Landlords and the Eviction Process: Mitigating Risk

Bad tenants: Chances are if you own an investment property, you’ve had to deal with one. From not paying rent to damaging a rental property to committing criminal acts on the premises, one bad tenant can be stressful and may cost you thousands of dollars in lost rent, attorney’s fees and property damage. However, there are a few steps you can take to help mitigate potential financial risk in the event you encounter a bad tenant and are forced to move forward with eviction proceedings.

Use a strong lease agreement

The first step in protecting yourself from the risk of a bad tenant is to know the lease and the law. Before allowing a tenant to move into your property, you can lay the groundwork for addressing future problems by using a strong lease agreement. Along with the specifications on how and when rent is to be paid, a lease should clearly state the tenant’s duties on cleanliness, property maintenance and criminal activity. Consider utilizing an experienced attorney who specializes in real estate law so that your lease complies with all local and state laws.

Make sure you are properly insured

Tenants have numerous legal rights, and a tenant who knows he’s being evicted and won’t be getting his security deposit back may vent his frustration on your rental property. Sufficient property insurance is a critical component of financial protection.

An eviction, depending on the length of the process, may mean lost rental income as well as court and legal expenses and time spent removing a tenant from your property. Rent default insurance, like Aon Rent Protect (www.aonrentprotect.com), has recently become available in the U.S. and helps protect a landlord against the financial loss from rent tenant non-payment of rent.

“The annual cost of evictions to property owners is in the millions of dollars,” according to Chester Hartman, an urban planner with the Poverty and Race Research Action Council in Washington.1

It’s easy to see how an eviction can be costly. The length of eviction proceedings varies depending on your local and state laws, however, an eviction in any state can potentially translate to several months of lost rent. During this process you may  still be making mortgage payments on the property and you may be paying legal expenses. Rent default insurance can help hedge against the hazard of lost rental income and legal expenses.

Adhere to all disclosure and local eviction laws

“Most tenants are good people who pay their rent and cause no trouble. But eventually, every landlord encounters the other kind. What’s a landlord to do…? The answer will vary by state and even municipality, but in general, the overriding advice from the pros is [to] proceed with caution.” 2

Regardless of the specific problem, the starting point for dealing with bad tenants is to know your lease and know the law. The eviction process can be labor-intensive and time-consuming, but you’ll want it to be legally viable, so following state and local laws precisely is important.

Hire a real estate attorney who specializes in evictions

Because eviction is a drastic measure, every state has very specific laws on when and how it can be done. State laws include detailed requirements to end a tenancy. Different types of termination notices are required for various situations, and each state has its own process as to how termination notices and eviction papers must be written and delivered.

In certain states, during the eviction process, you are not allowed to deny the tenant access to the property, cut off utilities, change the locks, or in any manner interfere with the tenant’s right to occupy the dwelling. That’s right. In many circumstances, the tenant has more rights than you do! Any action on behalf of the landlord can result in monetary damages being awarded to the tenant. An experienced attorney can help protect your rights in the eviction process. 

Mistakes made during the eviction process may provide a tenant with a valid defense. If the tenant chooses to mount a defense, it can add weeks or even months to the process. A tenant can point to mistakes made in the content or delivery of the notice or complaint in an attempt to delay or dismiss the case. The way a landlord conducts business with a tenant may very well affect the outcome. Mistakes made may swing attention away from the tenant’s misconduct and reduce your chances of success.

Hiring an attorney can be expensive but is recommended if you are forced to evict a tenant. It can cost several hundred to several thousand dollars in legal fees to evict a tenant. The Aon Rent Protect program is designed especially for residential investment property landlords to help recoup lost income in the event of tenant non-payment of rent, abandonment, eviction and more.  The plan also provides assistance with certain legal expenses, such as attorney fees to help you through the eviction process.

Be prepared

Hopefully, you won’t have to worry about eviction, and your tenants will keep the place clean, make their rental payments on time and take good care of your rental property – but don’t bet your house on it! 

Lisa Dryer is the Director of Marketing at CAR Business Services, Inc. CAR Business Services, Inc. is a wholly-owned subsidiary of the Colorado Association of REALTORS® (CAR). The Colorado Association of REALTORS® is the state’s largest professional, voluntary, non-profit, real estate trade association that is dedicated to serving more than 20,000 REALTOR® members across the state.  These agents are also members of 39 local associations statewide and the National Association of REALTORS®.