Collection agency or attorney for non-paying tenant

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Collection agency or attorney for non-paying tenant

Jack Tou
Bellevue, WA · Member since 2017 · 4 posts · 0 votes

Hi all, new to the community here and thanks in advance for any advice.

My family got into commercial real estate 2 years ago with a small retail shop. The existing tenant has been a real PITA. We've tried to work with him but to this point he has accumulated 3 months of overdue rent (including late charges). The first 5 years’ lease term is coming up in June and he just missed this month’s rent again so I have had enough of this.

My question is if I hired an attorney to evict him right away I am afraid I cannot collect the missing rent:

1.A family friend told us from his experience that it will be difficult if not impossible to collect debt after the tenant was evicted.

2.The overdue rent exceeded the Small Court limit ($5,000???), not to mention the late charges and legal fees.

3.I am currently overseas on work assignment and difficult to attend to any court hearing or handling matters in person.

Is it advisable to first hired Collection Agency in attempt to recover the rent? Is not like I will be able to find an replacement tenant right away and meanwhile the current tenant is liable to pay rent under the lease agreement. 

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    9y

    It sounds like your tenant's business is failing.

    The first thing you should do is take a copy of your lease and see an attorney.   Where this is a commercial tenant, there are a lot more options available to you than with a residential tenant ... possibly including, locking them out of the space and seizing their inventory and/or equipment for sale to recover the rent owed.   The precise remedies available will depend on your lease and the contract law governing it.

    Since you are remote, you will need to find a property manager or someone local to be your boots on the ground through the drama which may ensue. 

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  • Jack Tou
    OP
    Bellevue, WA · Member since 2017 · 4 posts · 0 votes
    9y

    Thanks Roy, 

    First of all thanks for your advice. "Business was bad" has been a constant excuse from this tenant since day one and we've tried to work with him like offering re-payment plan but he never follows thru. Given the available options, it does sounds sensible to consult with an attorney first rather then hiring an collection agent. 

    My mom used to be an residential realtor for awhile before she retired so we've been able to get by with managing our joined residential investment without too much drama. Therefore we dont have a attorney already.

    May I ask where will be a good starting point for me to find ourselves an local attorney? Rather then random Google search, is there a good online resource for researching/finding good attorney? 

    Thx a million

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  • Kimberly H.
    Residential Real Estate Broker · Chicago Suburbs, IL · Member since 2013 · 1k+ posts · 594 votes
    9y

    @Jack Tou I've never come across a good lawyer finder website. However, do a search on whoever is recommended to you, most lawyers don't have any reviews, but if you do manage to find someone with bad reviews, I wouldn't hire them. 

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  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    Needing a real estate lawyer specializing in eviction not a lawyer. In CA it costs ~$1K for presenting you at the court, same day filing. The small claim court liability here is $10K.  Most lawyers will charge services as you go.

    You need to look at a bigger picture. Court will let you keep the deposit not necess the back rent. Even you win they have no money you can not regroup.  Severe the relationship and look at  a brighter future.  

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    9y

    @Jack Tou

    I would call a local commercial real estate broker (if your mother knows one personally, it may be helpful) or local REIA and ask for a recommended list of attorneys who handle commercial real estate and leasing.

    Who was the attorney who drafted or notarized the existing lease?

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  • Robert Nason
    Lowell, MA · Member since 2014 · 260 posts · 99 votes
    9y
    As a former owner of a collection agency I would recommend to hire a lawyer first. That way it gets it into the court system and protects your interests moving forward. If the collection agency finds the particular debt to difficult or deems it unworthy of their efforts then you are just left there sitting without any action on your behalf. Go through the proper steps with your local sheriff and courthouse.
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  • Jack Tou
    OP
    Bellevue, WA · Member since 2017 · 4 posts · 0 votes
    9y

    The lease was inherited and the tenant didn't even have any security deposit (It's a shortcoming we accepted when we purchased the property). That being said, it sounds like the small claim court may not do us any good given the fact there was no deposit we can keep, and recovering back rent + associated damages/fees would be challenging? 

    On the other hand, I can see Sam Shueh's point about the legal fees may end up just eating up any money that I can recovered. 

    Based on all the invaluable advice so far, maybe I should first hired an lawyer to arrange the eviction and get it into the court system like Robert had suggested. Hopefully keeping the legal fees manageable such as fixed fees kind of deal? 

    Thereafter, I will then hire collection agency to help recover the rent, late charges, and legal fees. Is my assumption correct that the agent will charge certain percentage of the recovered fees? Meaning it shouldn't exceed my total recovered amount like hiring a lawyer would? What's a reasonable commission percentage in the industry? 

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  • Jack Tou
    OP
    Bellevue, WA · Member since 2017 · 4 posts · 0 votes
    9y

    The only not-so-terrible thing about this inherited lease is that it does at least contains some language for "Default". 

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    9y

    @Jack Tou

    Find out from your attorney if you are able to lock-out the tenant and seize the assets of the business to liquidate for arrears and damages.  If so, find out the process (likely through the Sheriff to change the locks) and whether the tenant has the right to redeem (and the length of this period).

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  • Daniel Y.
    Investor · Henderson, NV · Member since 2016 · 227 posts · 86 votes
    9y

    Hi Jack,

    Sorry to hear this happening to you. It looks like you may have made up your mind, and I agree with it. Here is another angle that supports your decision. This may depend, if they have an LLC then they close business by filing for bankruptcy, then there is no point in trying to collect especially if they have other debtors to pay that are in front of the line. You best option is to kick them out ASAP, legally of course, and find a much better tenant. Even if they didn't have an LLC, it depends on how much money they have. Here are the negatives, if you win. You win the full amount, but they don't have that amount, you'll have fun collecting (remind yourself how fun it was collecting rent now). Second, the judge looks into their finance and see they don't have anything or much, and may give you the win, but a much less amount to give them a chance not to be homeless or whatever it may be (this really depends on the laws of your state and the judge, too many unknowns IMO to gamble). Good luck with everything and keep us updated so others can avoid this unfortunate situation, or know how to deal with it, in the future.

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