Thought I would throw this one out to the wisdom of the masses of the good people here on BP, and see if it can help me come to a decision.
I won't bore you with all the details of a mismanaged property and non paying tenant that eventually had to be evicted, as I am sure most of you have heard it all before - especially with the properties in Detroit.
I now know that the tenant was living solely off social security with a total income of $2360 per month, and probably couldn't afford the property from day one anyway - (rental was 800 pm). The original PM (now fired) didn't take a security deposit from them and with all expenses, water and electrical bills etc. they have left me with an outstanding debt of around 2200$. I am at significant loss on this investment , and haven't been able to get it properly cash flowing since I bought it in Dec 2014.
I have approached them and attempted to negotiate a payment plan, but got the royal FU.
They are a family of 5, she claims to have major health problems, surgery etc, claims to be homeless as a result of the eviction etc.- difficult for me to assess the accuracy of these claims.
My dilemma is obvious and I am sure many of you have faced similar:
1. Do I pursue this debt to the fullest extent I can, possibly recouping some of my losses - Small Claims Court or Collection agencies.
2. Do I write this off as the cost of doing business, and move on ?
The things I am considering:
In favor of Option 1:
The principle - I hate the mind set of people who don't take responsibility , believe they deserve to get everything for free, live in your property for months without paying rent or bills, and won't even discuss settling a debt. If you can't afford a commitment don't take it on - and if you did, bear the consequence.
In favor of Option 2:
I may not ever see 1 cent as I am not certain that they are collectible even if I do get a ruling in small claims - as a result if I sue I will just have incurred further costs with no result.
In the process I may be creating a lot of additional hardship for an already destitute family ( I don't want to say taking food from the children's mouth ). In another context if this family had approached me for charity, I would probably have considered helping them out.
What would you do -Option 1 or 2 (or something else) ?
All opinions or suggestions welcome.
Been in exactly that situation in my first year investing. Filed legal actions until I got judgement. Lost money but I did not allow another brick to fall out of the foundation of our society.
All depends on your personal values.
I would send or deliver some letters threatening legal action and let it go. My experience is that you aren't going to get anything from them and only lose money if you pursue it any further. The best thing you can do is get them out ASAP if you haven't already.
Social Security cannot be garnished, so they are not only uncollectable, but you couldn't be taking any money from her and I doubt you would be paid by her willingly (so you're not taking food off their table).
Get the judgment on anyone who signed the lease. This way, it's on their credit report and they'll be red flagged immediately so future landlords will know what's up.
[Soapbox moment: I wish all landlords were required to do this so the bad apples don't poison the well.]
In my pre-qualification questions, I ask if they've ever been evicted and/or have a financial judgment from a prior landlord so I don't waste time on them. If it's an old E or J, I'll let them explain but this usually saves me from even taking the application.
So far a landslide victory for Option 1- get a judgement.
Anybody think otherwise ?
Thanks all for the input.
I would get the judgement, then assume you'll never collect. It will just sit out there. Don't get emotional about it even if you lost money on this property so far. Just think -- you WILL be successful. Based on what you've said about their life, it's unlikely they will ever amount to anything.
"The best revenge is massive success." - Frank Sinatra
Did you qualify each tenant that was signing the lease? As mentioned certain funds are not able to be garnished even if you obtain a judgment.
If others on the lease have decent jobs they might be collectible. There are federal poverty guidelines that they must make over annually for you to even attempt a garnishment. Even then you can only take up to 25% of the income amount each time and if there are already others doing garnishments then it gets split down further.
Usually you get a default judgment when you evict against the tenant. If they do not answer the court summons or personally sign then the judge only grants eviction. In that case you usually have to go to small claims court to obtain the judgment. After that process is when long and hard road happens to collect. Sometimes it takes years just to make any headway.
Judgment recovery companies usually split 50/50 proceeds and pay court costs with your judgment trying to collect. They will tell you right away based on your tenant file if you have judgment proof tenants on the leases.
Another factor is if you are in a landlord or tenant friendly state. Each state is different but some states when you go to small claims court to try to obtain a judgment you are REQUIRED to be there in person. Attorneys representation is allowed in superior court when the amounts are much larger. Some places it has to be over 15,000 in damages. So you being in Isreal wouldn't want to spend thousands for traveling & lodging on a court appearance.
Bottom line is if you already have a judgment you could sit on it and do nothing or partner with a judgment company and see if anything ever comes of it. If you only have eviction and must go to small claims it sounds like dropping it is best. Even if you get a judgment they can always wipe out with a bankruptcy or move to a job with cash under the table to avoid garnishment. I have about seen it all before and while getting a judgment in the moment gives the landlord some feeling of retribution the time and energy involved in trying to collect from a potential deadbeat takes away from the mission of successfully investing in real estate. Forget attorney letters to scare them or collection companies. If their credit is trashed already they could care less. The judgment recovery company is the only avenue with teeth in it and as mentioned if they feel the tenant is judgment proof you should listen as they do hundreds to thousands of these a year. I had one eventually contact me years later to settle a judgment so they could buy a house. The rest I never saw a dime from it. This is why if you get it at eviction then great but going to small claims is a lot of time and energy and more money spent.
No legal advice given.
Were any of the other members of the household on the lease?
Were any of the other members of the household adult?
This was a garnishment from a person that tried to convince me they were struggling to pay $5 a week toward the unpaid rent.
I almost broke through the floor jumping up and down when I opened the letter from the Credit Union. Imagine my surprise when I saw the amount in a one time garnishment.
It takes more than a PM to be successful in Detroit.
@Richard Dunlop - you never cease to surprise me. Good for you. ( Dont jump to hard on that great old wood floor in your house- you just might find yourself in the basement :)
Joel thanks for such a detailed response - not sure all the terms are familiar to me - but will do some research.
To be clear for others it looks like ( not sure ) what Richard is posting is a bank levy and not a wage garnishment.
Bank levy is taking a lump sum out of the account versus ongoing with a wage garnishment from the place of employment.
The banks are supposed to check before they do the bank levy that the funds are not Federally protected. The banks can be on the hook for any amount that they send out that turns out to be protected funds from the bank account.
@Saul L. , no doubt @Richard Dunlop knows how to navigate the Detroit Courts better than I but one of the difficulties with getting judgments in Detroit is that the judges will not usually permit a landlord to get a money judgment at the same time as a possession judgment. That means the landlord must find the tenant and serve them with a summons after they have moved. A further complication and expense. If you have not yet gone through the process it could be worth it for your education, so you will know what to do when you have a collectible tenant. The manager of my apartment building will only go through the process if the deadbeat appears to be collectible.
Thanks all for the input and help.
@Jeff Rabinowitz - that is exactly where I am at. I have a possession judgement, but no money judgement, no forwarding address, no place of employment.
Everyone, I am so impressed. I started reading and had an opinion as to what I wanted to say. After readying through all the comments, I have completely changed my mind and my attitude towards those situations.
Thanks @Marina Shlomov - don't keep us in suspense- what was your opinion and why did it change. I have to make a decision and so far the vote is heavily in favor of pursuing ?
@Nicole W. - I have. But state tax returns can be garnished.
Truth is I am not realistically expecting to see any monies back if I sue - its more the principal. These tenants did everything they could not to pay, dragged it out for months and every extension I gave them was not met - and I gave quite a few in the hope of salvaging the situation.
Am still in two minds about it. What would you do ?
If state taxes can be garnished, I suppose that's something to try. I just say try not to do these kinds of things out of principal. You won't teach them any lesson. They seemingly have the mindset that they can't believe you had the audacity to evict. These are not the kinds of people you can't get through to. Don't let emotions take over.
If the cost of filing for this and the time to wait to see if you even get the garnishment is worth it to you, go for it. Otherwise, it's just a not-so-fun lesson and episode in landlording. Find your next tenant...a quality one.
I was originally thinking to let it go. Once I read all the comments, I changed my mind, yet, I believe that throwing good money after bad, doesn't help. It takes time, effort and money to pursue a judgement, and if you can't collect on it, what's the point. However, now I am thinking that maybe we should go after the tenants, yet I still have doubts to the practically of these actions. We are a small operation and our resources are valuable. In theory, everyone's comments are correct, the question in my mind, are they practical? I will spend 2 hours preparing all the paperwork, go to the court house, file, pay about $250 in fees, go to court...yes, I will get a judgement, but if the tenant has no money to pay, I've just wasted 30 hours of my time, a little bit of money and now what? I guess if the tenant has a possibility of making those payments, then it'll be worth the trouble, but if you know for sure they won't be able to pay, then why?
Maybe I am wrong, you guys tell me.
@Marina Shlomov Thanks for your input. You summarised exactly where I am and why I started this thread. Although I understand a small claims in Michigan wont cost me $ 250 to file (more like $50) and I believe my P. manager will handle it for me - He also has some skin in the game as the tenant didn't pay $700 worth of utility bill that he has taken responsibility for and paid for out of pocket- so I think the issue of time and expense are probably less significant in my case.
I am waiting to see if we can even track her down now in order to proceed, but still debating within myself whether to go ahead.
If nothing else, I would at least turn the debt over to a collection agency and put it on their credit report so other landlords (at least those who run a credit check) can see it. You don't even need a judgment to do it. Plus, who knows, maybe they'll actually collect something. If not, then oh well.
I agree with @Kyle J.. I'd just turn it over to collections.
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