Cozy allowed payment reversal that withdrew previously paid rent

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Cozy allowed payment reversal that withdrew previously paid rent

Alyssa K.
Member since 2018 · 156 posts · 106 votes

I received an email from Cozy stating that a tenant disputed their rent payment/marked it as fraudulent with their bank. Cozy then reversed the payment, which had already been deposited into my account, and withdrew it. I’m livid that Cozy would allow a payment that had already been received to be removed from my account. I spoke with the tenant and they said there was a window between when her paycheck cleared and rent was removed, and is claiming her bank flagged the payment due to insufficient funds. I find it hard to believe that a bank would then mark a payment as fraud rather than charging the account holder for the “bounced check”. I’m also very concerned that now, apparently, at any given time a tenant can dispute their rent and it will be taken from my account?! Has anyone else experienced this? Cozy has made managing my own properties easy, but if they can take my money at any given time just because the tenant or tenants bank says so, I’m thinking I’ll have to switch to snail mail and cashiers checks. Anyone have another online service they prefer that puts the landlord first?

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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y

@Alyssa K. this is not Cozy's fault. The tenant reported the withdrawal to their bank as fraudulent. Cozy's processor is required to reverse the payment. There are different codes used for NSF versus fraud rejections.

ACH bank transfers and paper checks are equally secure. A tenant could come back weeks or even months later and report either ACH transactions or paper checks as fraudulent. In both cases the money is pulled from your account. Of course falsely doing so can have repercussions for the tenant.

The problem here is the tenant. I have been taking checks for 16 years and ACH for ten years. Nobody has ever reported a payment as fraudulent. I have had bounced checks and bounced ACH deposits, but in all cases the tenant owned up and paid all the fees.

I would demand a cashiers check immediately from the tenant plus any fees you incurred. If they keep giving you the run around, start the eviction process. You have a problem tenant that needs to be dealt with.

Cash app and Zelle are more secure electronic payment options, but I believe both have send and receive limits that are prohibitive for business use. They do work like cash, so the money cannot be recalled. Neither is really meant for business use.

Most every tenant payment system or bill pay system in general uses ACH, same as Cozy. Again the problem is the tenant, not the payment method.

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  • Alyssa K.
    OP
    Member since 2018 · 156 posts · 106 votes
    7y

    @Jess White that’s where I’m at now that I’ve had a minute to put my own personal irritation in check. Can’t complain too much about a free service that allows me to manage my rentals passively and professionally. The issue here is certainly the tenant, not the service. If it happens again, I’ll have to change the method of delivery for them. I have another tenant that I haven’t spoken to in 6 months and the checks keep coming thanks to Cozy. If anything I’ll amp up my initial screening to avoid tenants that aren’t responsible enough to pay through Cozy.

    1Reply
  • Alan McClainPro Member
    Rental Property Investor · Columbus, OH · Member since 2019 · 32 posts · 12 votes
    7y

    @Alyssa K.

    Hello Alyssa, I work for a bank helping businesses manage their cashflow and thus work with a lot of property management companies with rent collections. This is not a Cozy issue and a risk everyone takes when dealing with electronic collections as there typically is float time between payments. This means that Cozy most likely gives you the credit for rent before they collect the funds from the tenant. So if Cozy never received the the funds, they will debit your account as they are not responsible for making sure your tenants can pay the rent.

    If the customer did not have funds in their account, the bank can decide on whether to pay the item or not (most banks will return the item automatically). It sounds like they returned the item for NSF and that is why your payment was reversed. The only way to eliminate this issue is to accept cash. Otherwise this is just the risk of doing business as regular consumers are very protected when it comes to transactions on their account.

    0Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y
    Originally posted by @Alyssa K.:

    @Eric C. And yes, absolutely, we are very much “company policy” driven, and will uphold the lease to the letter

    I found that works best to off set arguing from tenants.  I know I had issues with that for me in the beginning.  Hope it works out and they get back paying on time. 

    0Reply
  • Tyler Dunlap
    Real Estate Investor · New York, NY · Member since 2014 · 32 posts · 38 votes
    7y

    @Alyssa K. Yeah this is the exact reason that I would NEVER use a platform that could interrupt my business. The problem with something like Cozy (and I’ve had problems with PayPal in a similar manner) is the whole “You’re in charge, until you’re not” thing. There need not be a liaison between my tenants and I. Especially not one who can directly meddle with the finances. I hope that you don’t have similar issues in the future.

    2Reply
  • Kai Van Leuven
    Investor · USA · Member since 2015 · 325 posts · 447 votes
    7y

    @Alyssa K.

    I just sent a message to Cozy.co. I am interested in their response.

    Cozy,

    I am a part of BiggerPockets and have noticed that other landlords have seen problems with your system. Mostly that when someone pays with a credit card, they can “dispute” the charges and receive 90 days of payments back to them. What is the company doing to eliminate this feature? I am worried that I will have to change companies if I feel at risk. Any correspondence would be appreciated.

    Sincerely,

    Kai Van Leuven

    3Reply
  • Alyssa K.
    OP
    Member since 2018 · 156 posts · 106 votes
    7y

    @Kai Van Leuven I’d be interested in their response as well.

    1Reply
  • Alyssa K.
    OP
    Member since 2018 · 156 posts · 106 votes
    7y

    @Tyler Dunlap definitely a great point!

    1Reply
  • Alyssa K.
    OP
    Member since 2018 · 156 posts · 106 votes
    7y

    @Eric C. Me as well! Thank you!

    0Reply
  • Janeile Cudjoe-Myers
    Toledo, OH · Member since 2018 · 22 posts · 19 votes
    7y

    @Alyssa K. I don't have any experience with this software as I don't have any property yet, but @Ben Lynch is a landlord and created https://rentmindme.com/ for landlords and rent collection. Might be something worth checking out.

    0Reply
  • Account Closed
    Member since 2019 · 3 posts · 0 votes
    7y

    How useful and complete you mentioned was very helpful. Thank you.

    0Reply
  • Clinton Davis
    Rental Property Investor · Memphis area · Member since 2018 · 105 posts · 51 votes
    7y

    I just have the tenant pay with Paypal friends and family....it's free for both of us and they can't get their money back.  Then as soon as I'm notified ofbthe pmt I transfer to my bank acct.  Is this not a good way to do things? 

    0Reply
  • Kai Van Leuven
    Investor · USA · Member since 2015 · 325 posts · 447 votes
    7y

    @Alyssa K.

    Here is the response from Cozy. In all honesty it worries me more than not having a response. It seemed like an issue that might be all too common. I just don’t know what to do at this point...

    ————————————————————————

    Hey Kai,

    Thanks for reaching out. I'd be happy to provide clarity.

    I've worked in payment processing for a while now and disputes are always a downside to any business processing payments.

    When it comes to a dispute of any kind, payment processors are required to refund the money to the tenant immediately after this is initiated. In the case of ACH, the refund automatically goes to the tenant's bank account and landlords are unable to submit evidence to fight these disputes.

    In the case of a card payment, the funds can sometimes get refunded to the tenant directly or may sit in a holding pattern at the bank until the dispute review is over. This is where that 90 day process comes in. It's where landlords have the ability to submit evidence within a week or two of the dispute being filed by the tenant, and then the tenant's bank reviews everything. They then come to a determination if Cozy "wins" or "loses" on behalf of the landlord.

    Unfortunately, this is not a feature of Cozy's. This is payment processing and banking industry standard that we must follow. I definitely understand your point of view, as I've been all sides of this situation, and it can be stressful to deal with. However, what's unfortunate is that it is totally out of our hands. Our processor must follow these guidelines to be compliant.

    I know this isn't great news, as it's not great for us either, but I hope I was able to provide some context on this.

    Let me know if you have any additional questions on this.

    Kindly,

    “Cozy Rep”

    2Reply
  • Alyssa K.
    OP
    Member since 2018 · 156 posts · 106 votes
    7y

    @Clinton Davis my understanding now after having heard from a few people on this thread is that the tenant can in fact still dispute funds through PayPal. It seems as though cash, certified funds, or multiple bank accounts are how others are ensuring the tenant cannot relinquish funds they’ve already paid after the fact. I do know I have been warned by various mentors not to use the friends and family option when paying contractors for renovations. They could apparently easily take the money and run before completing a job with little to no recourse when f&f is used.

    1Reply
  • Alyssa K.
    OP
    Member since 2018 · 156 posts · 106 votes
    7y

    @Kai Van Leuven thank you for sharing! Certainly doesn’t give me the “warm fuzzies” either.

    0Reply
  • Heath M.
    Rental Property Investor · Chattanooga, TN · Member since 2017 · 203 posts · 188 votes
    7y

    Ouch that stinks.  I feel for you and I hope it all gets sorted out soon.  Seems the tenant tried to pull a fast one and caused a lot of unnecessary drama.  

    My only issue with Cozy is that it seems it has taken a day or two longer than advertised to get the money in my account.  Besides that I have no issue and that hasn't been that big of a deal.  Sadly once something is flagged as fraud they yank it back quick.  I've had issues with PayPal for that and ultimately lost the money and the product I sold on eBay.  

    I'd prefer cash but Cozy does a great service for me and allows me to collect rent from the couch.

    0Reply
  • Irina Belkofer
    Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y
    Originally posted by @Clinton Davis:

    I just have the tenant pay with Paypal friends and family....it's free for both of us and they can't get their money back.  Then as soon as I'm notified ofbthe pmt I transfer to my bank acct.  Is this not a good way to do things? 

     No it’s not a good way because you put clearly business transaction under “personal” to avoid fees.

    After your Tenants pay 12 times a year the same amount, it will be sure noticed. I don’t know if there will be some recourse to PayPal but it’s definitely business transaction.

    CashApp is free and takes 2 business days to get money into my account, however, I’m thinking if a tenant pays with credit card (you can attach debit and credit card to CashApp), then it might be same situation.

    My Tenants usually don’t have good enough credit for credit cards to pay rent, but potentially it’s possible.

    CashApp amounts to transfer depending on the bank of the Tenant: some can pay only $500/day, some had to pay fees because their account in a credit union.

    It seems like old fashion way to deposit money in the bank looks more reliable. 

    2Reply
  • Alex Mikhals
    las vegas · Member since 2019 · 26 posts · 11 votes
    7y

    girls and guys, I have worked in the payment industry for 17 years and I will tell you that disputing transactions DOES happen not only with credit cards, but with ACH. You can even dispute a CHECK written to a landlord. You can not dispute CASH deposited into the landlord's bank account. So DEPOSIT slips , containing your bank account number and having the tenant want into your bank to make the deposit is 100% fool proof. All other ways have holes.

    5Reply
  • Chris Welch
    Rental Property Investor · Ocala, FL · Member since 2011 · 49 posts · 19 votes
    7y

    I had a similar experience with cozy. Had a tenant I was asking to leave...was behind a month and half by the time he finally left. Once out the door he reported his last two rent payments (many months ago) as fraudulent and cozy refunded him the money. I contacted cozy livid about this and the response was he paid with a credit card payment through cozy and he had reported to the credit card it was fraud. Dont know if he knew of this loophole or was trying to be a jerk but worked in his favor. Did peruse a judgment so I have a piece of paper showing he owes me a few thousand dollars.

    It is a problem as cozy never contacted me....just dug the $$ out of my account. Also, the payment is all set up by the tenant with cozy for either auto pay on a certain date or they go in and manually pay.....how was he defrauded.......cozy still didnt have an answer.

    0Reply
  • Heath M.
    Rental Property Investor · Chattanooga, TN · Member since 2017 · 203 posts · 188 votes
    7y

    @Chris Welch, can I tell which way a tenant paid?  That's crazy that you got hosed out of 2 months by the tenant.  And a judgement doesn't mean much if you can't collect.  I had to take someone to court 15 years ago and got a 6k judgement against them.  I've never seen a dime of it...

    0Reply
  • Mike Franco
    Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
    7y

    I have been accepting rent through zelle for the past couple years. There's an instant limit of $2000, and anything above that takes 3 biz days. So tenant sends rent in 2 parts.

    It all depends on the limits set by the bank. Different banks have different limits for Zelle.

    Bank of America has a higher limit, and I'm able to send more than $2000 thru zelle.

    Before zelle came along, I told tenants to go to a local BofA and deposit cash directly into my bank account.

    0Reply
  • Cathy McCormick
    Dunnellon, FL · Member since 2012 · 27 posts · 3 votes
    7y

    I didn't realize that Cozy was able to take back payments. I had a tenant on Cozy, but when she set it up, she had it come off her credit card, not out of her bank account. Cozy charges a fee to use credit cards. She didn't speak English well, and wasn't very computer savvy. When she saw the extra fee, she wanted to get off Cozy and mail me a check. Maybe it's just as well. I will have to look closer at other collection options for my next rental.

    0Reply
  • Jill Herges
    Member since 2018 · 3 posts · 0 votes
    7y

    So if I continue to use cozy and just transfer the money immediately out of my account (leaving an account with a near zero balance at all times), does that pretty much protect me from this issue?

    0Reply
  • PJ M.
    Philadelphia, PA · Member since 2019 · 174 posts · 124 votes
    7y

    @Jill Herges If you have 1 unit and plan on ending your relationship with Cozy I would think so.  If you have more than 1 rental, or if Cozy (or any 3rd party payment processor) is still collecting rent for you I would imagine they will just pull the funds back from one of the other payments.  That's what Paypal would do.  If you cancel Cozy while owing them money (which is what is happening in this situation) I'm not sure how far they would press you for payment.  I'd guess turning you over to collections is an option so it's possible you'll be the one that takes the hit on your credit report for it.

    0Reply
  • Casey Powers
    Las Vegas, NV · Member since 2018 · 405 posts · 474 votes
    7y
    Originally posted by @Mike S.:

    I've been transitioning my rentals to use Cash App.  It's a cash payment, no reversals, instant transfer to your Cash App account.  Cashing out to your bank account can take 2 days, but my experience is it's 1 day.  They can either download the app or use a unique url to pay online. 

    If it's an online payment of any kind, it can be disputed and reversed. There is no such thing as a "non-reversible" electronic payment.

    To answer the question in general, it doesn't matter how the payment is being sent, or which payment processing company / app / website you use: if the payment is disputed, it can (and almost always will) be reversed. This is true for rent payments as well as any payment for service or merchandise. The merchant (or landlord) almost always loses when someone disputes a charge with their bank. 

    2Reply
  • Casey Powers
    Las Vegas, NV · Member since 2018 · 405 posts · 474 votes
    7y
    Originally posted by @Alyssa K.:

    @Jose Torres it was reported by Cozy as fraud in error, the tenant had insufficient funds. Her paycheck hadn’t finished clearing when Cozy withdrew rent from her bank. Apparently if you have express pay Cozy floats the tenants rent on the 3rd day if a payment has been made but has not yet been processed (or kicked back). When the payment finishes processing they pay themselves back. Because her payment didn’t clear, they withdrew the funds they floated/deposited into my account. She has scheduled another payment, but because of her bounced “check”, Cozy took her off express pay for this next payment.

    When I have a tenant bounce a payment, I disable their ability to pay online and make them pay their rent + late fee + NSF fee via certified funds, to make up that payment. If they do it again, they lose their ability to pay online for at least 6 months. The tenant should've made sure she had the money in the bank for the rent - she knew she didn't. This is HER problem, not Cozy's. 

    1Reply
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