Rent Collection: How to Get the Money From Current Tenants and Past Skip-Outs

Rent collection, including collection of back rent (even after an eviction or skip-out) is the most critical phase of your property management; don’t misunderstand, everything from tenant screening to maintenance is also critical, but it’s for naught if you don’t collect the rent. You are renting time; if a tenant lives in your property for a month and you don’t collect the rent, there is – obviously – no way to make that up elsewhere. If you don’t eventually get it from the tenant, it’s gone forever.

One thing which constantly surprises me is how few landlords or property managers attempt collection on an evicted tenant. This creates a pervasive culture where tenants feel like their odds of getting away with not paying the last month or two’s rent. Just as you need systems and policies in place to handle maintenance, screening, advertising, inspections, etc., you need to have a collections system in place which goes after deadbeats, including skip-outs and evictions. In a few cases a tenant may be so obviously judgment proof that there is no logic in pursuing that one case, but in general when screening tenants you want to look at them as potential defendants in case you have to file suit. Do they have job or assets which would be worth going after? If not, I wouldn’t rent to them without a qualified cosigner or additional security.

Collecting Current Rent from Tenants

You need to adopt a few basic policies to keep headaches to a minimum on current rent collections:

1) Have all rents due on the same day.  It may seem simple to make rent due on the date the lease is executed and not figure some sort of pro-ration system, but it will drive you crazy later. If you have more than a small handful of properties to manage, you will go nuts chasing down rent payments. You want to batch all of this task in one short period each month so you can get back to other things.

2) Don’t have a grace period. If you say rent is due on the 1st, but have a grace period of five days, rent really isn’t due on the 1st then, is it? Grace periods in rental contracts are almost universal, but they are universally stupid. You can waive late fees in individual cases as you see fit, but don’t get into a grace period trap where the tenants really just think of the rent as due on the 6th (or whenever your grace period ends) and only then start getting serious about scraping the money together (and begging you for an extension of the grace period). Credit cards don’t have grace periods, why should leases?

3) Don’t renegotiate the lease. If rent is due on the 1st and they signed a contract agreeing to that, don’t waste time negotiating every month. I got so tired of tenants asking if it would be “okay” if they paid their rent so many days late, we now have a policy of saying definitely “NO!”. Late is NOT OK, it is late. What the tenant really means is will you waive late fees and/or how long before you actually kick us out. We don’t negotiate late fees in advance either; what’s the point of talking about waiving some late fees when the rent hasn’t been paid yet? So we make it clear we won’t consider any mitigating circumstances on the late fees until the rent is paid. We can’t know what the late fees are since they are added to daily anyway until the rent is paid.

4) Set up an email system to send out a reminder. Set it to send the day before rent is due, or at least the morning it is due. There are a number of options for doing this, but if nothing else hire a programmer on oDesk or eLance to set you something up. Also set the system to sent out late reminders for balances that are unpaid after the due date (this will require a little more work). We use spreadsheets and php scripts to check if balances are still due on the 4th of the month and the 15th of the month.

5) Post notices on a fixed day, early in the month. In Kentucky a notice of breach for payment can be as short as 7-days, but only if it is written into the lease that there can be a 7-day notice. Otherwise the default is a 30-day notice. We post notices on the 6th of the month (or as soon thereafter as possible). Do NOT wait until the end of the month to post notice. You have to give them the 7 or 30 days, then it can take a week or more to get the court date, and then the judge will give them another 7 days to be out. You can wait more than 7 days to file the forcible detainer complaint if you think it’s worthwhile, but there is no good reason to delay on posting notice.

6) Be consistent in maintaining this every month. Don’t hold the line one month and go soft the next. The tenants will become confused.

There are other things you can look at in aiding collections on current rent; there are payment systems like Dwolla which allows for electronic payments with low costs, for example (the fees on Paypal are too high, unfortunately). We have an arrangement set up with our bank where tenants can make payments there (the advantage of a small town bank). If you don’t have a physical office (which usually just turns out to give tenants a place to whine, beg, yap and generally waste your time), you can set up a UPS box and tenants can bring payments to the UPS Store and have it placed directly in your box. We use a combination of these approaches in addition to old fashioned snail mail and tenants will settle into the system they prefer. We also have an online system which sends them an email confirmation when a payment is posted to their account and they can check all their account transactions in the online account. This may be overkill for your circumstances, but when a tenant says they have “questions” about their balance we’ve saved all kinds of time just referring them to that account and telling them to indicate which line they think contains an error. That almost always shuts them up, because they didn’t really have a question, they were just hoping to talk you into something.

Other things to keep in mind: if you accept a partial payment after you’ve begun the notice and eviction process, if you don’t have a properly worded waiver clause in the lease, you may have to start the process over. It’s an old tenant’s trick. Give the landlord half the rent a month late, and that can buy up to another whole month. See our article on how to evict a tenant. Also, if you suspect that the tenant is definitely skipping and is just staying as long as they can get away with, go ahead and file the civil suit (this is separate from the forcible detainer suit) and get them served. More on this later.

Collecting from Deadbeat Tenants After They’ve Skipped or Been Evicted

Once out of your property, the tenants have no intention of paying you for the rent they owe, and they definitely don’t think the still owe any more rent. Of course, they continue to owe rent until the lease ends or you get the property re-rented. Until landlords start regularly collecting these amounts, tenants will continue to keep your rent money to use as the deposit on their next place. The bad news is that collection agencies won’t normally do collections on back rent. I’m sure it’s a relatively low collection percentage, but can it be that much lower than people who have run up credit cards and don’t pay them? This means you are on your own in collecting, and the only way realistically to do this is to file a civil suit. That may sound intimidating, or like you need an attorney, but you don’t, at least normally. Most back-rent suits are slam-dunks to get a judgment. However, you do need to get the deadbeat served. This is why when we suspect someone is just sticking us for as much time as possible, we go ahead and file the suit – at least we know where they live! Once they are gone, you may have a lot of trouble finding them. Even then, though, there are a few relatively things you can do:

1) Address Service Requested: mail them a copy of their bill, and under your return address put in all capitals “ADDRESS SERVICE REQUESTED”. If the deadbeat has had their mail forwarded, you will get a slip back from the post office saying there is a small fee due. Pay that, and you’ll have the deadbeat’s new address. This doesn’t work quite as well as it used to – with email and texting, some tenants who are skipping just don’t have their mail forwarded and try to go to ground. However, quite a few still do, and unless they’ve had a landlord track them down using this method before, they are not likely to think about it.

2) Check the court records occasionally in your county; we keep a list of deadbeats we’re trying to track down. When we’re in court for a forcible detainer or civil case, we’ll stop by the public computer terminal. This allows you to search the court records for your county (only the most recent of these records are available online). It is amazing how many times our deadbeats get a traffic ticket. This is public information, and the case file will have their current address. You might also catch where another landlord has filed a more recent forcible against the deadbeat and they might help you track them down (they might even still be at that landlord’s property).

3) Google them. All kinds of stuff ends up online, including arrests, property purchases and the like. We have so many tools to track the back guys nowadays. Take advantage of them.

Once you know where to serve them, in Kentucky you have three courts you can choose to file the suit in.

1) Small Claims Court. The advantages are that this is less formal than “full” court, though basic rules of evidence and procedure still apply. You will have a court date set, typically within a month, and you’ll normally get a decision that same day. The disadvantages are that there is a limit of $2,500. If they’ve damaged the property as well as owe you rent, it’s easy for the total to exceed that. You can choose to only sue for the limited amount, of course. Also, if the deadbeat has moved out of the county, the small claims court doesn’t have jurisdiction. We’ve found this to be a big problem, as often tenants move just far enough away to avoid heat for a while, so if this is out of county (normally is) we can’t use small claims court. This severely limited jurisdiction is not present in the other two courts.

2) District Court. District court is full court, but has limited jurisdiction. In civil cases, the limit is $5,000. Normally small claims court is a division of district court, so the same judge would hear the case, whether it is small claims or district. There are no abbreviated procedures, and the court costs are a little higher. This means you need to know how to file a complaint, and probably a motion for summary or default judgment, or for judgment on the pleadings. However, these aren’t really that hard. You can ask the court clerk if you could see examples of these from other cases, and there are many resources online. We file suit on nearly every deadbeat and very, very few of these cases go to trial (less than 2%). Normally the tenant simply doesn’t answer so you can file a motion for default judgment, or they do file an answer but it’s basically whining, begging and complaining where they basically admit they owe the money but think there’s some reason they should get off. In that case you can just file a motion for a judgment on the pleadings. If they file a proper answer, it gets a little more involved where you need to file discovery on them (ask for copies of their evidence). Normally they have nothing or next to nothing, and that’s when you can file for a summary judgment motion. The granting of these motions is usually routine, and then all you have to do is prepare the judgment (ask the court clerk for an example from another case). The most effective thing a tenant can do is hire an attorney, who will then try to intimidate you. Don’t fall for it. That’s happened to us a few times over the years, but we always win in the end (and again it happens less than 2% of the time). In these cut-and-dried back rent cases, intimidation is about the only tactic the attorney has. If you are truly concerned, hire your own attorney at that point and ask for the fees as part of the judgment.

3) Circuit Court. This court has unlimited jurisdiction, so if the tenant has destroyed your place and the amount they owe is above $5,000, you might want to file in Circuit Court. Circuit is theoretically going to work the same as District Court (default judgment motions and the like), but in practice can be geared towards attorneys and formal procedures a little more and may be a little intimidating. In district court I’m not always the only self-represented plaintiff; in circuit court it’s usually just me and a courtroom full of attorneys. However, just like in district court, the judge is under obligation to, within limits, help a person representing themselves (they are called pro se) and forgive them for small errors. The judge cannot give legal advice, but they could instruct you in procedure or explain the meaning of a legal term like pro se. The problem normally with circuit court isn’t the sometimes more attorney-thick atmosphere, but if the tenant has actually done that much damage, will you really be able to collect that much money from them? It’s not likely. We’ve gotten judgments up to $20,000 against tenants in circuit court, but have never been able to collect more than a few thousand. If they had that much money, they probably wouldn’t be renting. If you are more comfortable with district or small claims court, the damages above $5,000 may just be chasing air anyway. However, judgments in Kentucky are good for 15 years, and the judgment will make it unlikely the tenant can buy a house or a new car for example, so if they ever do make good over 15 years, you can be sitting there waiting to collect with interest.

Once you have a judgment against the tenant you have some basic methods to collect it: Garnishment, Non-Wage Garnishment and Attachment. In most cases, garnishment is going to be the most likely path. Of course, they have to have a job, and you have to know where it is. You can serve the tenant with what are called post-judgment interrogatories to force them to tell you if they have a job and where. The court clerk can provide you with the paperwork to serve a garnishment. A non-wage garnishment would apply to something like if they receive money from a trust. Attachment is for simply taking their stuff. A writ of attachment can take their bank account, for example. You can also go through the execution process; this is where the sheriff attaches property of theirs and sells it to satisfy the judgment. However, this almost never works; they don’t have anything worth anything, or it falls under the exemptions (they are allowed $4,000 equity in a vehicle to be exempt for example; if they are skipping out, it’s unlikely they have a vehicle with that much value and equity). If you rent higher-end properties or commercial properties, execution may make sense. For most typical residential rentals, it’s unlikely.

The secret weapon: there is a secret weapon for the landlord in Kentucky which is almost unheard of, but it does work. It’s called an Attachment for Rent. This is a pre-judgment attachment, and courts are normally very reluctant to issue such things. If you file suit and get them served, though, and then follow the attachment procedures, you can take money in their bank account or elsewhere. Unfortunately the process is complicated but you can do it. See our article here. We’ve found that attachment for rent works best in cases where we’re sure the tenant is going to skip, but is still in our property. Typically this means they’ve got the money to pay us, but they’re saving it to use as the deposit on another property. We require banking information on their application so we know where they bank. When this works, it’s beautiful. You get their money when they didn’t think there was a way to do it. I do enjoy imagining the look on their face when their bank account gets locked down.

I didn’t say collecting was easy, but it’s necessary. Learn to do these things and your property management will be much more successful.

Category: Property Management, Rent Collections

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