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.

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.

Jon L. Farnsworth, Esq. is an attorney with Felhaber, Larson, Fenlon & Vogt, P.A., a full-service law firm with offices located in St. Paul and Minneapolis, Minnesota. He represents clients in with a wide variety of real estate matters, including unlawful detainers, lease negotiations, foreclosure proceedings, and collection work. You can reach him at (615)312-6013, email jfarnsworth@felhaber.com.

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.

Report the debt to the three major credit bureaus, Experian, Equifax and TransUnion, as a collection account. The ding on your previous tenant’s credit report should remain there for seven years after they move out. There are several online resources for reporting tenant debt to the credit bureaus. It’s worth your time and effort to research them.

See How to Screen a Tenant Who Doesn’t Have a Social Security Number

See our seven part series, Vital Tips to Increase Your Debt Collection.

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.

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by Robert Griswold

Q: For the past 20 years I have been buying and managing rental homes and I have to say that these days tenants are worse than I have ever experienced.

I certainly understand the economy is bad in our area and many parts of the country, but my management company is unable to collect any money after the tenant moves out. The manager simply gives the case to a collection agency, and I never collect any money from the agency. It has been a repeated problem.

A: You are not alone, as many landlords are finding that tenants who stay and pay, and treat the rental property with respect, are far and few between.

As you unfortunately found out, the amount of damage that can be done in a rental home makes the nonpayment of rent seem like a minor issue. Your first priority should be simply to get your property back in decent condition and start over with a new tenant. It is easier said than done, but the best way to avoid these problems is to very carefully screen and select your tenants when they apply.

Qualified tenants with a stable rental history and good, reliable income are in high demand and can actually find landlords competing for them. I have even seen some tenants who have a resume or reference list that they bring with them that demonstrates to the landlord that they are qualified.

In these situations, you may find that you need to be flexible with your rental rates or upgrade your rental homes so they are more desirable than other comparable properties in your area.

As for the collection of delinquent tenant balances, I cannot recommend a specific company but I can tell you what you should do. Contact your local apartment association or Institute of Real Estate Management (IREM) chapter and ask them for names of companies in your area. Then contact those companies, and then ask for and contact their references.

While the pricing of collection services will vary, they are often quoted on a percentage of the collected amount.

You are not looking for the company with the lowest percentage but the company that has the highest overall net return, and the only way you can determine that is to contact their satisfied customers to see their actual results. Also, be sure to contact rental housing customers only, as the collection account success rate for other businesses may not be indicative of what they can do for you.

The other key recommendation is that delinquent account balances become much harder to collect over time so the sooner you get the paperwork into the hands of your collection agent the better the results.

Another tip is to be sure to file a small claims suit and get a judgment for the money owed, which can be collected in the future as long as the tenant doesn’t file bankruptcy and get your judgment set aside or discharged. This can be your best strategy because while your former tenant may be down on his luck today, I have had tenants call out of the blue asking to pay everything they owe because they are trying to borrow money for a major purchase and need to get the judgment removed from their credit report.

This may be five to 10 years from now, but most people bounce back from financial problems and they will need to pay you in full in order to get a loan to buy a car or a house. While you would prefer your money today, there is still some satisfaction, and the cash will come in handy regardless of when you ultimately collect.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of “Property Management for Dummies” and “Property Management Kit for Dummies” and co-author of “Real Estate Investing for Dummies.”

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com. Questions should be brief and cannot be answered individually.
Copyright 2009 Inman News

After 12 years of reviewing tenant debt accounts, I can tell you with certainty that landlords who seriously consider settlement offers recover much more money than landlords who don’t.

If a previous tenant makes a settlement offer, he or she is looking to resolve the debt for some reason right now. Maybe he is trying to rent another place to live, or trying to obtain a mortgage or another loan. For whatever reason, he is motivated to pay you. If you ignore the offer, he may find another way to rent or get a mortgage or loan without paying you.

Always respond to the offer in some way, even if the previous tenant has made an offer that seems unreasonably low. Ignoring the offer, or outright refusing the offer, ends the negotiations and gets you nowhere. When you receive a low-ball offer, always make a counter offer.

In fact, I would take this advice one step further.

Make sure that any money you are paid clears and is in your pocket before you give the debtor a clearance letter. Occasionally a debtor’s goal is only to obtain the clearance letter. Once he has the letter, he could stop payment on the check or dispute the credit card charge, depending on the payment method. Your collection agency will know how to make sure the funds have cleared before they supply a letter. If you are collecting the debt yourself, I recommend you require a certified check.

I once had a conversation with an attorney about a possible civil suit against someone who had no assets. My position was that regardless of the lack of assets, I wanted to sue “based on principle.” The attorney replied that “principle” is expensive. “Try making a bank deposit of principle,” he said.

He was right. In principle, you are entitled to be paid the entire amount the previous tenant owes. It is your right to demand full payment. So, you may stand on principle and refuse settlement offers. On the other hand, if you seriously consider settlements, you will collect much more of the debts you are owed.

See our seven part series, Vital Tips to Increase Your Debt Collection.

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In 30-40% of the tenant debt files I review, either the move-in inspection was done poorly, or not done at all. This makes it difficult to accurately document any damages the tenant may cause while he or she lives in your rental. In turn, this makes recovering the repair costs all the more difficult.

Often a landlord will simply hand the tenant a move-in checklist and say, “Let me know if you find anything wrong.” After the lease is signed, the landlord and all tenants who signed the lease must inspect the rental unit together.

With everyone present, it is very important to meticulously inspect and document the entire unit inside and out. Perform the inspection with your new tenant by your side. Do not just let everyone wander around the rental doing their own inspection. Some landlords go as far as using a urine stick to show there are no pet urine stains in the carpet. I encourage you to check for pet urine before move-in, and I highly recommend it upon move-out.

Make sure your move-in/move-out inspection sheet has room to document the condition of every area of your rental. It also must have spaces where you and your tenant sign the checklist both during move-in and move-out.

Take pictures of the general condition of the rental, especially of any area that may be disputed when the tenant moves out. Digital cameras make storing these photos very easy.

By inspecting the rental together and both signing the inspection sheet, you are sending a very clear message to your tenant without speaking the words: “I expect you to take care of my rental unit; if you don’t, you will be held accountable.”

Before you hand over the keys, perform a detailed move-in inspection with your tenant. You will increase your profit by minimizing the risk of debt when the tenant moves out.

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