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“I Can’t Pay The Rent” – A Landlords Take on What to Do

by Brendan O'Brien on January 25, 2009 · 24 comments

  

I am in a very fortunate position right now.  All of my 13 units are rented, and all the tenants are paying on time.  It’s great!  And it’s not going to last.

I know that because even in good economic times, I’ve had a couple of tenants every year who found that at some point, they just couldn’t pay their rent.  And these are not good economic times.  In fact, I am really amazed that my one retail tenant, selling antiques and other non-essential items in a very blue collar town, is still paying on time.  And I have no idea how many of my residential tenants are dealing with impending layoffs, loss of overtime, or other issues.  I certainly know that most of them don’t have financial cushions they’ll be able to use if they lose some of their work income.

I can handle the “can’t pay the rent” call in many different ways, but they boil down to three options.  First, I can be hard, telling the tenant the rent is the rent – pay in full on time, or be evicted.  Second, I can be soft – but that may mean that the tenant never pays, and I’m out of pocket forever.   Third, I can find some middle ground – which is probably what I will do.  There are a million variations on that “middle ground.”

Make your plan before the call comes

I’m a big believer in rules to manage my behavior and guide my decision-making process.  In this case, rules will overcome an emotional reaction that might lead to a bad decision.  They’ll also keep me from making a snap call that could turn out to be wrong.  Remember, as landlords, our bad decisions have long-term consequences.

The emotional reaction can be anger (“How dare Carol not pay me when I depend on her money to pay my bills!”) or sympathy (“Poor John – $4,000 in medical bills!”)  Which reaction will I have?  That depends on the tenant’s story, and probably also on how the rest of my day is going.  In other words, I should ignore it and concentrate on making the best business decision.

Finally, why the middle ground reaction – why am I probably going to make a temporary deal?  Well, I already know I’m not going to go soft and let the tenant take advantage of me forever.  And I probably won’t boot the tenant right away, either, simply because that leaves me with a vacant unit – which in a snowy, bitterly cold winter, along with a bad economy, is likely to stay vacant for some time.

Here are the hard and fast rules I’ll establish up front.

  • I will never give a tenant an answer right away (upon the first phone call).  Even though I may know what I want to do, I will sit on the decision for a day.  Why?  First, coming back with an answer right away, especially if I’m offering the tenant a generous deal, may mark me as a soft touch.  Second, waiting gives me a chance to really think through my decision.
  • I will insist on a written agreement.  This is essentially a temporary change to the lease, signed by me and the tenant, which means if the tenant violates it, he can be evicted.
  • I will not let the tenant get more than one month behind in rent.  This way, if the tenant defaults on the special agreement, I’m only out one month.
  • I will have a face-to-face meeting with the tenant to discuss any alternative ways he can get the money.  The point of this is obviously to get the money.  But the secondary point is to impress on the tenant just how serious a matter this is.  “You can’t pay me $600 in rent, but you just bought a $800 TV?  Sell the TV or return it.”  This meeting should be at the tenant’s unit.
  • I won’t offer a temporary agreement until the end of our face-to-face meeting. That meeting is my last chance to consider the tenant before I offer an agreement – and if I get a strong ssense that he’s not being serious, out he goes.
  • If the tenant violates the agreement, I will evict him – hard and fast.  I will make this very clear at our face-to-face meeting and follow up if he violates the agreement.

    The written agreement will have a confidentiality clause.  My tenant talk to each other, and I simply can’t afford to have John tell Carol, “The landlord gave me a break.”

Do I have to treat everybody the same?

No, thank goodness.  I can treat people differently, within reason.  I can, for example, come down much harder on a tenant who has behaved badly in the past, or who has a history of late payments.  Searching the Internet, I was unable to find a successful lawsuit in a case where a landlord made a special deal for one tenant, but not for another.  That doesn’t mean such lawsuits don’t happen, but they are rare enough to not be a major concern.

Next week I’ll dig more into this, looking into some different “can’t-pay” situations and how they should be handled.

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{ 24 comments… read them below or add one }

Nolan Feintuch January 25, 2009 at 6:05 am

I have head a lot of excuses of why my tenants can’t pay the rent. I try not to let them get one month behind. I really dont listen to the excuses anymore. I do implement a 10% late fee and make them pay that regardless of excuse. I have a tenant who is always late but she pays by the end of the month with the late fee so I am making 10% more than I planned. Sometimes it is like being in high school listening to all the excuses.

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BB January 25, 2009 at 10:55 am

Yeah I think generally it is not good to let tenants get more than 1 month behind rent. And I’ve never thought of the 10% late charge rule, it’s a good rule, should add it on every month they’re late.

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Bridget Magnus January 25, 2009 at 12:44 pm

Well, your late fees and whatnot should be outlined in your lease (and your lease should absolutely have a “automatically extends on a month-to-month basis after the ending date unless notice to vacate given” clause! But you knew that, right?).

When I was in property management, I was responsible for collecting the rent on 200 households. It was inevitable that somebody was going to be late every month. Rent was due on the 1st and late after the 3rd. We tried to minimize late rent by making sure we touched base on the 3rd with folks who hadn’t paid yet. If it’s in the mail-slot in the morning, no late fees, we get our money and the resident thinks we’re great for reminding them instead of charging them extra.

I absolutely agree that communication is key. Come in and tell me when I can expect a check! I also agree that within the lease and your state laws, don’t let people get more than 1 month behind or they will never catch up. For that matter, once late fees are over $100 they never catch up, so cap those somewhere. Think about it, they don’t have $x but you think there is any way they will have $2x next month or $x + #100 in 2 weeks? Get real!

Another thing I used to do when the sad story is “I lost my job.” Granted this was the 90s. I used to go into my Rolodex and give them contact info for 2 temp agencies. I figured if they couldn’t do anything with that, they didn’t want to work very much. Of course, in addition to making it more likely they could pay the rent, it gave the impression that I really cared. Come to think of it, I don’t think I ever had to evict somebody after sending them to the temp agencies.

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James Miller January 27, 2009 at 2:54 pm

Great Post.

I think a lot of Landlords share in these frustrations, and having a list of rules to go by is crucial.
James

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Suzie November 15, 2009 at 10:19 pm

Some really great points made there and I agree one can’t let them get behind, even a month is too much, but sometimes unexpected things do come up that are beyond anyones control,and this is when one has to speak up and come up with a plan as to pay that back asap.

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Maegan November 23, 2009 at 7:35 pm

As a tenant that is currently in a financial “pickle”:

I am a mother of two. My husband and I moved into our current house in July 2009 while I was pregant with my 2nd daughter. August 2nd 2009 I was hospitalized with preeclampsia 2 months before I had planned to leave work. This was a huge hardship on my family but we did what we could to pay our rent, including payment plans, but we were never a whole month behind. But Nov 2nd 2009 my husband lost his job, terminating our last form of income. He has found another job but He does not start until the end of the month. I currently have $710 worth of bills due at the end of this month, half of that is due at the end of this week. We have no income. I have written a letter to my landlord explaining this to him and I pray that he decides to give us a little time, but I don’t know.

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jeanine November 29, 2009 at 10:09 pm

Kiss my ass I can’t wait until you are homeless

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Joshua Dorkin November 30, 2009 at 7:50 am

Jeanine –
What is it that you are unhappy about? Should landlords allow anyone to live on their property even if they don’t pay? I’m assuming that you understand that they might lose everything if they do that, right? What is unfortunate is that most renters think that landlords are rich fat-cats, when in fact, many are just average everyday people. If these people allow their renters to live for free, they then aren’t bringing in enough money to pay their bills, and can lose their rental property to foreclosure.

Unfortunately, in our society it is just easy to blame the landlord, when they are just trying to get by as well. Is the landlord at fault when a renter defaults on their contractually obligated payments? Are they the bad guy?

Maybe you could elaborate on your issues and we can discuss it logically without the nastiness?

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mary July 29, 2013 at 8:09 pm

I think the majority of landlords are asking too much money or setting impossible rules. Self respect should be really mutual. Yes it is easier to blame the landlords of course (I am both a landlord and I rent the place where I am living now) because most of the time they are the ones with at least 2 houses, so they should be the ones to give a little bit more space and flexibility to those who have nothing. This doesn’t mean of course giving too much or loosing, but I do think the landlord mentality could be improved with general benefits for all.

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Mark England January 10, 2010 at 11:59 am

I usually never give the tenants a middle ground. Cannot pay rent on time, out they go. Nothing to think about. Never had problems in getting new tenants.

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tim March 10, 2013 at 4:12 pm

yea well as a tanant i have been late sometimes , and i understand landlords situations, but i would give you a least some thing , but if you turn down a partial payment and try to evict me ,i will ask the judge to go to trial, thats my right and keep the money that you refused, and present it to the judge saying you refused it , then i will call local media, after that you will have a hard time finding tenants, tenants have the right to go to trial , and if they are poor it free,

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cassandra February 12, 2010 at 12:05 pm

I have a tenant who has not paid for 2 months as she cannot afford the rent – she hs not given me anything?? She will be moving out next week and promises she will pay me back. Please can u suggest a way to create a contract that will be legally binding that will ensure she will pay

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Joshua Dorkin February 12, 2010 at 12:07 pm

The contract you’re referring to, Cassandra, is your lease agreement. If your tenant owes you money, the lease is all you need to go to collections . . . that said, it is hard to squueze blood from a turnip, as the saying goes.

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Tom Thomas December 16, 2010 at 1:55 pm

I think it’s good that you look at each tenant on an individual basis especially during these tough economic times. Most tenants want to pay their rent but sometimes just need a little time to sort there finances out particularly if they have lost there job. In saying that I guess you have to draw the line somewhere as it is you who will have to pay the loan on the house!

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Maria March 2, 2011 at 1:23 pm

I am so frustrated, yesterday I went to the Sheriff’s office to have my tenant evicted, I already have an order of possession; but my tenant didn’t leave the day she agreed, she also never changed the electrical on her name and I am paying for it as well.
I have a son with Autism and I am divorced, I had to borrow money to cover the mortgage, association fees and her electrical bill. I was crying yesterday when the personnel at the Sheriff’s office told me that would be 12 weeks until they evict my tenant.
It is unbearable the pain that I have to go through every month. I took my IRA money out to purchase this property to protect my son’s future; I wanted to make sure I built some wealth because I don’t know if he would be able to work and if I don’t pay the mortgage I could lose everything.
I learned that this women has committed identity thief and owns the electrical company 1000.00, she is a scam artist, why is the Government protecting people like this?

I am sorry but at this moment I am in so much pain and I can’t have simpanty for anyone that lives in aproperty with out paying the rent, there are many shalter places they can go, I would never do that to an other human being.

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Maria March 2, 2011 at 1:29 pm

I forgot,
My tenant owns me over 4000.00 already, I helped her find a job and waited 2 months when she lost her job, if takes 12 weeks to get her out, it will be 7,000.00
I don’t think I ever going to get this money back, now I am looking to rent a room in my house so I can pay back my loan and my son is not happy, because of the Autism he does not like other people in the house. Is hard for him.

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Maria August 9, 2011 at 5:29 pm

We put ALL our income toward rent, no, landlords are NOT like the working man, to make money/profit off of a tenant NOT being able to afford their own home shows what is wrong with our nation’s tax structure, every working person should be able to invest in the “American dream” yet the lowest paid wage earners pay pay much more in taxes, boohoo if the landlord has a property they cannot make profit on–the working man who cannot afford a pitiful apartment because of the taxing structure is the victim, PLEASE VOTE PEOPLE!!!
Oh, and “Jeanine” November 29, 2009 at 10:09 pm
who stated:
“Kiss my ass I can’t wait until you are homeless” –hmmm, YOU sound like an evil FAT pig that sucks the blood of real working people, hope you get your fare share of karma asap!

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judy Allen November 7, 2011 at 5:27 pm

My son-in-law just lost his job. There are five people in the family–son-in-law, my daughter and three children. They were given an eviction notice-and they owe November’s rent. HOW CAN THEY DO THIS WHEN THEY HAVE NO PLACE TO GO!? Their story is one that could be rectified through unemployment, a new job etc. This most certainly is a different type of eviction, but I am not at liberty to disuss the matter further. They have tried every avenue for money, but “no” is the word of the day.

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Heather September 1, 2012 at 7:26 pm

I’m a tenant and I lost my job two months ago. I paid last months rent but I can’t afford this months. I just got a job but I won’t get enough hours in time to pay my rent this month. The manager is never in the office so she really doesn’t care for her job, what should I do?

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Louise December 6, 2013 at 7:57 pm

Heather, I guess this advise is a bit late now – hope you figured things out. As a landlord I appreciate honesty. Don’t wait until your landlord is chasing you – you have to be honest about your situation and layout a plan for how you are going to get back in the green.

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Ashley M. September 24, 2012 at 9:20 am

I suppose that I can side with both sides in this argument. However, you say you try to be considerate to all your tenants, but you say you harass them by saying that they just bought a new tv why cant they afford rent. Not that I am saying what thag person did was right, but you as a landlord should not speak to your tenants that way. My mother had a landlord tgat did the same thing to her, she worked through a few agencies as a caretaker for the elderley and lost her jobs because many of her clients died or had to go to a nursing home. Sometimes she wouldn’t get a new client for and a few weeks and her landlord would call her a low life and tell her to borrow money from anyone so see can afford her rent. He threatened that she would become homeless because she could not putt having a roof over her head as a priority. It sickens me that it comes down to threats to someone that has been on time for over two years, because she is 10 days late. Just as you say you are people, so too are your tenants. Stop looking at them as money.

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Louise December 6, 2013 at 7:54 pm

Ashley, it is really hard all round. Firstly I came from a single parent family, my mother brought up 3 kids on her own, so I know what it is like to be short. I am also a landlord – and we don’t make any money on our property. The house is in the red since we bought right before the crash, and even when we have tenants, the rent does not cover the mortgage — so yes, 100% yes – we rent out to get money. Would you buy someone a house to live in for free?? Who can afford to do that?

Our tenants are often late, but we do try and work with them. We recently evicted someone for the first time. The lady was consistently late with the rent and her checks always bounced. Why should we have to deal with this? We told her that it would be best if she found somewhere else to live that was in her means and we’d give her 3 months so she had enough time, and she said “no, I like it here!”. So we evicted her. She accused us of only caring about the money. It’s insane that some renters think their landlords should be happy to subsidize them. Not paying your rent is like stealing cash from other peoples bank accounts.

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Yessica June 26, 2013 at 9:29 pm

What happens if the tenant already moved out because they didn’t want to get evicted?

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emma March 13, 2014 at 7:27 pm

I was just reading all the comments and thought as a renter I need to get in this. I have rented with my mother since I was old enough to be on a lease, for 20+years we have had A+ rental references always ahead in rent and taking good care of the houses and yards. Recently my mother has past away and I am left with $400 a week rent on top of other bills and the funeral expenses. I just cant come up with the rent, I have spoken to the real estate the owner will not lower the rent or allow me to break the lease. This is leaving me in a bad position where I will have to either wait and be evicted or just leave and take it to the courts.

Yes maybe some people are bad tenants that are always late in rent or keep the property untidy etc but there are people like me that just fall on bad time that really do need some one to give a hand.
I know the landlord needs to make money off of the house. I know its hard times I just wanted to say that some people really are trying their hardest to make the rent and stay on top of everything else that is costly.

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