Using a Collection Agency to collect debt from prior tenants

Hilton Head, South Carolina
General Landlording & Rental Properties
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Using a Collection Agency to collect debt from prior tenants

Melissa Faraias
Member since 2023 · 65 posts · 28 votes

Hello BP community,

I am an out of state landlord with a rental in Bluffton SC. After a few months of trying to work with my long term tenants (who have previously always paid rent on time), I finally asked them to leave for non payment of rent. They chose to leave voluntarily to avoid an eviction and signed a document agreeing to pay the back rent payments owed (which is a significant amount). However once they completely moved out, they refused to answer my calls and messages. I reached out to a debt collection agency called National Credit Systems Inc. in an attempt to collect the payments owed. Has anyone used this agency or any debt collection agency and has had success with it? Even if I do not recover the money, I do want to have them reported to the credit bureaus etc. so that they do not do this to another unsuspecting landlord in the future. Thank you in advance for your input. 

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Carlos Hennings
Lancaster, NY · Member since 2021 · 92 posts · 53 votes
1y

As a former collection agency owner, I can share that recovering past-due rent is challenging, primarily due to difficulties in locating or contacting the former tenant. To improve your chances, ensure you collect as much information as possible upfront, such as emergency contacts, employer details, and references. This will aid in the skip tracing process.

When selecting a collection agency, verify that they report to all three credit bureaus and ask about their reporting timeline—some agencies wait 30-90 days as leverage to encourage payment plans. Additionally, look for an agency that not only sends letters but also makes calls, and consider those that work on a contingency basis, as this aligns their success with your recovery efforts.

Be aware that collection fees in this industry can be high, often around 50%, due to the extensive skip tracing and effort required. To protect yourself, consider adding a lease clause stating that tenants are responsible for legal and collection fees. While this does not guarantee full recovery, it can help offset costs. Working closely with your agency and following their guidance can improve the likelihood of collecting what is owed. Hope this helps.

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  • Jim Bob
    Member since 2022 · 62 posts · 8 votes
    1y

    Expenses have exceeded the security deposit, plus many hours of work by me. Is a collection agency able to work my claim?

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    1y
    Quote from @Melissa Faraias:

    Hello BP community,

    I am an out of state landlord with a rental in Bluffton SC. After a few months of trying to work with my long term tenants (who have previously always paid rent on time), I finally asked them to leave for non payment of rent. They chose to leave voluntarily to avoid an eviction and signed a document agreeing to pay the back rent payments owed (which is a significant amount). However once they completely moved out, they refused to answer my calls and messages. I reached out to a debt collection agency called National Credit Systems Inc. in an attempt to collect the payments owed. Has anyone used this agency or any debt collection agency and has had success with it? Even if I do not recover the money, I do want to have them reported to the credit bureaus etc. so that they do not do this to another unsuspecting landlord in the future. Thank you in advance for your input. 


     Chances of collection are slim, what we have done is sent them a 1099 so they have to pay taxes on the amount they owed since we knew we would not get anything from them.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    1y
    Quote from @Melissa Faraias:

    Collection agencies are only successful about 25-35% of the time. I still turn them all over for collections with an agency that reports them to the credit reporting agencies. It sits on their credit report and potentially prevents them from qualifying for a rental or a loan. Maybe they will want to buy a house one day and decide to pay me off. But I don't hold my breath.

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  • Melissa Faraias
    OP
    Member since 2023 · 65 posts · 28 votes
    1y

    Thank you so much for your responses. I will turn them over for collections just so that it can go on their credit report.

    0Reply
  • James Mc Ree
    Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 934 votes
    1y

    Do you need to get a judgment before turning the debts over to collections? I haven't done this yet, but may need to do so next month.

    0Reply
    • Melissa Faraias
      OP
      Member since 2023 · 65 posts · 28 votes
      1y
      Quote from @James Mc Ree:

      Do you need to get a judgment before turning the debts over to collections? I haven't done this yet, but may need to do so next month.


       No I did not need to get a judgement.

      0Reply
  • Carlos Hennings
    Lancaster, NY · Member since 2021 · 92 posts · 53 votes
    1y

    As a former collection agency owner, I can share that recovering past-due rent is challenging, primarily due to difficulties in locating or contacting the former tenant. To improve your chances, ensure you collect as much information as possible upfront, such as emergency contacts, employer details, and references. This will aid in the skip tracing process.

    When selecting a collection agency, verify that they report to all three credit bureaus and ask about their reporting timeline—some agencies wait 30-90 days as leverage to encourage payment plans. Additionally, look for an agency that not only sends letters but also makes calls, and consider those that work on a contingency basis, as this aligns their success with your recovery efforts.

    Be aware that collection fees in this industry can be high, often around 50%, due to the extensive skip tracing and effort required. To protect yourself, consider adding a lease clause stating that tenants are responsible for legal and collection fees. While this does not guarantee full recovery, it can help offset costs. Working closely with your agency and following their guidance can improve the likelihood of collecting what is owed. Hope this helps.

    1Reply
    • Melissa Faraias
      OP
      Member since 2023 · 65 posts · 28 votes
      1y
      Quote from @Carlos Hennings:

      As a former collection agency owner, I can share that recovering past-due rent is challenging, primarily due to difficulties in locating or contacting the former tenant. To improve your chances, ensure you collect as much information as possible upfront, such as emergency contacts, employer details, and references. This will aid in the skip tracing process.

      When selecting a collection agency, verify that they report to all three credit bureaus and ask about their reporting timeline—some agencies wait 30-90 days as leverage to encourage payment plans. Additionally, look for an agency that not only sends letters but also makes calls, and consider those that work on a contingency basis, as this aligns their success with your recovery efforts.

      Be aware that collection fees in this industry can be high, often around 50%, due to the extensive skip tracing and effort required. To protect yourself, consider adding a lease clause stating that tenants are responsible for legal and collection fees. While this does not guarantee full recovery, it can help offset costs. Working closely with your agency and following their guidance can improve the likelihood of collecting what is owed. Hope this helps.


       This is very helpful! Thank you so much.

      0Reply
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