qualify their properties as “Green.” The reduced energy consumption from installing a CT100 thermostat can lead to reducing a property’s Carbon Footprint by as much as 2,000lbs per year. In addition, due to the seven day programming capability, the CT100 may qualify for energy rebates as high as $100 per unit from many local utilities and government agencies. The ControlTemp CT100 programmable tamper proof thermostat is available immediately and is priced at only $69.99. For additional information, visit the company’s website at www.ControlTempThermostats.com. See our feature, New Regs: Tenants Win, Landlords Pay. American Apartment Owners Association offers discounts on products and services for landlords related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
To subscribe to our blog, click here. by Ted Karsch
The vast majority of companies that facilitate loan modifications in the United States are solely dedicated to helping residential homeowners. It can be difficult for the commercial property owner who needs a commercial loan modification to actually find a company that has experience and knowledge in processing successful commercial loan workouts.
The commercial property owner who is facing the prospect of foreclosure has a few different options when he or she is attempting to modify their loan. For an illustrative example I will use a real life situation of a client of mine in Tampa, Florida. We won’t use their real names for privacy purposes and we will use the fictional name of Blue Harbor Apartments for their property. They own a 250 unit apartment building that they purchased for 8.3 million dollars in 2006. In the last year they have seen occupancy drop to 65%. This increase in vacancies has severely hurt their net monthly income. Their monthly rental income is now $92,000.00. Their expenses, including the mortgage payments are $118,000.00 a month. They are currently coming out of pocket over $20,000.00 a month just to hold on to the property.
The loan they have is held by a major international bank and is amortized over 25 years at an interest rate of 7.5%. They are in a tough situation because the value of their property on today’s market is approximately 6 million dollars. They are unable to refinance with another lender because they don’t have any equity in the property. The only choice they have is to try to modify the commercial loan. Before contacting me, the owners of Blue Harbor Apartments tried to contact the bank directly. The owner spoke directly to a bank vice president who told him that they were unwilling to negotiate. Many people might wonder why a bank wouldn’t negotiate with an apartment building owner who is in this type of situation. There are actually a few reasons. The first reason is that the owners of Blue Harbor Apartments haven’t missed or been late on any mortgage payments. Banks sometimes are reluctant to modify a loan that is performing well. The other reason is that banks are now being approached daily from owners who are trying to modify their own loans. Banks are not usually willing to negotiate the terms of an existing commercial mortgage unless there is a verifiable hardship.
Many property owners are hoping to modify their loans simply to save money and make their properties more profitable when there is no real hardship. In the case of Blue Harbor Apartments the hardship is the fact that vacancies have climbed so high and the income has dropped so precipitously. After an unsuccessful attempt to modify their own commercial loan modification with the bank the owners of Blue Harbor Apartments began to look for a law firm to handle the situation for them. There are many law firms that have jumped on the loan modification bandwagon by offering loan workouts while charging a monthly fee for their services. While there are surely many competent and knowledgeable attorneys who are facilitating commercial loan modifications, the vast majority of them have a lot more experience in the residential market. Unfortunately, the experience in residential loan modifications doesn’t translate well to the complexities of the commercial real estate market.
Finally, the owners of Blue Harbor Apartments decided to contact a company that specializes only in commercial loan modifications. The owners of Blue Harbor Apartments made a good decision to research the marketplace thoroughly and find a company that has real experience negotiating with banks on behalf of commercial real estate owners.
When you are investigating different companies to help you modify your commercial loan look for a company that specializes only in commercial property. The company should also offer a money back guarantee if they are unable to facilitate a successful commercial loan modification. You should read over any contract that you sign and also have your real estate attorney read over the contract. Ask the company you are investigating what their success rate has been and also find out if they have had experience negotiating with the bank who holds your mortgage. Ask as many questions as possible and do your best to educate yourself about the process as much as possible. This will ensure that you will have the greatest chance for success. The results of a successful commercial loan modification will depend upon the financial condition of the property before modification, the plan for improving the financial condition and the real estate market as a whole. The results that we have seen include a reduction of interest rates between 1% and 5%, interest only payments for an extended period of time, forbearance and principal reductions. Ted Karsch is a commercial finance consultant, author and commercial loan modification specialist in Fort Lauderdale, FL. His company Commercial Capital Advisors, LLC works with commercial real estate owners in financial hardship to help modify their commercial loans. More information can be found at http://www.Commercial-Loan-Modification-USA.com. Ted is also the founder of http://www.apartmentbuildinginvestor.com American Apartment Owners Association offers discounts on products and services for landlords related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
To subscribe to our blog, click here. Rent it Right Q: We’re facing a situation that’s pretty unbelievable. My mother-in-law passed away in her apartment on the day rent was due. My wife found her that day, and notified management immediately. We cleaned out the apartment within a few days, and were shocked to learn that management expects us to pay that month’s rent! Can this be right? –Alan J.
By law, any debts owed by a deceased person must be paid by the estate, and then the remaining assets are distributed according to the will or trust, or according to your state’s laws of intestate succession, if there’s neither a will nor a trust. But beneficiaries are not directly liable for these debts unless, of course, they were jointly responsible for them in the first place. If there’s no money in the estate, then the landlord loses out. On a practical level, it’s fair for the landlord to expect rent while you and your wife were emptying the apartment. During that time, the unit was tied up and could not be cleaned or readied for the next resident. Is it fair for the landlord to absorb this cost when the ex-tenant’s estate could cover it? Under the circumstances, the landlord certainly could have shown a little compassion and asked for only enough rent to cover the few days you were working in the unit. Many states have laws that specify what happens to a lease when a tenant dies. California, for example, differentiates between a deceased tenant with a lease and one with only a month-to-month rental agreement. If there’s a lease, the tenant’s death does not terminate the lease. Instead, landlords must treat the situation as if the tenant had moved away during the lease term, without a legal justification. These landlords must make reasonable efforts to re-rent, and once the unit is occupied, the estate’s responsibility for the rent ends. With month-to-month tenants, the estate’s responsibility for the rent will end 30 days after the tenant had last paid rent. This is welcome news for you if your mother-in-law was a monthly tenant in California, because it would mean that the tenancy terminated on the precise day she died. To spin this out a bit further, when you cleaned and emptied the apartment, you were technically trespassing, but apparently your presence was tolerated by management. That fact doesn’t obligate you to pay rent. To find the exact answer to your question, as you can see, you will have to find out how your state treats leases and rental agreements when the tenant dies. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of “Every Landlord’s Legal Guide” and “Every Tenant’s Legal Guide.” She can be reached at janet@inman.com. See Janet Portman’s feature, Tenants Take Beefs to the Tweets.
American Apartment Owners Association offers discounts on products and services for landlords related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
To subscribe to our blog, click here. by Bill Gray
Financially, many landlords are shooting themselves in the foot.
The application process is normally the first place they do so. Incomplete and inaccurate rental applications cost landlords much needed profit. Nearly 50% of the applications I review are either missing information or are illegible. Sloppy applications speak negatively about the prospects filling them out, but they say even more about the landlord or property manager who accepts them. When a landlord accepts an incomplete or illegible application, he or she is telling the applicant, “I don’t care.” Think about what seeds an “I don’t care” attitude plants in the applicant’s head. If the landlord is not serious about the application and the information which may or may not be in it, what else is he lax with? If he is not serious about the application process, is he serious about the rent being due on the 1st of the month? If the landlord is unprofessional during the application process, is he serious about the prospective tenant taking good care of his rental unit? The application has several important purposes, all of which rely on it being completed legibly. Much of the information requested in an application is needed to sufficiently screen the tenant. When I see a sloppy application, my first thought is that the landlord is cutting corners in the screening of potential tenants. By the way, the reason I am called upon to look at the application and file is because the landlord is owed money by the very applicant who submitted a sloppy application. Now, he is turning to me for advice on collecting it. I firmly believe there is a direct correlation between the application/screening process and tenants who leave the property owing an average of $3,500. The rental application should contain a space for at least one emergency contact. Completing this section should always be a requirement. Nobody wants to envision a situation where you need to contact someone in case of an emergency, but if you do, you will have the contact information to do so. The property manager who is eager to rent seldom considers the last purpose of the rental application. The information on the application is invaluable in the collection process when the tenant is either evicted or abandons the property and the lease. In that case, an incomplete or illegible application makes collecting the debt difficult, if not impossible. Require that your applicants complete the application in its entirety and legibly. Doing so will decrease debt and increase profit. Copyright 2010 Bill Gray
Bill Gray is a tenant debt collection specialist, which makes him a tenant screening specialist. For tenant debt concerns, email him at Bill@thelandlorddoctor.com. Visit Bill Gray’s blog at TheLandlordDoctor.com.
See our seven part series, Vital Tips to Increase Your Debt Collection.
See Bill Gray’s feature, Tenant Screening Tips: Beyond the Basics.
American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa. Measure to help bring stability to home values and accelerate sale of vacant properties In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. “As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties. “This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said. In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time. The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. “FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.” The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions: All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website. See more Real Estate Financing. American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
Tip #40: Playing It Safe Gas appliances are great for their energy efficiency, and they are safe when used properly.
Trouble is, not all tenants understand how to use them properly. If you have gas appliances in your units, or think you might in the future, here are some tips to pass along to your tenants: Gas appliances often work more efficiently than electric, and that can be a surprise the first time you use one. It’s easy to shrink clothes or burn pans. Please avoid overtaxing the appliances by turning them up too high, or stuffing to many clothes in the dryer.
Please teach kids not to play with the stove burner controls.
Supply lines around the house are volatile. Keep kids away. Don’t dig in the yard or bump into them.
The flame on the stove should be blue. If it’s routinely yellow, or the pilot keeps going out, there may be a problem.
Keep burners clean.
Don’t store combustibles around the appliances.
Your gas supply may be treated with mercaptan — the rotten egg smell that warns of leaks. If you smell it, you may be in danger.
Go outside if you smell gas. You can spark a fire if you use the home phone, a cell phone, or any appliances. Don’t even run water. I
After each tenant moves out, be sure to check all gas appliances for signs of tampering, for instance disabled ventilation fans, the dryer moved away from wall in search of lost socks. Your gas appliances need to be inspected periodically to check for damage and wear. Some gas suppliers suggest once per year. The appliance manufacturer may offer guidance as well. It’s always best to play it safe! See last week’s Landlord Quick Tip. Do you have a quick tip to share with other landlords? Please email our editor at kim@joinaaoa.org. American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org. How to lay tile floor around closet flange Q: Our toilet wobbles and I have been wondering how to fix it. We are also going to replace the vinyl floor in that bathroom with tile. How close should I lay the tile around the flange? A: First of all, congratulations on doing it yourself. The short answer is, the tile should extend close enough to the edge of the closet flange to be covered by the rim of the toilet. It’s not quite that simple, though. If possible, the flange should be adjusted to be level with the finished floor. Kevin built his house on a tight budget. Choices had to be made and he didn’t always go with what he would have liked, thinking he would replace some materials after a while. He installed cheap vinyl flooring in all three bathrooms, thinking eventually they would all be tile. The toilets he installed were of good quality for their day, but never did work that well. Plugged toilets were a regular event in the Burnett bathrooms and the plumber’s helper took up regular residence. Fast-forward 15 years. After living with a plunger in the downstairs bath for the lion’s share of their marriage, Heidi finally had enough and gave Kevin the ultimatum: Get a toilet that works or I’ll get a plumber to do it. That’s all it took to get Kevin to replace the substandard 1.5-gallon flush toilet with a new model that actually delivers the goods in a single flush. As part of the job, Kevin replaced the vinyl flooring with ceramic tile. Vinyl flooring is glued to particle board underlayment. When retrofitting tile we recommend removal of the vinyl and underlayment to expose the plywood subfloor. This provides a clean smooth surface on which to install the new floor. Removing the underlayment should lower the height of the existing floor by about 3/8 inch. Ceramic tile laid on backer board (such as Durock or a similar product) increases the floor height by about 5/8 inch. When all is said and done, the top of the existing closet flange will be a tad below finished floor level if left alone. Ideally the flange should be level with the finished floor. If your waste lines are plastic (ABS or PVC), the closet flange is probably screwed to the vinyl floor. To get the closet flange in the proper position, begin by removing the screws attaching the closet flange to the subfloor, thereby freeing up the flange. Then install the backer board. Try to cut the backer board so that the edge slips under the closet flange supporting it. Next install the tile, getting as much purchase under the rim of the closet flange as possible. Shim any open areas under the rim of the flange with pieces of tile. It doesn’t have to be pretty, but it should be firm and raise the closet flange to the same height as the finished floor. Finally, reinstall the screws securing the closet flange to the floor. When grouting is completed, you will have a handsome and solid base for the toilet. If the flange doesn’t move after you remove the screws, a lesser solution — but one we’ve used with success — is to add a second wax ring when installing the toilet. Take your time and make sure there is a good seal to avoid leaks. Copyright 2010 Bill and Kevin Burnett See Bill and Kevin Burnett’s feature, New Cabinets Don’t Require Gut Job.
American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org. To subscribe to our blog, click here. Rent it Right by Janet Portman, Inman News Q: I’ve just found out that one of my tenants was convicted of assault, in I think he’s getting a jail sentence, then he’ll be out. I want to know if I can terminate his lease for illegal behavior. The offense took place downtown, not on my property. –Mary G. A: There’s no question that you’d be able to evict if the offense had occurred on your rental property. Under the laws of every state, when a tenant uses the premises for an illegal act, the landlord can terminate. Even here, however, there are some gray areas. If the tenant were selling drugs from the living room or using the kitchen as a meth lab, that would clearly give a landlord grounds to terminate. But suppose the tenant makes a drug-related phone call from his residence, or writes a bad check at the kitchen table — are these acts enough to support an eviction? You’d probably find many judges who would say yes, reasoning that the shelter of the rented home was an essential ingredient in the illegal act, even though the property itself was not physically used or damaged, and other tenants were not put in danger. After the phone call comes the drug hand-off at the front door or in the garage, they’d reason, and there and then you’d find the property seriously involved in the crime. Better to rid rental property of law-breaking tenants who use the property even marginally in their pursuits. But what about tenants whose dirty deeds occur off-premises? Here the link between the tenant’s illegal act and harm to the property and other tenants is much less clear. Savvy criminals, in fact, will keep home and “work” carefully segregated, and behave as model tenants and neighbors to avoid attracting attention. But some argue that landlords should be entitled to evict these criminals, too. Even if tenants are trying to keep their home lives clean, the criminal world often invades the domestic one, with disastrous consequences. State laws on termination for illegal acts on the premises don’t generally address off-premises illegal behavior. Interestingly, a bill pending in Arizona, state Senate Bill 1277, would specifically allow for termination if the tenant is convicted of specified crimes that occurred off-site. The listed offenses include serious things like murder, prostitution, and drug manufacture and sales, but the list isn’t exhaustive — other offenses could count. When a state like Arizona, which is generally landlord-friendly, sees the need to pass specific legislation permitting termination for off-site crimes, one might conclude that trying to do so without such legislation might be legally risky. Before deciding to terminate your tenant’s lease, you’d be well advised to read your state’s statute on terminations for illegal acts. Chances are, you won’t find the clear guidance you’d like. If your tenant challenges the basis for your termination in court, you’ll need to be prepared to prove that the property was involved, if only marginally, in the tenant’s acts. Even if it wasn’t, you have the leeway to terminate anyway. It could be an uphill fight. It would be a mistake to leave this question without addressing one collateral issue: Does your tenant have a family? Consider the impact of termination on the tenant, especially if the tenant has children. While the tenant is incarcerated, the presence of his family will probably not pose a danger to you or other tenants. Booting them now may start a downward spiral toward homelessness that they, especially the children, do not deserve. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of “Every Landlord’s Legal Guide” and “Every Tenant’s Legal Guide.” She can be reached at janet@inman.com. See Janet Portman’s feature, Tenants Take Beefs to the Tweets. American Apartment Owners Association offers discounts on products and services for landlords related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
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Effectively Dealing With Tenant Delinquencies And Eviction Proceedings
By Jon L. Farnsworth, Esq. (Editor’s note: This article was initially published in the September 2009, Minnesota Real Estate Journal, and has been edited and reprinted with the author’s permission. While the article mentions Minnesota law, and includes commercial leasing issues, the discussion points are generally applicable in other states and to residential lease matters.)
 The poor state of the economy threatens tenants’ ability to satisfy their lease obligations. Unfortunately, landlords are feeling pinched by tenants’ mounting delinquencies. Some tenants lack the cash flow to make lease payments, while other tenants voluntarily withhold rent for business reasons (i.e., conserve cash flow; obtain a lease modification with more favorable terms for the tenant; etc.).
This article summarizes ten common mistakes made by landlords when dealing with tenant defaults and eviction proceedings as well as offers insights of how to effectively manage tenant delinquencies. Mistake 1: Dillydallying. Landlords often allow tenant delinquencies to languish, hoping the tenant will eventually find the goodwill to bring their account current; however, landlord who delay sending default notices and commencing evictions action often risk enduring longer “rent-free” periods than if the landlord immediately responded to the first delinquency. A landlord is generally in a better position to obtain overdue lease payments if the landlord promptly contacts the delinquent tenant to work out payment details. In some instances, the landlord may obtain full payment. In other circumstances, the landlord may make concessions by providing a lease modification (i.e., lower rent payments; forbear a portion of future rent payments; etc.) so the tenant will agree to remain in the premises. In yet other situations, the landlord may need to pursue eviction proceedings. Regardless of which scenario occurs, a landlord is in a better position to minimize its losses by reacting quickly to tenant delinquencies. Mistake 2: Failing to Read the Lease. Landlords should pay particular attention to the default provision of the lease, including when, where, and why a default notice may be sent. Housing Court judges and referees generally require strict compliance with the lease’s default provisions (e.g., sending default notices). Other terms to consider include whether the tenant personally guaranteed payment under the lease (this provides the landlord with additional leverage in obtaining payment), and whether any sublease or assignment of the lease occurred (this information may assist the landlord in negotiations with the tenant as well as in eviction proceedings). Mistake 3: Negotiating With The Tenant Without Commencing Eviction Proceedings. Regardless of whether the landlord actually seeks to evict the delinquent tenant, pursuing an eviction action is often prudent for business reasons. Specifically, pursuing an eviction action generally increases the landlord’s leverage when negotiating a lease modification with the tenant. This strategy is effectively a “carrot and a stick” approach. If the tenant cooperates in the negotiations and pays at least some of the past due rent, the tenant will obtain a lease modification. If the tenant is does not cooperate, the tenant will be evicted. Assuming the tenant is cooperative and a settlement is reached, the eviction hearing may be cancelled. Unfortunately, the landlord will be unable to obtain a refund for court filing costs; however, the cost associated with preparing and filing the eviction proceeding are often times minimal compared to the amount of lease payments in dispute. Two other benefits to commencing eviction proceedings while negotiating with a tenant is that (1) the proceedings provide a firm deadline for when a settlement must be completed, and (2) a level of insurance to the landlord that if negotiations break down, the tenant will be forced to promptly vacate and the premises may be re-let more quickly to a new tenant. Mistake 4: Failing to Evict All Occupants. The landlord should always know who is occupying the leased property before proceeding with eviction proceedings (Note: the tenant on the lease may not be the occupant). Assuming eviction proceedings are necessary, the landlord should commence an eviction action against the named tenant on the lease as well as against any other occupant. Naming all occupants will better ensure the landlord will regain control over the property and will not have to bring a subsequent eviction proceeding if some occupant other than the named tenant asserts rights to the property. Mistake 5: Incorrect Information in Complaint/Ineffective Service. The landlord should ensure the information contained in the eviction Complaint is correct. Two common mistakes include using an incorrect address for the leased property and bringing the eviction Complaint on behalf of the wrong party. An incorrect address may cause delays in the eviction proceeding and/or prevent the Sheriff from executing a writ of recovery even if the landlord is successful in the eviction action. Similarly, the plaintiff in the eviction action must have an ownership interest in the property. This usually means that the person or entity named on the lease as the landlord must be the plaintiff. In other words, a management company that does not have an ownership interest in the leased property generally cannot commence the eviction action as the plaintiff. In addition to incorrect information in the Complaint, incorrect service is another frequent mistake. Landlords and attorneys unfamiliar with eviction proceedings are often unaware of Minnesota’s strict service requirements and law regarding which parties may commence an eviction action. Service requirements for eviction actions differ from normal legal actions. The eviction action must first be filed with the court and then served on the tenant. There are also timing restrictions on when the complaint must be served on the tenant (between seven to fourteen days before the hearing). Service requirements are even more involved for residential property, which sometimes require multiple attempts at personal service during a specified time of the day. Mistake 6: Not Having an Attorney. The default rule is that a landlord will need an attorney to draft and argue the eviction complaint in court when the landlord is an incorporated entity (e.g., corporation, limited liability company). While some counties within the State of Minnesota do not enforce this requirement, this flexibility may actually disadvantage the landlord. The Minnesota Court of Appeals determined that incorporated entities must be represented when appearing before the district court. See Walnut Towers v. Schwan, A-07-1311 (Minn.App. 2008) (reversing district court issuance of eviction when incorporated entity unrepresented by counsel). The Walnut Towers decision appears to impact all eviction proceedings occurring in district court; however, the decision does not impact Hennepin and Ramsey counties which have established housing courts and rules. While Hennepin County allows incorporated entities to be unrepresented during the initial appear phase of housing court, Ramsey County mandates incorporated entities be represented by an attorney during the entire eviction proceedings. Note: Anoka County has an unusual quirk in that it requires testimony from landlords, so regardless of the Walnut Towers decision, having an attorney present is often helpful. Mistake 7: Waiving the Tenant’s Breach of the Lease. Under Minnesota law, a tenant may usually cure any default in the lease up to the time of the eviction is ordered (e.g., by fully paying past due rent, interest, and late fees). In the event the tenant cures the breach, the landlord is often satisfied. However, there are also situations where landlords may unintentionally forgive a breach of the lease, will be prevented from collecting past due payments, and will be unable to pursue eviction proceedings. For instance, a landlord may waive its right to evict a tenant and collect past due rent if the landlord accepts a partial payment of rent from the tenant. A landlord should be careful not to cash checks indicating in the memo line “full payment” or “all outstanding rent”. Similarly, if a landlord accepts the keys from the tenant prior to the termination of the lease and without any other agreement, the landlord may be unable to collect the unpaid portions of the future rent from the tenant. Mistake 8: Ignoring Tenant’s (Threatened) Bankruptcy. Once a tenant files for bankruptcy, all legal proceedings against the tenant must be immediately halted. This includes all pending lawsuits or eviction proceedings against the tenant. It is in the landlord’s best interest to immediately commence eviction proceedings against any tenant that is expected to declare bankruptcy. Once in bankruptcy, a tenant may be able to remain in the property rent-free for up to 60 days. It is usually far less costly to pursue an eviction proceeding than to be enveloped into a tenant’s bankruptcy action as the landlord and/or creditor. Note: Eviction proceedings usually take approximately three weeks to complete. Mistake 9: Paying for an Unnecessary Writ. Once an Order of Eviction is granted, tenants seldom linger. If a tenant remains on the property, a writ may be ordered at a cost of $55 and a sheriff will forcibly evict the tenant. However, landlords can usually save themselves $55 by just showing the Court Order to the tenant. Mistake 10: Foregoing Collection Proceedings. Landlords are relieved once a problem tenant vacates the property and often overlook the ability to obtain a judgment against the tenant for breach of contract (e.g., past and future unpaid rent, damage to property, etc.). Tenants who breach their leases and vacate properties prior to the expiration of the lease may be liable for the remaining rent amounts due under the lease. Notwithstanding this, Landlords should consult with their attorney and consider the value of the potential judgment and the prospects of collecting on the judgment before proceeding with collection work.
This article contains a general discussion of the law. You should consult with your attorney on the issues regarding tenant delinquencies and eviction proceedings. This article does not constitute and should not be treated as creating an attorney-client relationship or providing legal advice. See more on Evictions.
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