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Home · Property Management · Collections : Landlords Should Consider Settling Tenant Debt

by Bill Gray
HeadacheSome of my most uncomfortable moments have come when talking to landlords about considering settlement offers.
Often, the landlord is so emotional about the debt he or she is owed that settling is not an option.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 dont.

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.

Roll diceThis 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.

I suggest starting at countering with an offer of 70-80% of the balance.In fact, I would take this advice one step further.

If a collection agency was working to collect my debt, I would give the agency blanket authority to negotiate and accept settlements of 70% on the spot without my approval. The collector has a motivated debtor on the phone and the debtor wishes to settle the debt. Dont give the debtor an opportunity to change his mind. If the collector must first contact you to authorize the settlement, wait to hear back from you, then contact the debtor again with your answer, you may have lost an opportunity to collect your money.Make sure that any money you are paid clears and is in your pocket before you give the debtor a clearance letter. Occasionally a debtors 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.

Copyright 2009 Bill Gray
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  • Helpful, Though I do not remember any tenant since 1986 making an offer.

  • D. L. B.

    My husband and I started the 30-day eviction proceddings on a boyfriend/girlfriend couple who was renting our farm untill they started getting behind on the rent to make a long story short they were supposed to be out by Sept. 22, 2009 and then last Thurseday the 8th. of October I got a call from the electric co. asking our permission to let the girls mother open up an electric account in our farm house because she was moving in and did not know where her daughter was and the electric co. also informed me that the electric had been shut off in the farm house since Aug.. Can anyone tell me what my our rights are in a matter like this???

  • very informative. if a tenant suddenly moves out and has been behind in rent for 2 months, but their lease does not expire for another 4 months. can you try to collect 6 months rent? as an obligation to fulfill their lease agreement? or can you use this tactic to at least recover the 2 months owed?

    one more question, what is the process that would then put this tenant to show up as non-paying on their next tenant screening?

  • D.L.B., I assume the mother is not on the lease, therefore has no rights to live in the rental. I would finish the eviction process then find a better tenant.

    Peter, Yes your tenant clearly owes 2 months rent. Whether they owe the next 4 months depends on when you re-rent the unit. If you re-rent the unit before the previous tenant’s lease expires, the previous tenant will owe you rent through the day before your new tenant began their lease. In other words, you may not charge a tenant rent for months that have not gotten here yet. I recommend you wait until the lease is up and then calculate what you are owed.

    Where this situation gets muddier is with the deposit disposition most states require you send the tenant within a certain number of days. For skips I recommend you add an explanation to the disposition that for each day the rental goes un-rented before the lease expires, the previous tenant will owe you more rent.

    To report tenant debt to all three credit bureaus I recommend Rent Recovery Service. This service is affordable, easy to use and effective. Email me directly for a detailed description, and AAOA discount for the service.

    [email protected]

    For quicker replies to your questions AAOA members may email me directly.

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