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by Robert Griswold

Knocking on doorQ: I own several rental properties and have had tenants who had trouble paying the rent, but the economy seems to have hit my tenants very hard.

Several tell me that their work hours have been cut back or they have been laid off. It is getting much more difficult to collect the rent.

I am even accepting partial payments, as some rent is better than nothing.

One of my tenants still hasn’t paid any of last month’s rent and admitted to me that he is considering bankruptcy.

What should I do? A: I have heard similar concerns from many landlords, and it is important for landlords to be assertive and communicate with their tenants who fall behind on the rent. While you may have compassion for your tenants, you need to be even more diligent in your rent collection efforts or you will find your own financial situation will be at risk.

I always suggest that you immediately contact your tenants as soon as the rent due date has passed. Depending on the track record of your tenant, a simple reminder phone call may be the appropriate first step. Making phone calls is fine, but you should document your conversations in writing for your tenant file as well as send letters to your tenant confirming any promises to pay or agreements that have been reached.

The written documents will be helpful, but to be safe you should consider serving your tenant with the required legal notice. You can explain that you understand they will be paying soon as they promise, but you just need to start the legal process anyway. My experience is that some tenants will suddenly became impossible to locate after they miss a promised payment and then you will not be able to serve your legal notice to start the eviction process.

As the economy has faltered, one last-ditch effort some tenants make when they’re in financial trouble is to file bankruptcy. Although the rental housing industry continues to lobby for changes in the federal bankruptcy code, many rental owners are dealt a severe financial blow when a tenant files bankruptcy during the eviction process.

When the federal bankruptcy action has been filed, your state court eviction proceeding cannot be filed or completed because the bankruptcy results in an automatic stay (halting) of the eviction. As soon as you become aware of the bankruptcy, you must stop any collection or eviction efforts, because there are severe penalties for rental owners who violate the stay.

You will be required to file pleadings with the federal bankruptcy court requesting the issuance of a Relief from Stay in order to proceed with the eviction. Even if you routinely handle your own legal work, have an attorney handle all tenant bankruptcy matters.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of “Property Management for Dummies” and co-author of “Real Estate Investing for Dummies.” E-mail your questions to Rental Q&A at [email protected]. Questions should be brief and cannot be answered individually. What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
Copyright 2009 Inman News

See Robert Griswold’s feature Setting Rent in a Declining Market.

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