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Welcome to the AAOA Forum, where we discuss the the topics our members want to hear and want to talk about. We like to take an active roll in the online community to help our members learn and help educate landlords new and old. We encourage you to participate and join in our discussions. Thanks.
Deadbeat Tenants On the Rise?
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.
Not all tenants are bad, but lately I have seen a noticeable increase in tenants who do not pay their rent and then leave in the middle of the night after causing a lot of damage to the house. 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
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Posted by Kim Ezzell on 11.12.2009. CLICK to Leave a Comment »
Filed under: AAOA Forum, Collections
An Alternative to Collecting Security Deposits
As with all of my articles, this one is from the perspective of a landlord collecting tenant debt. Remember, I am on the back end of the deal,
looking at damaged rental units and unpaid rent. I will limit my comments about tenant surety bonds to my experience and how they affect debt collection after a tenant moves out.What is a surety bond?
A bond is not a deposit. A surety bond is a product that a prospective tenant can purchase in lieu of a traditional security deposit. The bond is normally nonrefundable and costs significantly less than a security deposit, thus reducing the tenant’s move-in costs. I have heard it presented as a type of insurance policy to a prospective tenant. I understand that most, if not all, of these products are underwritten by insurance companies. My research indicates that there are a couple variations to this type of service depending on the company.
Does a surety bond relieve the tenant of any financial responsibility to the landlord?
No, it doesn’t. A surety bond is usually an insurance-type product, but it holds the tenant responsible for any debt that is owed the landlord. Depending on how the service is structured, the tenant who leaves owing a balance will be pursued by either the landlord or the surety company for the amount owed.
Do tenants who purchase a bond and later leave the property owing a balance generally pay what they owe?
My experience is that collecting from a previous tenant who bought a surety bond is more difficult than collecting from a tenant with a traditional
deposit. Why are tenants who purchase a surety bond less likely to pay than those who pay a deposit?
There a couple possible reasons for why these previous tenants are more likely to refuse to pay their balance. In addition to the usual objections, they often feel they do not owe anything because “they had an insurance policy.” Even though the bond sales literature and contract state that the tenant is liable for any charges when they move out of the rental unit, the tenant often “understood” something different when they purchased the bond.
Imagine being a fly on the wall in a leasing office. Here comes Mr. Prospect looking for a home to rent. Funds may be tight and he is looking for the best deal he can find. He is greeted by the smiling landlord or leasing agent anxious to rent an empty unit. He is presented various floor plans, locations, and lease options.
“How much is the deposit?” he asks. “Well, Mr. Prospect, you have two options: you may pay a traditional deposit of $1000 or you may purchase a nonrefundable bond for $100.”
What did the prospect hear? Often, he heard $1000 (thinking, “Wow, that’s lot of money!”) or he heard blah, blah, blah $100 (thinking, ”That’s not much.”). He is also probably thinking that moving is expensive and that this is a way he can save money on the move.
Even if the details of the bond were fully disclosed at the time the bond was purchased, often the new tenant could not explain those details. If the word “insurance” was used at the time the bond was sold, this only strengthens the tenant’s objections to paying anything he owes the landlord when he moves out. His experience with insurance is his car insurance. He pays his car insurance premium so that if he has an accident, he won’t have to pay the damages; the insurance company pays. In the average tenant’s mind, the deposit bond he purchased to rent his apartment is no different. He bought the bond, and although he may have damaged the apartment, he feels he is covered because he bought the “insurance.”
I have no way of knowing for sure, but another good question to ask related to this process is: How well does a tenant who believes they have an “insurance policy” on damage to their rental care for the unit itself? It is plausible that a less than desirable tenant may see the purchase of what he feels is insurance as an excuse not to take care of his rental unit.
Surety bonds are relatively new to the residential housing industry. If the use of this service fits your business model, I encourage you to use it. However, from a collection standpoint, I strongly urge you to explain in detail to your new tenant what the bond is, how it works, and what his financial responsibility will be. An extra five minutes explaining this may save you thousands of dollars after the tenant moves out.
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.
To subscribe to our blog, click here.
Posted by Kim Ezzell on 10.26.2009. 1 Comment »
Filed under: AAOA Forum, Collections
Landlords Should Consider Settling Tenant Debt
Some of my most uncomfortable moments have come when talking to landlords about considering settlement offers. 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.
This may be your only opportunity to collect even part of what you are owed.
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.
To subscribe to our blog, click here.
Posted by Kim Ezzell on 10.08.2009. 4 Comments »
Filed under: AAOA Forum, Collections
Will Your Evicted Tenant Ever Pay?
Are you certain your old tenant won’t pay his or her bill?
Landlords tell me several times a week there is no way their previous tenant will ever pay what they owe. As I said in a previous post, if you have a 
crystal ball that tells you he won’t pay you what he owes, why didn’t you use that magical crystal ball before he became a tenant?
The truth is nobody knows whether the balance will be paid or not. The one way you can make sure not to get paid is by putting his file in the drawer and leaving it there.
Think about it. Your tenant moved out with the knowledge that you were owed money. The renter might not have known how much, but most likely understood it was some amount. After moving, the former tenant either hoped you would not go after the debt, or did not think you could.
If your charges are reasonable, you are more likely to receive payment. Why? Because the tenant knows that his or her dog destroyed the bedroom carpet. If you charge a reasonable amount to replace the carpet, the renter is much more likely to pay. If you ask too much, the tenant will just forget it. Avoid the temptation to gouge a former renter. It will do you no good. Trust me; I have seen it thousands of times.
As a landlord, you have no idea of the renter’s complete financial and personal situation. Is the person’s father wealthy enough to provide a bail-out? Next year will the renter land a great job and decide to clean up his or her credit? Will the renter marry money? Will he or she attempt to get a mortgage and need squeaky clean credit to do so? If that person does try to get a mortgage, he or she will be begging you to resolve the debt.
If you have a signed lease and can substantiate your charges with documentation, you may pursue the debt as a collection account for up to seven years. Usually this can be extended to ten years if you have a judgment. This is a long time for your tenant to live with your collection 
account negatively affecting his or her credit!
If you do nothing else, report the debt to Experian, Equifax, and TransUnion. It can be done in minutes and costs less than lunch. I seldom gamble, but this is a no brainer of a bet. It may take some time to pay off, but a small investment could possibly pay big!
Send me a note with your tenant debt concern. I can help. Bill@thelandlorddoctor.com.
Copyright 2009 Bill Gray
Visit Bill Gray’s blog at TheLandlordDoctor.com.
See our seven part series, Vital Tips to Increase Your Debt Collection.
To subscribe to our blog, click here.
Posted by Kim Ezzell on 09.17.2009. 2 Comments »
Filed under: AAOA Forum, Collections
Wait Before You Hand Over Keys to New Tenant
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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Posted by Kim Ezzell on 09.07.2009. 2 Comments »
Filed under: AAOA Forum, Collections
Keeping Accurate Records Increases Debt Collection
by Bill Gray
With over 10 years experience in the apartment collection business, I can tell you the best ways for a deadbeat tenant to rip you off.
Do you keep a conversation log with your tenant?
Do you file correspondence from and about your tenant?
Probably not.
In fact, many of my collection clients don’t even have a valid forwarding address! The easiest way for a tenant to avoid paying your debt is to leave without a trace.
So, first and foremost, if you want to maximize your chances for tenant debt recovery, get the right DOCUMENTATION UP FRONT:
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Completed application with at least THREE personal references, THREE business references, EMERGENCY CONTACT information, and copies of all documentation required with the application.
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A lease signed by EVERY ADULT in the unit. (Be sure to run a screen on every adult as well.)
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A log of EVERY interaction with the tenant.
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A copy of EACH rent check.
Always hire a collection agency that requires full documentation at the time the files is placed for collection. This way when documentation is required down the road, the agency already has it.
Keep your collection files out and in a place where you can easily get you hands on them, should you need to. Throwing them in a box in no particular order and placing the boxes in a shed just won’t work for a landlord or property manager serious about collecting debt!
Bill Gray is Director of Marketing with Rent Recovery Service, a national collection agency specializing in tenant debt collection.
See our feature, Are You Leaving Money in Your File Drawer?
Let us know what you think by commenting below. For questions about our blog, contact our editor at kim@joinaaoa.org.
American Apartment Owners Association offers discounts for landlords on products and services 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.
Posted by Kim Ezzell on 04.09.2009. 2 Comments »
Filed under: AAOA Forum, Collections
Top 10 Money Saving and Money Making Tips of 2008
We’ve brought you dozens of money saving tips over the year. Here’s a countdown of some of the best technology and money making ideas of 2008, so you can save even more in 2009:To subscribe to our blog, click here.
Posted by Kim Ezzell on 12.22.2008. 1 Comment »
Filed under: AAOA Forum, Collections, Going Green, Insurance, Make Extra Money
Avoid This Tenant Debt Collection Nightmare
Tenant debt collection expert Bill Gray is seeing a disturbing trend:
“We are getting more and more collection requests from owners who inherited the existing tenants from the seller,” Bill explains.
“Problem is, all they have is the lease. They don’t have the information we need for collection. Sometimes they don’t even have the debtor’s Social Security Number.” Read the rest of this entry »
Posted by Kim Ezzell on 07.31.2008. 1 Comment »
Filed under: AAOA Forum, Collections, Credit Screening
Are You Being Ripped Off By Your Collection Agency?
It’s tough when you get ripped off by your tenant. But it adds insult to injury when you turn to a collection agency for help collecting the debt, only to learn they are taking advantage of you.
How do some collection agencies take advantage of unsuspecting landlords?
In short…by not showing you how to collect the debt yourself before turning it over to them.
Here’s the skinny on collection agency tactics:
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Professionals in the debt collection industry know that a small percentage (5% -15%) of delinquent tenants will respond and pay immediately when they are contacted by a collection agency.
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Collection agencies are required to send a collection letter to the last known address of the debtor, before reporting the debt to credit bureaus. A predictable number of people will respond and pay their debt immediately, because they don’t want their credit to get ruined.
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The collection agency only spent a few dollars pursuing the debt, but you get a bill for 50% of every dollar collected.
Unscrupulous collection agencies call this tactic “creaming the easy ones”.
What they don’t tell you is…you can do this step yourself!
Here’s How to “Cream the Easy Ones” yourself:
- Go To: http://www.bestrentcollection.com.
- Click on “Flat Fee Based Collections”
It is free to register. You can send one collection letter for $16.95 or three for $26.95.
If the debtor does not pay, they will be automatically reported to the three major credit bureaus as part of the service.
The whole intent here is to generate a phone call from your debtor. If they do not call within 60 – 90 days, they probably won’t. THEN you can turn them over to a collection agency for collection on a contingency basis, and make the agency work for their fees!
Debt collection begins when your prospect walks through the door. Click here to read our series Seven Vital Tips To Help Maximize Your Debt Collection.
For help with debt collection, email collection@joinaaoa.org.
American Apartment Owners Association offers discounts on products and services 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.
Posted by Kim Ezzell on 06.02.2008. 1 Comment »
Filed under: AAOA Forum, Collections
OLD TENANT DEBT: Are you leaving money in your file drawer?
Our collection guru Bill Gray has some advice for you: If you have old, uncollected rent files, you may be sitting on a wad of cash.
“A lot of landlords just give up when the tenant skips and they can’t find a new address — they think that if they didn’t collect the unpaid rent right away, it’s a lost cause.”
“But that’s not the case. Old tenant debt can be an untapped source of cash.”
Posted by Kim Ezzell on 03.19.2008. CLICK to Leave a Comment »
Filed under: AAOA Forum, Collections