This Topic came up on another forum post and It got me to wondering,
As a tenant/Landlord, What is the minimum amount of money you would go to Small claims court for in a monetary dispute? I never really think to handle disputes this way and It seems to me like under a certain amount it is waste of time and resources.
I think the bigger question is with tenant screening.
I find many landlords do not properly screen tenants. Then when a default happens you basically have a non-collectible judgment proof tenant.
If a tenant answers to the court but doesn't show up, is personally served a notice and signed, or shows up to court for an answer then the judge can grant a judgment against the tenant in favor of the landlord.
If none of that occurs at least here in Georgia you have to go after them in small claims court to get a judgment. Even if you get a judgment good luck collecting on it. Collection companies do nothing but bark with damaging credit which tenant doesn't care. Attorneys just send a letter that most tenants ignore. The judgment recovery companies are usually the best bet. Two options are generally a partner 50/50 with the judgment company and they pay court costs to pursue bank levy, wage garnishment etc. OR they buy your judgment for 10 to 15 cents on the dollar which you get right away and you are done with it. The judgment company will have ZERO interest buying your judgment that is not collectible and spending time and money on it. This is not their first rodeo and they want to make money on a collectible former tenant for the time and money invested. Many landlords go as far as to spend a bunch of money trying to get a judgment that in many cases is worth nothing.
The first question the judgment company will ask is if the tenant is judgment proof and want to see your file on them. An honest judgment company will tell you sometimes it takes years to collect anything and the former tenant can still file BK later on and wipe out your judgment.
What we would do is just let the judgment sit there after getting it and if years later they come to you which sometimes happens to settle you get something. Judgments do not collect anything about 90% of the time.
You get more of these situations with low income tenants who have big fluctuations in money all the time and have hard times paying even if they want too.
What you learn from years of this experience is to NOT under any circumstances let marginal qualifying tenants in a unit just to fill it up. You are better off dropping market rents or giving a first month special to get the best tenant available with the most qualifications. They have something to lose with credit and other things and will want to preserve things if they have to leave. The marginal tenants really have almost nothing to lose.
Good advice from @Joel Owens
I am going through this right now. I have an inherited tenant I am evicting. So far I have spent/lost about $3K in court cost, lawyer fees, and lost rent. I got a judgment for about $2100 but my tenants only source of income is a disability social security income. Can't garnish that. This tenant should have never been allowed to rent from the previous landlord but some how they let it happen.
Our niche is affordable housing and we often work with low income tenants and sometimes with tenants who have an "oops" in their past.
We aim to mitigate our risk by proper screening. If we accept a person who is more of a risk, we require extra security deposit. We also require them to pay off certain debts, such as money owed to previous landlords and utility companies, before we rent to them. We ask them to have an active payment plan in place with their other creditors and we check on that.
Rule breakers will be rule breakers again, unless they have truly changed their ways. We sometimes give people fresh starts, but not without protecting our own interest.
We also charge for lease violations and damages as they occur, not allowing a buildup. We are getting better at enforcing all of our rental agreement terms quickly and moving people out who continue to be a problem and those that can't or won't pay.
We end up writing off bad debt instead of going to small claims court, because the chances of getting money after a judgement is slim and a lot of work. We don't waste our time and money, we just move on. We might file with a collection agency, so it shows up on their credit report as a benefit to others who might be checking their credit. That may or may not be a deterrent for the tenant. No use throwing good money after bad.
That said, a local colleague of mine who is retired will almost always take a tenant to court, win a judgement and pursue them for the money. Doggedly. He does fairly well, but he is well versed in landlord tenant law, is comfortable going to court and doesn't like to see tenants get away with not paying money that is rightfully his. It's the principle thing for him, more than a business decision. God bless him.
To expand on another point that Jarrett brought up Is inherited tenants.
When doing due diligence you look through each tenants file deeply to see if they were screened well and standards were put in place.
I would have seen the SSI in the file and know that they were judgment proof and funds were protected. So especially if they have a low deposit I would have adjusted the price paid to the seller based on problems I knew I would be taking on after ownership.
Often overlooked in negotiations but critical to protecting your future bottom line.
I've only had one tenant that ended up owing me money. It was a few hundred dollars. Knowing what I know now, I would have pursued him to learn the process. I don't think he was very collectable. My lease is structured so that I can recover costs of collection. My approach would be to pursue anyone that I thought would be collectable. Others above have discussed the lower end. Most of my tenants I would consider to be collectable at some point in their lives so I think it would be worth the effort if the need arose.
We just had a tenant move out, causing $7K in damages. The tenant had good credit, an excellent history with us for 2.5 years, and then lost his job - which we didn't know. He continued to pay the rent for 2 months until he was offered a job in another state, then gave us just 5 days notice. He never mentioned getting his security deposit back, which he wouldn't with improper notice, but he and his family left the place a shambles. Our fault for not checking on things periodically, as they always paid the rent and caused no problems.
He and his wife aren't fly-by-nights, and will likely be collectible in the future, as she is a dental hygienist. I'm checking with my attorney to determine if it's worth filing a judgment, even though the chance of collecting is slim to none. Just to have this on their credit report will be enough, as they are not judgment proof and will certainly re-establish themselves with new jobs.
We once evicted a tenant that we later found out was collecting SSI; we won a judgment but it is uncollectible.
Joel, good to be aware of SSI before renting, and getting additional security deposit. In FL that's possible...in NJ, only 1.5 months rent can be required for the security deposit.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.