Property management company underbilled tenant.
My husband and I own multiple rental properties. We've been using the same property management company for 10 years, so I guess we trusted them too much to go over our monthly statements closely. I just discovered that they've been under-billing one tenant nearly $350 a month for like 10 months. My guess is that it's one billing person's mistake and we caught it too late. And the tenant was just silently happy to pay less. Who is responsible for this and is our loss recoverable?
Underbilled or undercollected? Check that tenant’s ledger. If they are “billing” $1,350 but the tenant is only paying $1,000 there might be another story to this. If they are “billing” $1,000 and the lease says $1,350 talk to them. They can choose what to do. At the end of the day they are your agent working on your behalf. They might tell the tenant to pay the difference, just write you a check for their error, or something else. That would depend on their business practices but you certainly have a claim there
I'm not sure... but it's my guess. Usually they send monthly bills right? The system will catch if they undercollected. We will hear from the manager tomorrow, but I thought I'd better have some knowledge, just in case they tell us it's our responsibility to review and catch errors fast.
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Quote from @Susan King:
My husband and I own multiple rental properties. We've been using the same property management company for 10 years, so I guess we trusted them too much to go over our monthly statements closely. I just discovered that they've been under-billing one tenant nearly $350 a month for like 10 months. My guess is that it's one billing person's mistake and we caught it too late. And the tenant was just silently happy to pay less. Who is responsible for this and is our loss recoverable?
Read your contract with the PM to determine. Most would say the PM made the mistake so they pay, but I have read MANY PM contracts and more than 1/2 of them are written so the PM could be negligent (like this) and you have no recourse. (Many times it will say only when gross negligence which is impossible to prove, and in this case would be they were intentionally doing it on purpose which you could never prove).
The property manager is somehow tracking charges and payments. If they charged $1,350 but the tenant only paid $1,000 each month, the property manager would see the outstanding balance and go after the tenant. I suspect they have been charging $350 less than what they should have and the tenant is paying what they are charged, not what they were supposed to be charged.
If the written lease agreement says rent is $1,350 but the PM is only charging $1,000 then it should be easy for them to go back and tell the tenant they were under-charged and demand they catch up. If the lease says rent is $1,000 and that's the tenant is paying, there's nothing the PM can do about collecting it. They could appeal to the Tenant's good nature, but you know that won't happen.
If the PM was instructed to rent it at a specific price and they messed up, they should compensate you for that mistake. However, you have a responsibility to look at your statements and catch things like this. As a Property Manager, I would negotiate a settlement with the Owner. As an investor, I would try to negotiate a settlement with the PM and I would accept a measure of responsibility for not catching the missing $3,500 for ten months.
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#2 Managing Your Property Contributor
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@Susan King No one is perfect, so what did the PMC say when you brought this to their attention?
You will find out more about their integrity via this "trial by fire" issue than any other way.
Once you witness their integrity, then you can make a decision to keep or terminate.
@Nathan Gesner The written lease agreement says rent is $1,350 but the PM is only charging $1,000. That's the case.
@Drew Sygit No word from them yet as of 10:30am. I emailed our manager last night. He usually replies super fast, b/c email is the only way they communicate with anybody, landlords or tenants. I guess they need some time to figure out what to do. We've thought about terminating the contract with them a few times in the past, but having multiple leases ending different times... we thought it was too complicated for us without a lawyer. I may have to ask that question in another post.
Quote from @Susan King:
@Nathan Gesner The written lease agreement says rent is $1,350 but the PM is only charging $1,000. That's the case.
@Drew Sygit No word from them yet as of 10:30am. I emailed our manager last night. He usually replies super fast, b/c email is the only way they communicate with anybody, landlords or tenants. I guess they need some time to figure out what to do. We've thought about terminating the contract with them a few times in the past, but having multiple leases ending different times... we thought it was too complicated for us without a lawyer. I may have to ask that question in another post.
Tenant knows they are supposed to pay $1,350.00 and that is what they agreed to in writing. PM should contact tenant, remind them of the written agreement, and set up a payment plan to get the tenant caught up. PM should also correct the tenant ledger to reflect the correct charge and outstanding balance. If it were me, I would demand Tenant make partial payments every 1-2 weeks and be fully caught up within 90 days. If they refuse to pay, I would start termination. After termination, the PM can apply the deposit to the unpaid balance and take the Tenant to court for the remainder or send them to collections.
As the Owner, I would let the PM know that this is their fault and you expect them to compensate you with the full amount owed, whether they collect it from the Tenant or not.