Tenant getting late with payments

15 Replies

I’m on my 5th month owning my first duplex rental property. One of the tenants I inherited has been a tenant for 4 years. Per the last property manager she supposedly pays but always late. However, she is now almost 2 months late with various reasons for getting delayed. She does pay partial at random times but sometimes we don’t hear from her for a week or so. She seems to have the intent to pay but is having a hard time catching up. I know that it’s good to enforce rules and so forth but the fact that this is a 4 year tenant seems to give me a reason to want to work with her. Has anyone ran into a similar problem and what strategy did you use that helped the tenant to catch up with payments? Thank you.

Ben, you have to start putting your foot down and take control of the situation. After over 20 years of managing over 300 units, I've learned that tenants are like children that are always testing you so if you don't stand your ground then they will walk all over you. There is nothing wrong with being empathetic about a person's situation if, in fact, it is a real hardship but never let rent lapse beyond a month because that snowball is going to keep getting bigger and out of control. If you have not already done so serve her with a 3-day notice to pay or quit. If she doesn't respond to that within three days, serve her with a threat of eviction. It doesn't necessarily have to be a formal summons and complaint it can be a flyer type notice on a yellow or red sheet of paper outlining what the terms of her rent payment are as outlined on her rental agreement and stating that if her rent is not paid up within 24 hours it will be put in the hands of your attorney. If she still does not pay her rent in full ask an eviction attorney to prepare a formal summons and complaint, attach a cover letter stating that as evidenced you are serious about proceeding with the eviction and only need to file paperwork to start the process. It doesn't cost much to have an eviction attorney do this for you and is much cheaper than and actual eviction. By not filing it and preparing it it lets the tenant know that you no longer are willing to play by her rules and that you hold the rule book. I do this with my attorney all the time with tenants that try to but heads with me and 99 percent of the time tenants get the message, pay their rent, correct their behavior and I am able to avoid an actual eviction. My business is in California, not Texas so I'm not entirely aware of your termination or eviction laws but they are more favorable towards landlords than ours so this all should be legal. If after all this she continues to pay her rent late I'd just cut her loose and find someone that is willing to pay their rent on time. Some tenants just don't get it. Ain't it fun being a landlord?  Best of luck..... I hope this bit of wisdom helps get your tenant back on track. 

Are you charging late fees and serving the tenant with proper legal notices as dictated by your state? Did you get the tenant on your lease? I would let the tenant know that you appreciate they have been in the home for 4 years, and certainly want them to remain - however, you need to run your rental business in a way that is in complete compliance with all local, state, and federal laws. And to that end, you cannot treat one tenant differently than another ("that will be against the law"), regardless of the reason for being late or how long they've been in the home. So going forward, you have no choice but to impose a late fee (the maximum allowed in your state); and you must post a pay or vacate notice (or equivalent notice in your state) - after which you'll unfortunately having no choice but to proceed with filing for eviction, since you wish to be in full compliance with the law. Then make no exceptions going forward.

Once it is realized that you are serious about this and will REQUIRE on-time rent going forward (NO EXCEPTIONS) - you will suddenly become a priority and get paid on-time. And if not, require they vacate or evict and find a new tenant at a higher rent who will pay on-time. In that process you will likely incur some rehab and upgrade expenses to get the unit ready for the next tenant - but I doubt it will come to that.

I do think you will need to serve her notices per your state. This way you are ready to evict if needed.  

Perhaps it will be easier for this tenant to pay every week or every other week? It will be very very hard for someone to come up with multiple months of rent once they get behind.  Dont let her get any further behind than she is now. 

The best thing you can do is hire an attorney RIGHT NOW and start the eviction process. Don't think about it. Don't give her "one more chance" to do the right thing. Stop the insanity. Use an attorney to ensure it's done right and you can close the book on this monstrosity.

While your attorney is working on that, educate yourself on what a good property manager looks like. You may think you're smart by not hiring a property manager and saving 10% but I'm pretty sure your losses are costing you more than 10% and it's probably causing you a lot of stress and may even scare you away from continuing to invest. Hire a professional that can handle this for you and it will likely put more money in your pocket.

Remember: cheaper doesn't mean you'll make more money.

You can start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. Regardless of how you find them, try to interview at least three managers

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

Are you self managing or do you have a PM?  I would definitely not allow a tenant to get two months behind on rent.  I don't even allow one month behind on rent.  If I haven't received it by the 10th, I'm delivering notice.  I give some grace and communicate with the tenant when extenuating circumstances arrive and do things like reduce or remove late fee, but I still deliver the notice.  When it comes to a tenant like this, there will always be an excuse, and she will always be behind given the opportunity.  

@Ben M. You're at a pivotal moment in your investing career. Nobody wants to be the bearer of bad news but it's important to put out that brush fire. You could have a rough road ahead of you that steals cash-flow along the way. 

@Ben M. Read your lease.  Enforce your lease. 

If they cannot pay on time, in full, you need to start the eviction process. 

Sometimes, especially when you inherit tenants, they test to see what you will do.  When you start acting like a landlord, they start acting like a tenant.  Sometimes you need to get new tenants.  Sometimes you need to get a property manager.

@Ben M. I would agree with most on here. You need to start the eviction process now which usually starts with a notice but may depend from state to state, check your state's laws and notice forms required for this. When purchasing an investment property you should have introduced yourself, which I hope you have, via a letter to your inherited tenants detailing and emphasizing that you are the new owner or manager, the rent due date, rent amount and new contact and mailing information. 

Two month's late is way too long to wait for your due rent. Some states require you to afford a grace period and yet others don't but when required it is only days, not months. In either case even if your state does not require a grace period, you should allow a 1-3 day grace period after the rent due date and although some will argue that the due date is the due date... the reality is that your lease will be interpreted by a court if it goes to evictions and if a judge finds it 'one-sided' the court may look for reasons to invalidate your lease agreement in addition to this issue... a grace period gives you peace of mind in writing in that you have afforded the tenant every opportunity to pay their rent before action is taken to initiate collection through the court. 

You should always be consistent in your enforcement of the rent due date/grace period and start the notice process as soon as it is allowed by your state when a rent payment is missed, the end. You and your tenants will be better off when you abide by the lease with consistency in that you set a level of 'expectation' and that late, missed or partial rent will not be tolerated. Additionally, you have a multi-family property (duplex) and you have opened yourself up to violating fair housing laws by not enforcing your due date... what happens if the tenant next door finds out the current situation and now also claims that they can't pay rent by the due date either... if you treat them any differently than this late tenant you will open yourself up to discrimination. Lastly, you should take caution in accepting 'partial' rent... partial rent in many states is considered as an attempt by the tenant to pay the rent but which is going through hardship and in many cases will keep you from filing for eviction and even in states which are 'landlord' friendly this yet again opens you up for interpretation by the court -- you shouldn't accept partial rent ever, unless there has already been a court order. 

I hope this helps. 

I'm pretty sure that if you were behind in your mortgage payment, the bank wouldn't hesitate to wack you.  I'm pretty sure that if you missed a couple of car payments, it would get towed away sooner, not later.  Credit card payments...same.  When people stop meeting their obligations to you, if you don't act, you've allowed yourself to become their guarantor of payment....ie it's coming from your pocket.

I once let a tenant go 6 days without paying rent. I'm kind of mad at myself for not filing the 3 day pay or quit notice until day 6. Anyway, I evicted her within 3 weeks total. I can't believe people wait 2 months to evict a non-paying tenant. I wouldn't wait 60 days to evict my own mother. Just kidding, we don't rent to friends or family, because we run a business and not a charity. 

@Ben M. , what's more important: tenant or you?

This may sound harsh but the reality is you are more important to yourself.  I understand compassion but this is beyond courtesy. This is directly impacting you negatively.

Even though she has been there for 4 years, that is not an excuse.  If something occurred in her life that is making this a challenge to pay, she should have communicated with you earlier so you could create a course of correction.  Also, has she prevented you from increasing rent in 4 years?  It might be time to move on and get market rates by somebody who is less risk.

If you have a property manager, they are failing you!  No PM should ever let a tenant be 2 months late.  That is an immediate termination in my books.

Keep track of everything. At this point it sounds like this tenant, for whatever the reason may be, hasn't paid in full for 2 months, but when you accept those partial payments that may play out in their favor once it is taken to court. 

Start enforcing a late fee and if she doesn’t pay, start the eviction process. You own the property but right now she owns you. You are also in Texas where it is much easier to enforce and evict a tenant then California 

Thank you everyone for the feedback. Yes I am working with a property manager. I just wanted to avoid the turnover and rehab costs while I'm only 5 month into this property. She is supposed to pay 400 today. A 3 day notice was already sent by the PM but we will see how she responds after this.