Trying to collect from delinquent tenants is surely the most frustrating part of being a landlord. Maybe this chain of events sounds familiar to you. It starts with just a few days late on the rent. The next month you remind them sooner and wait even longer for the rent check to show up, and the next month you are starting to get suspicious when it’s the 10th of the month and you can’t get in touch with your tenants. By the 15th of the month you have refreshed your understanding of the eviction laws, if your kindheartedness lets you wait that long. You ring the bell to your tenant’s unit and there is no response. You look through the windows and the property seems empty. That could be either a blessing or your remodeling project for the next weeks to come.
If There Is No Damage
The security deposit will fund the days of vacancy up to the date your property is re-leased to a new tenant. Clean up and start marketing the property for lease as soon as possible. Keep all the receipts for any out of pocket expenses since those expenses can be deducted from the previous tenant’s security deposit. If the security deposit is not sufficient to cover your vacancy until the new lease start date, you will need to bear the cost yourself. For most landlords it’s just not worth their time to find and collect a few hundred dollars from the past tenant.
If You Still Owe the Tenant
If you still owe the tenant the remainder of the security deposit mail the check to the rental property with the tenant’s name (last known address). It will either get forwarded or it will be returned. In either case, you have done what the law requires of you. If the deposit refund check is returned, keep the stamped envelope for three years as proof that you’ve done your part.
If the Damage Is Minimal
Runaway tenants don’t do the best job of cleaning behind themselves, so try to make a list of items that need to be repaired with their estimated cost. The cost can be covered by the security deposit as long as you keep good records of your receipts. Vacancy will start accruing fast especially when repairs need to be scheduled and performed. If the security deposit was not sufficient, just forget about finding the tenants and move on. The hassle, effort, and time saved might be worth bearing the cost of vacancy.
You will be better off focusing on getting the property cleaned up and put back on the market as soon as possible. You may think about the trends you saw in screening the runaway tenant. Could you have possibly seen and prevented this situation?
If the Damage Is Major
Major damage will eat up the security deposit and several months worth of your rent so you may want to try finding and collecting from your tenant. Before you read any further, please know that collecting from a tenant who did not bother to pick up the phone to tell you that he is moving out is even more frustrating, and most of the time your efforts will be like “throwing good money after bad”.
If you do decide to pursue your tenant for unpaid rent and/or damages, here are a couple of general steps to take:
Take Pictures and Calculate the Damage
If you want to take your tenant to court and collections, some good pictures of the damage might serve you well in court. Just make sure the pictures are date stamped to verify their validity. Get estimates for repairs from several professional contractors or handymen, add the vacancy cost for the time your property will be undergoing remodel until the date the property is re-leased, add any fees or building permits if they are required for the scope of your work, and the dollar amount for your time managing the restoration (some states don’t allow you to bill for your own time so check your state laws). Now, deduct the security deposit to get the amount your runaway tenant still owes you.
Find the Tenant
Easier said than done. Start with calling them, you may get lucky and get to talk to them. If not, then move on to the employer listed on the rental application, and then the emergency contact. If nothing else, try to obtain their new address.
Negotiate with the Tenant
Be calm about the situation, stuff happens so try to be understanding. Tell them the amount owed, explain the next steps of the process and the consequences of non-payment, which could include: possible judgment against them; collections; impact on their credit score and future ability to rent properties, apply for employment, or buy a house one day. Try to make a deal and discuss a payment plan. Or offer “just give me half, and we will be good”. It may work and it may not.
Take Them to the Court
If nothing else worked and you decide to take them to court, please be aware that getting a financial judgment against them will not get your money back. But with a judgment in your hands, collection agencies might at least talk to you.
If the amount owed is small enough for small claims court (find the maximum amount for your state), you will be able to represent yourself. If the amount is higher, you will need to go through district or county court and utilize the services of an attorney. Court summons will be served to your runaway tenant. There are services that will find tenants and present the summons, but you will have to pay for it.
If your tenant doesn't come to court you automatically win the judgment against them. If they do show up, you will need to present all your repair receipts and your lease agreement. You can still give your tenant a cut on the damage instead of paying for the whole thing. It will be a deal for both of you.
With a judgment against your tenants, you can try garnishing their wages from their employer. If this is unsuccessful, vehicle repossession is another tactic that could get your money back.
Take Them to Collections - The Last Resort
You must have a judgment against your tenants in order to take them to collections. Collection agencies take a major cut from the funds collected and they don’t even collect the whole amount. Don’t be surprised if you receive 1% of the amount owed from the collection agency. The statute of limitations for collecting on financial judgments is three years.
Finding and collecting from a tenant who refuses to pay is not a rewarding experience. You may find yourself spending more money than you actually receive back. If a collection agency is involved, about 1% of the owed amount may make it back to you. However, if a judgment is issued, it will be presented on the next landlord’s screening report. So watch for judgments and bankruptcies on your next tenant screening reports and make sure to inquire about the circumstances surrounding those judgments.