Prev property mgmt company charging to release prorated rent

13 Replies

To be honest with you I thought I had gotten the prorated amount of rent for August when we closed on 8/14/15, but this wasn't the case.  Being that this is my first deal I probably should have paid a little bit closer attention.  Ever since I told the old property management company that I wouldn't be retaining their services they've become a pain in the butt.  I still haven't gotten the security deposits back from them and I just got keys earlier this week.  Then their manager sends me this email today. 

"I ran into a small problem with printing your check. The two prorated rent checks I have for you total more than $600 ($657.22) – my system won’t print the checks without a W-9 on file then at the end of the year we will send you a 1099. Our fee for processing the 1099 to the owners at the end of the year is $75. I can write you a check for $599, thus eliminating the need for the W-9 and 1099 at the end of the year, or you can fill out a W-9 form and I can write the check to you, less our processing fee."

I wrote her back telling her that her figure seemed off to me.  The rents they collected for August were $1415.  Divided by 31 that's about $45.65 per day which means I should be receiving about $821 because I owned the property for 18 days in August.  I asked her to share her math with me, we'll see what she says.

Now on to the part about my question.  Can she really force me to fill out a 1099 for her company and charge me $75?  This seems ludicrous to me.  This is in Michigan.  

Very strange.. Why won't you just fill out a 1099??

@Nick Britton , because I refuse to pay their $75 1099 processing fees.  Are you suggesting that I should pay them?

I own a property management company and I am 100% sure the owner of the company can get you a check for more then 600 with a personal guarantee from you that you will file..

Thanks, @Nick Britton .  I am too.  My hunch is that they're just trying to be difficult every step of the way because I'm not hiring them to do property management for my building.

@Arthur Edmund That's all a load of crap. 1099s can be issued for $15 on the HIGH end.

By the way, they are requesting that you fill out a W9 which will include your SSN or Taxpayer ID. They will then issue you a 1099 at year end to report the rental income that they have transferred to you.

It's funny because you only need to utilize this reporting method when YOU are providing services to THEM. For instance, if you hired a contractor and paid him $2,000, you would request that he fill out a W9 and then issue him a 1099 at year end to show the monies paid to him. This ensures appropriate reporting as far as the IRS is concerned. Since you are not providing the PM company services, and it's actually the other way around, this whole thing is a moot point.

That being said, I know some property management companies have software which requires them to issue 1099s to if they "pay" you more than $600 (even though it's your rent and they are just collecting it). So it could just be a software issue.

Regardless, it costs very little to issue a 1099. That's up there with exploitative fees.

Not legal advice.

Medium logo blackBrandon Hall CPA, The Real Estate CPA | http://www.therealestatecpa.com | Podcast Guest on Show #196

That sounds insane. I guess they may charge that fee to their clients if it's in the management agreement, but you you aren't their client.

Yes, you really should have gotten the prorated rents and deposits at closing. Why didn't that happen (as in, who wrote up the closing instructions)? Did you have a broker? It might be a little sticky to straighten it out now. Be firm w/ them and persistent. If they don't cough it up, find out what the law is in MI and who you could file a complaint with if possible (here it be the real estate board)

Medium team zen logo vJean Bolger, 33 Zen Lane | http://www.solidrealestateadvice.com

Originally posted by @Brandon Hall :

@Arthur Edmund That's all a load of crap. 1099s can be issued for $15 on the HIGH end.

By the way, they are requesting that you fill out a W9 which will include your SSN or Taxpayer ID. They will then issue you a 1099 at year end to report the rental income that they have transferred to you.

It's funny because you only need to utilize this reporting method when YOU are providing services to THEM. For instance, if you hired a contractor and paid him $2,000, you would request that he fill out a W9 and then issue him a 1099 at year end to show the monies paid to him. This ensures appropriate reporting as far as the IRS is concerned. Since you are not providing the PM company services, and it's actually the other way around, this whole thing is a moot point.

That being said, I know some property management companies have software which requires them to issue 1099s to if they "pay" you more than $600 (even though it's your rent and they are just collecting it). So it could just be a software issue.

Regardless, it costs very little to issue a 1099. That's up there with exploitative fees.

Not legal advice.

 Agreed, a 1099 can be issued with little effort and would be done at the same time as filing the (hopefully they have  more than just you as a client.

Their 1099 should be for the GROSS Rental income they have collected, not including security deposits unless they were forfeited by the tenant.

Track1099.com is where I send my clients to issue their 1099s if they only have a handfull of them.

Medium hta logoSteven Hamilton II EA, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net

Where and who is this property management company so we can steer clear of them.

in the future always put in contract security deposits and any proration of rents must be transferred at closing look at leases and figure out dollar amount before closing and make sure that's what your getting I have had them say I know lease says $500 SD but we only collected $300, that never flys with me.  With this one I would give them the W-9 so I could get my check then send a demand letter for what they really owe you and threaten to take them to small claims court.  Legally they cannot charge you for a 1099 because you don't have a contractual relationship with them.

@Steven Hamilton II  I disagree they can charge it to their customers because they have a contractual relationship with them but they can't charge it to a third party.  For example if you file 1099s for a client you can charge your client but you can't charge the person receiving the 1099 even if the client has something in the contract about charging for them the client could collect a fee from his sub contractor but you could not legally collect the fee because their contract is with the subcontractor not you.  In this case @Arthur Edmund has no contractual relationship with the management company so they can't charge him a fee.  I actually know a lot about this subject because I was involved in a lawsuit involving a similar issue.  But that said every state is different, even if it's legal in Arthur's state still doesn't seem fair and a demand letter is only cost a postage stamp.  

Sounds kind of hinky to me. The prorated rent should have been part of the settlement. 

And the security deposit definitely should have been transferred to you. It's not their money. I imagine they can get in trouble with whatever agency handles tenant/landlord law in Michigan if they don't transfer the security deposits to you in a timely manner.

Originally posted by @Cameron Skinner :

@Steven Hamilton II I disagree they can charge it to their customers because they have a contractual relationship with them but they can't charge it to a third party.  For example if you file 1099s for a client you can charge your client but you can't charge the person receiving the 1099 even if the client has something in the contract about charging for them the client could collect a fee from his sub contractor but you could not legally collect the fee because their contract is with the subcontractor not you.  In this case @Arthur Edmund has no contractual relationship with the management company so they can't charge him a fee.  I actually know a lot about this subject because I was involved in a lawsuit involving a similar issue.  But that said every state is different, even if it's legal in Arthur's state still doesn't seem fair and a demand letter is only cost a postage stamp.  

 No, however, if a contract is terminated early, i do have the right to adjust certain charges toward the client for work that is done/required. For example a filing that is about to be send or a payroll tax return that has been filed.

I think its BS to be dealing with that however, If I was the PM and had the client for a month I'd be pissed to have to pay someone to issue the 1099 as well for them. Especially if I make my money on volume.

Not saying its right, just saying it CAN be reasonable.

Medium hta logoSteven Hamilton II EA, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net