Direct deposit: is the rent late or on time?

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Direct deposit: is the rent late or on time?

Ed S.
Anchorage, AK · Member since 2011 · 37 posts · 7 votes

Hello BP,

I'm thankful for such a place where I can get experienced advice.

Here's my situation. Rent is due on the first and my grace period is 3 days, so on the fourth its late. I haven't had a problem with any of my tenants direct depositing till now.

On the fourth we texted our tenant to see if everything was ok because we haven't seen a deposit. His answer was bank issues ( of course it's the banks fault) and he sent us a picture of it withdrawing from his account on the 3rd.

Shortly after contacting I noticed a pending transaction to be paid on the 8th (due to the long weekend and Labor Day). I called both banks and they basically said he initiated it on the 3rd.

The way I see it he essentially put the check in the mail on the 3rd and he's trying to say he paid within my grace period.

If it hasn't actually deposited (not pending) into my account by the 3rd but withdrew from his account on the 3rd is it late?

Thanks in advance for any help advice.

A little background, the first 2-3 payments were late as well because of direct deposit issues and I was gracious because he is military and I took his word for it figuring he was good either way.

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
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No way. Trying to charge a tenant a late fee and saying it was late because the draft was initiated on the 3rd is splitting hairs and cause for discontent.  

As a renter or consumer, I would assume a bank draft to be faster and more definite than the mail and not consider it the same.  I may inform him there are delays in the ACH system and ask him to initiate a day or 2 sooner, but I wouldn't accuse him of being late.   

As one grows in the LL business in size and experience we better learn how to choose our battles.   

For perspective, view a current posting of someone dealing with an eviction: http://www.biggerpockets.com/forums/52/topics/2273...

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  • Bryan C.
    Investor · Spokane, WA · Member since 2014 · 733 posts · 155 votes
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    @Paul S. this was merely a suggestion and also assumes that the tenant is fully qualified and not scraping by paycheck to paycheck.  Some military do well at budgeting, but many others do not.  MyPay allotments are not my first choice but some people really like them.

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  • Paul S.
    Investor · Valparaiso, FL · Member since 2014 · 374 posts · 76 votes
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    @Bryan C. you are 100% correct and I hope my post did not come across as hostile. I just wanted the original poster to realize the situation may not be as rosy as many think for military members. I think there are many who believe the military pay system is without flaws...no such thing as a garaunteed pay check. 

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  • Bryan C.
    Investor · Spokane, WA · Member since 2014 · 733 posts · 155 votes
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    @Paul S., thanks. I about died laughing at the comment that the military pay system is flawless, LMAO.  I wish it was, but it isnt.  I see Airmen wait 1-2 months for pay occasionally...its annoying and poor customer service.

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  • Paul S.
    Investor · Valparaiso, FL · Member since 2014 · 374 posts · 76 votes
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    @Bryan C. I could go on a tangent but I won't. I have troops that have pay issues all the time. I am even owed some back pay because "paperwork gets misrouted" whatever that means. It turns out to be a huge distractor. 

    Sorry to everyone for getting off the topic. I will stop.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y
    Originally posted by @Ed S.:

    Hello BP,

    I'm thankful for such a place where I can get experienced advice.

    Here's my situation. Rent is due on the first and my grace period is 3 days, so on the fourth its late. I haven't had a problem with any of my tenants direct depositing till now.

    On the fourth we texted our tenant to see if everything was ok because we haven't seen a deposit. His answer was bank issues ( of course it's the banks fault) and he sent us a picture of it withdrawing from his account on the 3rd.

    Shortly after contacting I noticed a pending transaction to be paid on the 8th (due to the long weekend and Labor Day). I called both banks and they basically said he initiated it on the 3rd.

    The way I see it he essentially put the check in the mail on the 3rd and he's trying to say he paid within my grace period.

    If it hasn't actually deposited (not pending) into my account by the 3rd but withdrew from his account on the 3rd is it late?

    Thanks in advance for any help advice.

    A little background, the first 2-3 payments were late as well because of direct deposit issues and I was gracious because he is military and I took his word for it figuring he was good either way.

     As to collections, it depends on what your lease states. I state that "good" funds must be made to the account by a certain date, that takes care of bad checks, holidays, or anything a tenant/borrower can come up with. Either the deposit is made with good funds by a certain date or it is not. If it is not, they are in default. 

    If he has a direct deposit set up from pay, grin and bear it with military, you won't win. 

    This really boils down to the application of late fees, because you will not be evicting someone for a 3 or even a 10 day late payment in reality.  I don't know of any state that doesn't accept payments due to a landlord within the 30 days when you get to court. 

    So, why push it? You can begin eviction, but when you get to court, if a tenant says they have the money, they will be staying...........so why bug the tenant, besides collection efforts? If they can't pay, or ignore demands, nail them. Late payments are an incentive to pay on time, so use them. 

    Your tenant made the payment within the time frame, just as payment is based on the date mailed, not received. A good funds deposit can mean the date mailed or intentions to pay won't apply, Payment is there, or it's not there! Use common sense. :) 

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  • William Allen
    Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
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    @Paul S.

    The Navy still owes me $10k for my last PCS move, which was in April...  Your point is well known to all military members I can assure you.  

    I think the key here is to make sure that you are setting the example you want that tenant to follow going forward in a landlord/tenant relationship.  Once one thing on the lease gets overlooked, others may down the road as well.  

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  • Jeff Gates
    Investor · Cathedral City, CA · Member since 2014 · 481 posts · 170 votes
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    I am building pay rent by ACH. The money can be on your account in one day. However, there is a Federal regulation whereas there can be a NSF issue up to five days latter. So some institutions hold the transfer until they are sure there is no NSF issue.

    Also, if you did get the check on the 3rd, can you get it on your bank account faster than two days?

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  • Matt Gee
    Real Estate Investor · Albuquerque, NM · Member since 2015 · 68 posts · 12 votes
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    This is pretty common.  For instance if the deposit was done (as a check) on the 5th, it wouldn't post until the next business day, the 5th, because of the holiday weekend is on the 8th's business day, so it could have even been the 9th.  But I'm assuming from this it was done on the 4th, so it won't clear until the next business day, again that's the 8th.

    Now you saying direct deposit is a misnomer, dd is generally ach proper, where as this may have been him going to a branch and depositing a check.  Also, if you use services like surepay, they can take a while to go through at first until the account is vetted, and if a change is made to the account it can reset the vetting period.

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  • Bill Hamilton
    Denver, CO · Member since 2015 · 251 posts · 123 votes
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    I used to work Milpay for the USAF. Stuff happens and the military members don't get their pay. If I am in that situation as your renter, I really, really don't want to incur the stupid level of NSF charges from the bank that happens when I assume that the gov't has deposited my earned wages to my bank account and then it doesn't show up. The rent payment I ACH to you is almost certainly my largest bill. And if I send that to you before I know for absolute certain, that the money from my paycheck has hit my account, then I may have set myself up to owe the bank $100's if not $1,000's of dollars in late fees. This is just a personal opinion from someone who has personal experience of the military system (as many others here obviously do also) but I would have a talk with the tenants and see if these issues are part of their problem. If not, then they simply need to be on time with their payment. If these issues are part of their problem then maybe it would make sense to move their due date to the 5th or 6th etc of the month. Or maybe they make an extra half month payment and move their payment date to the middle of the month. Just a thought.

    1Reply
  • Steve Marshall
    Investor · Bangkok, Thailand · Member since 2014 · 52 posts · 22 votes
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    I am also active military...and while I have gone a couple months without a paycheck due to a screw-up by finance, I can't sympathize with someone who is consistently late.  Our pay is ALWAYS in our account on the 1st or before (unless it's a 1-off issue like a PCS or debt collection)  If you accept direct deposit/e-check/pay-pal etc, it seems like it's on him to make it happen.  If you don't have a way to electronically transfer rent...it's on you.  

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  • Michael S. Helton
    Real Estate Redeveloper · Reno, NV · Member since 2015 · 209 posts · 65 votes
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    @Ed S. One minor suggestion I would make is to not have it due BY the 1st.  Growing up in a military family I remember how lean the budget was towards the end of each of those 2 week pay cycles.  

    Also keep in mind that short of a catastrophe, this renter is going to have the money no matter what.  He is not going to get fired and it is very easy to garnish his wages in the case of an issue.

    I suggest working with him and taking a little time to educate him...military people for the most part take direction well and are willing to follow the rules.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Grace periods in leases just crack me up.  No grace is being extended.   It's called grace in an attempt to shame the tenant into thinking landlords are doing them a favor.  No favor is being granted. It's a due date that supersedes the original.

    So live with the final date of the grace period as the due date.  Or take out the grace period in your next lease.  I dare you.  :)  As @Richard C. mentions, your state has codes in place that cover due dates and when a payment is considered late, for all consumer payments not just rent. Definitely read them and write your lease accordingly.  

    The OP's tenant is not late with the rent for penalty and eviction purposes, end of discussion.  As Bill G. mentions, if the tenant always pays, even later than the grace period, he's not going anywhere.  Imposing and collecting lawful late fees is the most you can do with such tenants.

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  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
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    Tenants need  to understand the rent is late on the 2nd.  

    Late fee is a separate issue and may not apply until later but the rent is late.  You'll get less arguments over late fees that way. 

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  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
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    Originally posted by @Larry Turowski:

    Tenants need  to understand the rent is late on the 2nd.  

    Late fee is a separate issue and may not apply until later but the rent is late.  You'll get less arguments over late fees that way. 

     No, it is not. People really need to get this through their heads. Landlords want access to the power of the state to enforce leases, protect property, facilitate evictions, etc.

    What they pay for that is having the power of the state sometimes cut against them. Rent is late when your state's law says it is late, and not before.

    1Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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    If a tenant gives you their check, and you deposit it on the 5th, but your bank has 3 day hold on it, is that the tenant's fault too?

    1Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Richard C.:
    Originally posted by @Larry Turowski:

    Tenants need  to understand the rent is late on the 2nd.  

    Late fee is a separate issue and may not apply until later but the rent is late.  You'll get less arguments over late fees that way. 

     No, it is not. People really need to get this through their heads. Landlords want access to the power of the state to enforce leases, protect property, facilitate evictions, etc.

    What they pay for that is having the power of the state sometimes cut against them. Rent is late when your state's law says it is late, and not before.

    These late rent payment threads usually end up with a number of posts insisting that the payment is "late" after the 1st.  Yet "late" means nothing in terms of lawfully allowed collection or penalties. Call it late if you want, but if you can't collect a fee or evict or report it to a CRA, what's the point of calling it late?  Threatening a tenant with a negative future recommendation? You could train the tenant by not renewing their lease.  But then you've trained them for the next landlord's benefit.  The next landlord, btw, who will  be pretty happy with a tenant that pays every month on the last day of the "grace period".

    Funny thing to me is that late payment time frames for mortgages are way more lenient than for rents here in CA. I can't impose a late fee on my seller finance notes until the mortgage payment is 10 days past due.  I can't report it as 30 days late, because it's not.  So what's the point of harassing my payors?  There is no lawfully allowed late fee or penalty if they pay on Day 9. And they know it.  The info is a google search click away for most tenants and payors now. They know that grace periods are just a construct and wishful thinking on the part of the landlord. 

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Larry Turowski:

    Tenants need  to understand the rent is late on the 2nd.  

    Late fee is a separate issue and may not apply until later but the rent is late.  You'll get less arguments over late fees that way. 

    What argument?  You're not charging your tenants a late fee for rent received on the 2nd, are you?

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  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Account Closed:
    Originally posted by @Larry Turowski:

    Tenants need  to understand the rent is late on the 2nd.  

    Late fee is a separate issue and may not apply until later but the rent is late.  You'll get less arguments over late fees that way. 

    What argument?  You're not charging your tenants a late fee for rent received on the 2nd, are you?

    The late fee applies after the 5th.  But it isn't one day late on the 6th.  It's five days late.  

    I'm actually a pretty forgiving for people who are generally on time.  For the perpetually late payers I will start assessing the late fee on the sixth.

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