How Do I Collect From an Ex-Tenant

34 Replies

I have a tenant that left last October after being in the property for 5 years and there was damage in the property. I was very reasonable about assessing damage and made sure to prorate everything based on useful life. Still in the end they owed me around $1000. I sent them a summary within a timely manner asking them to pay. It was sent registered mail and they singed for it. I sent a follow letter asking for payment. No response from the tenant.

Judging by the mail I received after they left, they have a long line of collections people after them. I can take them to small claims court, but there are two considerations:

1. It is unlikely I will be able to collect on a judgement. That means I will use my time and energy for nothing in court. 

2. There is the outside risk of retaliation. I have had one crazy tenant that threatened to damage my property. I don't think these people would do that, but they are heavy drinkers, so not sure what they might do when the alcohol is speaking.

I am interested to hear how all the experienced landlords on this forum deal with debt collection. What is your process? How does it change based on dollar amount owed or perceived risk of a crazy tenant? Any tips are appreciated.

For this small of an amount I would recommend letting it go. I just went through this with some inherited tenants and they owe me more than this but less than say 5k. I am letting it go. Going to court will cost more time and money and you will likely never see a dime of it. Can’t collect money from people who have no money

@Joe Splitrock You an't money from someone that has none and already has poor credit. I would write this off as a cost of doing business. I would look at charging a larger deposit. This encourages tenants to pay the last months rent and turn over the house in good condition so that they can get their large deposit back.

@Joe Splitrock ,

Just an idea,  can you write them and offer to accept smaller payments over the next few months?   If it's $1K, it may be daunting.    Maybe offer them 10- payments for $100, or a lump sum of like $700?      It's not a lot,  but it's worth the cost of a letter IMO.

I don't think it'd be worth it to take them to court, as you said there is a long line ahead of you, and not to mention your time/energy pursuing it.  Also, remember with court you have to prove it was them, so unless it's very obvious with before/after pics, I think it would be a hard case, especially with 5 years of wear/tear. 

As a suggestion in the future,  maybe when you get the notice that they are moving, can you give them a pre-inspection, and list the items that need to be fixed, in order to give them 100% of their deposit back?  Good luck!

Whether or not you end up actually taking the person to small claims court is largely a personal decision and also depends on whether or not you reasonably expect to be able to collect on a judgment.

I wrote about my experience with taking an ex-tenant to small claims court here: https://www.biggerpockets.com/forums/52/topics/252435-taking-a-tenant-to-small-claims-court-part-1

If nothing else, I’d suggest at least reporting the debt on their credit report with a service like one of these:  Rent Recovery Service or Debt Reporting Service.

You don’t even need a judgment to report it, and - who knows - maybe some day they’ll need/want to pay it off. At a minimum, it’ll warn other landlords who check they’re credit that their a problem tenant. 

Good luck. 

We have a breaking point--$1k, let it go, over that, here's what we do:  if we have a judgment (usually we do), we file with recorder's office.  Yes, it cost some money, but it will let others know these people are debtors and not good tenants.  And every once in a while, we do collect. 

IF we can locate them, we can attach any assets they have, which really, is unlikely.  If after a year we haven't seen anything, we go to step 2:

Step 2:  Now to more directly answer your question:  1099 them!  (Forgiveness of Debt) Include the lost rent and cost of repairs they caused.  At least you get a bit of a tax write off, and they can answer to IRS.  If they skipped and probably have no forwarding address, who knows if ANYONE can find them.

Disclaimer:  I am not an attorney or accountant--consult with those professionals for any tax related questions.

Marc Winter, Real Estate Agent

I wasn't aware that you could use 1099 for debt. I thought that was only for earned income. Can you do this if you're not a financial entity?

@Ray Harrell I'm not a tax attorney, so I'm not an expert on this, but if a debt of $600 or more is forgiven, there can be tax consequences and you may file a 1099C form with the IRS.

And how do you prove you forgave this debt if they challenge it? I have a few grand of lost rent from several tenants.

And does it have to be filed in the same year they moved out?

Originally posted by @Marc Winter :

Now to more directly answer your question:  1099 them!  (Forgiveness of Debt) Include the lost rent and cost of repairs they caused.  At least you get a bit of a tax write off, and they can answer to IRS. 

The idea of issuing a 1099 to a previous tenant for unpaid rent gets mentioned from time-to-time, but I've always been curious what benefit it is to the landlord?  You already don't pay taxes on rent you never collected, and if there's damage to the property that needs to be repaired, well that's already a tax write off too.  So what's the benefit to the landlord of issuing the 1099? 

@Kyle J. the way I see it is they owe you the money.  You 'earned' it, but didn't receive it.  A bank can issue a similar 1099 (forgiveness of debt) on unpaid mortgage after foreclosure.  They write it off, even though they didn't receive the money. 

Other than that, I just like the idea that they might just have to answer to a higher authority (IRS).

Marc Winter, Real Estate Agent

like others here I have wasted money going to court only to get a judgment, and can't collect it. as soon as you file they quit there job and move to the next.  like throwing good money after bad. I do like the possibility of issuing a 1099, I will talk to my accountant about that when we Meet in the next few weeks.

My son just had a eviction, 12 basketball sized holes , ruined carpet, Jurassic roaches, all in three months.  He opened the doors, and was heartbroken. I went over walked in and told him we have 21 days before the first of the month to get it ready. I started that night  worked on it every night after my regular job.  wife joined in and son.  sheetrock repairs, complete paint, flooring, some construction repairs.  exterminator,  and in 21 days , new deposit, rent paid, new lease, with references.  Told the wife we should have taken pictures of the 21 DAY REHAB.  

Just take it on the chin, Thank God you got rid of them , and  Get ready for the next one. 

@Marc Winter I understand the concept of a 1099C but how do write off something you never received. I already claimed the cost of the damage on my taxes. If they paid me, it would be income on this years taxes. I don't how using a 1099C changes any of this. Please explain.

I'd blame myself for letting the tenant destroy the place on my watch, accept they won't pay. Fix it and move on. 

Do you regularly visit and inspect your units? Catching bad habits early is important and professional. 

I take my tenants to small claims court for any money owed. However in my case I have B class properties and always screen based on being able to collect if they default. I only choose to rent to stable responsible indivulaes and screen accordingly. My tenants would not quit their jobs to avoid debts.

By screening to insure they can pay and that I can collect if they do not I protect myself on both ends. I have collected and have garnished wages.

For most landlords that have C/D class properties or iffy B class the tenant base is most likely not collectable. These landlords should expect to not receive payment from their tenants for their last month.

Originally posted by @Tim Gordon :

I'd blame myself for letting the tenant destroy the place on my watch, accept they won't pay. Fix it and move on. 

Do you regularly visit and inspect your units? Catching bad habits early is important and professional. 

I respectfully disagree.  This could happen to any landlord who's in this business long enough.  I screen my tenants very thoroughly and I even had one abruptly move out leaving damage and money owed after a couple years of tenancy with no problems.  Hard to find fault with anyone but the tenant for that. 

Personally, I don't have the mentality to just "accept it" and ignore the fact that they intentionally screwed me over when I was a very responsive landlord during the entire tenancy.  I did my part and expect the tenant to do theirs.  After all, it's not that hard to pay what you owe and not damage a property that's been entrusted to you as a tenant.

I was able to collect every bit of money that was owed to me through the small claims and wage garnishment process, and encourage other landlords to do the same to the extent possible.

Ok so say you decided to take your ex tenant to small claims court - you have to be able to serve them court papers which requires you to know their current address? How do you go about that? And then assuming they never show up and you get a default judgement, now you have to figure out where they work so you can serve their employer to garnish wages? How do you find out who is their employer?

Thanks

Originally posted by @Lafo Manane :

Ok so say you decided to take your ex tenant to small claims court - you have to be able to serve them court papers which requires you to know their current address? How do you go about that? And then assuming they never show up and you get a default judgement, now you have to figure out where they work so you can serve their employer to garnish wages? How do you find out who is their employer?

Thanks

This largely depends on how thorough your screening and information collecting was up front, but in my case I knew where they worked and - like @Thomas O. said - my tenants generally wouldn't quit their jobs to avoid a debt.  After all, they still need income.  So, I just served them at work and then garnished their wages to collect the debt.

If you don't know where they work or have any next of kin info or info on their family members/emergency contacts, then it's going to be a little harder to serve them.  But I collect all of that info on the initial application in the event I ever need it.  There's also skip tracers and process servers that can track them down.  In most states, there's also alternate ways to complete the service (i.e. publication in a newspaper of general circulation, etc). 

Alternatively, you could do an internet search to find a social media page (i.e. Facebook, LinkedIn, etc) for the person.  It's amazing how much info people will post about themselves.

Lastly, like I said, you could also go the route of reporting the debt to a credit reporting service.  You don't need a court judgment or to even serve the person to do that.

We had a big discussion just yesterday about the 1099. Search for my name to find it as I was the first to write it.

We did a role playing thing once in Houston on personal property that could be attached. VIRTUALLY NOTHING.  The tenant could conceivably claim "family heirloom" or "tools for my profession" or "used for preparing and/or serving family meals". None of those are attachable in many states.

Looking around my house I could claim one of those on everything including my big screen TV.

Originally posted by @Kyle J. :
Originally posted by @Tim Gordon:

I'd blame myself for letting the tenant destroy the place on my watch, accept they won't pay. Fix it and move on. 

Do you regularly visit and inspect your units? Catching bad habits early is important and professional. 

I respectfully disagree.  This could happen to any landlord who's in this business long enough.  I screen my tenants very thoroughly and I even had one abruptly move out leaving damage and money owed after a couple years of tenancy with no problems.  Hard to find fault with anyone but the tenant for that. 

Personally, I don't have the mentality to just "accept it" and ignore the fact that they intentionally screwed me over when I was a very responsive landlord during the entire tenancy.  I did my part and expect the tenant to do theirs.  After all, it's not that hard to pay what you owe and not damage a property that's been entrusted to you as a tenant.

I was able to collect every bit of money that was owed to me through the small claims and wage garnishment process, and encourage other landlords to do the same to the extent possible.

To each his own, I've taken someone to court. I'm aware of what it cost me financially and mentally. I'd feel like I was losing by spending all that time chasing them over a couple grand. That money fixes the unit and lets me move on to a good tenant. 

I ask myself what the highest & best use of my time is. Prepping for (and spending hours in) court only to receive a judgement that doesn't guarantee collection is not the best use of my time...not to mention I'm miserable doing it.

@Rod F. I love your reply. 

"Thank God you got rid of them, get ready for the next tenant"...then find the next deal. 

It's philosophically hard to let the guy walk, but we need to know when we're fighting a battle we're unlikely to win. 

Dillon Hall, Real Estate Agent in California (#02038786)

You are not going to get that money.   More importantly, the resources to get that money exceed your returns.   Let it go.

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