Any luck collecting from former tenants?

Question

I've been of the mindset not to waste my time chasing pennies from tenants that move out leaving minor problems but in the past year I've had 2 tenants that have moved out & broke lease early that have cost us $5k each. Of course, they refuse to pay a dime of what they owe.

One of them has nothing and the other moved out to buy her dream home.

Have seasoned landlords found it worthwhile to get a small claims judgement against former tenants like these and then turn them over for collections?

Rick

Jerry W. · Answer

I have done it before.  I won, but got so busy I never took the time to chase the debtor down and garnish the wages.  I figured my time was better spent making more money.  I can see getting mad enough to do it though.

Marcia Maynard · Answer

Frequency of maintenance inspections can vary according to property and according to tenant history. Our rental agreement states no less than once a year because for some of our long term tenants who take good care of their home and responsibly report to us maintenance/repair needs as they occur, that is all that is needed on a formal basis.

However, on average, we are in a unit at least twice a year and often up to four times a year. Anytime we are in a unit, at the request of the tenant or as part of a scheduled maintenance inspection, we will inquire about the condition of the property and the function of appliances/fixtures. We address needs as they arise and designate Mondays as the primary day to tend to non-urgent matters.

For our properties with gas furnaces, we enter about 4 times a year to check on the HVAC system, replace filters and check CO alarms. We clean gutters and inspect the roof twice a year at all properties. When we do a maintenance inspection, it is often a focused inspection on a particular system (plumbing, electrical, HVAC, weatherization, etc.) appropriate to the season. When we deliver our holiday gift cards, door-to-door, we will also look to see if holiday decorations are used safely and look to see that the outdoor spigot covers (that we put on with the change of weather) are still on with no hoses attached.

We do more frequent check-ins and inspections with new tenants. When we are signing the rental agreement, we let the tenant know we will check in with them in a week, a month, in 3-months, in 6-months and then ongoing as needs arise and for periodic maintenance inspections. This is to make sure their needs are addressed from the beginning of tenancy and for our property maintenance needs. It also gives us a chance to get to know them better and for them to become familiar with our management style.

If a tenant starts to break terms of the lease and property rules, we will do a maintenance inspection. When a tenant breaks one term of a lease, they are more likely to break more terms of the lease. If things are going down, we will watch the property like a hawk, always within the law.

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We are clear in our rental agreement about how we apply money received:

"PAYMENTS.All payments made by Tenant to Landlord after the tenancy commences, no matter how designated by Tenant, will be applied as follows: first, to any outstanding amounts due for damages/repairs, utilities etc.; second, to any outstanding service charges or fees from prior months; third, to any rent outstanding from prior months; fourth, to any service charges or fees due in the current month; and lastly to the current month’s rent."

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The only tenants who tend to owe us a significant amount of money on the tail end of the tenancy are those who create damages or cause problems quicker than we can address them.

We don't use long-term leases, preferring month-to-month rental agreements. Tenants will move when they decide to move, so we don't expect to hold any tenant down. That said, most of our tenants are long-term tenants. Out of 16 units, the majority have been with us over 5 years, some more than 10, some more than 15 and two more than 20 years.

If we are able to establish and maintain a good landlord-tenant relationship by using open-honest-clear communication, by providing good value, by keeping our property well maintained, and by treating our tenants respectfully and fairly, we are likely to have better outcomes. Tenants will respect us more, pay rent on time, abide by the terms of the rental agreement, take good care of the property, and become happy long-term tenants. That is what we strive to do. Do we fall short of that sometimes? Sure, but we pick ourselves up and get back on track as soon as we can! :-)

Marcia Maynard · Answer

You certainly would have unplanned vacancy, but that could happen for any number of reasons. You may have a loss in revenue, but you can mitigate that by acting swiftly to re-rent. In most jurisdictions you would need to make a good faith effort to quickly re-rent to mitigate damages before you could effectively claim for lost rent from the former tenant.

By egregious, I refer to serious property damage, which would cost me much more in repair costs and lost revenue because the unit was not ready to to re-rent. For me, egregious would also apply to situations that challenged my wits, caused me great stress, required me to hire an attorney, impelled me to make amends to neighbors who were harmed, etc.

Marcia Maynard · Answer

I would be more likely to pursue it if it was a lot of money and they had done something egregious.... something much more than simply breaking a lease.

I've learned it's best to collect a significant security deposit at the start of tenancy, to have a strong lease/rental agreement, to do regular property maintenance inspections (keeping an eye out for lease violations at the same time), and to enforce the terms of the rental agreement swiftly, fairly, firmly and respectfully. Flexibility in some situations works too.

We learned to charge for damages as they occur and to apply money received to damages and fees before applying it to  rent.

Just this year, I went through my files and identified a few that I took to a collection agency. One had a court judgement and the collection agency is talking about garnishment..... we'll see if they have any success. Professional collectors are likely to have more success than me.  I have nothing more to lose and I am helping other business owners (if they take the time to check background and credit) avoid doing business with a high risk person. It also creates another consequence for the tenant's behavior and lack of responsibility.

Nathan Gesner · Answer

I've opened about 15 collection cases. I collected fully on two, a very small amount on three, and nothing on the others. I now only go to collections if it is over $300.

It requires low expectations and patience, with the knowledge that you may never collect a dime. At a minimum, you are reporting something that will reflect on their credit report and perhaps stop them from cheating someone else.

@Kyle

@Kyle J. is correct that you can make a collections claim without a judgement. Be sure to provide as much evidence as possible with your initial claim the more solid your case.

Kyle J. · Answer

I recently went the small claims route for the first time. (You can read about it here if you want: https://www.biggerpockets.com/forums/52/topics/252435-taking-a-tenant-to-small-claims-court-part-1.)

One important factor to consider is whether or not you'd be able to collect anything if you did win a judgment. $5k each is pretty significant so it may be worth your time if you think you can collect. Every state has different methods you can use to collect a small claims judgment. Not sure about yours, but in my state it'd be pretty easy to put a lien on the house of the tenant who broke the lease to buy a new house.

Also, just so you know (in case you didn't), you don't need to get a judgment against someone to send them to collections. You can do that without even going to court, so that might be something to consider even if you end up deciding not to go the small claims route.

Best of luck whatever you decide to do.

Jeff B. · Answer

NOPE!  Process is easy enough for you to do it for yourself, but only go for the dream-house-girl.  The judgment will be vindictive to her credit for 7 years.

Then find a collection agency and let them hound her.  If they collect anything, they will usually split 50/50 with you.

John Arendsen · Answer

As others have stated winning a small claims action always gives you warm fuzzes. However, that's where it tends to stop in most cases. First of all as a rule renters/tenants usually don't have much in the way of ASSETS.

That's why they rent/lease. Second but more importantly collecting on a judgement from a person with no assets is tantamount to pulling hens teeth. In most cases you're far better off licking your wounds and moving on and using your energy more positively and constructively.

My 3 cents adjusted for inflation.

Peter Vuong · Answer

Marcia, I like the way you operate.  Just curious, how frequently do you schedule your regular maintenance inspections?  Once every 2 or 3 months?  If you apply damages before rent, do you state that in the rental agreement?  Don't the tenants just end up owning you more rent on the tail end of their lease?

Any luck collecting from former tenants?

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