5 Ways to Deal With a Tenant Owing You More Than Their Deposit Will Cover

by | BiggerPockets.com

Our first thought was: There is a dead body in this refrigerator.

Of course, upon closer inspection, there was no dead body, just rotting food, garbage, and other unknown objects. The smell was unlike anything we had ever experienced before. The unit was left with garbage covering nearly every square inch of the floor, holes in the walls, doors missing, crayon on nearly every surface, and that smell that permeated every cubic foot of space. All in all, it took nearly $4,000 to get the unit fixed up and ready to re-rent, including the costs of lost rent.

Luckily, when the tenant moved in, we had collected a double security deposit due to a minor red flag when performing her tenant screening. But as any third grader can tell you, having a deposit for $1,000 and a bill for $4,000 means one thing: We were in the hole $3,000. So what now? Although it’s unfortunate, this will happen to you.

Of course, making sure you don’t get screwed over by a tenant starts at the beginning, by only accepting the best tenants, collecting the right deposit amount up front, and adequately training your tenant while they live there. But even if you have incredibly strict screening standards and give the tenant detailed instructions on how they should clean their unit when vacating, someday a tenant will end up owing you money. So let’s talk about some different options you have at this point. The option you choose will depend slightly on the situation itself, the amount owed, and the kind of tenant with whom you are dealing. But let us give you five possible choices you have for collecting that debt.

BRRRR-strategy-deal

Related: 10 Invaluable Lessons I Learned From My Very First Tenant Eviction

5 Ways to Deal With Rental Damages That a Tenant Deposit Won’t Cover

1. Ignore it.

If the amount owed is very small, you may simply choose not to pursue it after sending the Disposition of Deposit and just move on. If they owe you $50, it might not be worth the hassle to try and collect it, so simply send the invoice, and if it is never paid, mark that in your tenant’s file for future reference. Someday you’ll get a reference request for that tenant, and at that point, the tenant will wish they had paid that small bill. Of course, you are not losing everything when you choose to accept that loss. The one thing you will gain is a valuable lesson, so take it gratefully! Learn from your mistakes and put systems in place so it doesn’t happen again, if possible. This might be far more valuable than the money owed to you.

2. Bill repeatedly.

If you don’t want to simply ignore it, but the sum is too small to take larger action, you can also set up a system that mails out a new invoice monthly, as a constant reminder that they owe money. Perhaps someday (like after they get their tax return), they will pay the bill. It might cost you a dollar a month to do this, but someday it might pay off.

3. Negotiate with them.

Recently, another of our tenants left his apartment unit in a hurry and ended up owing about $200 to us from the cleaning and repairs needed, above what his deposit would cover. Of course, we sent the Disposition of Deposit form to the tenant in the mail, and upon receiving it, he immediately called to complain. (“Complain” is a nice way of describing the words he used on the phone. We even had to hang up on him the first few conversations due to his rage.)

This tenant expected to get his entire deposit back, but luckily we had photos and documentation to prove every one of our repairs. (Which, of course, is why a well-documented Move-In/Move-Out Checklist is vital for any landlord.) Our in-house manager spent nearly a week negotiating with the angry tenant, and in the end, we agreed to accept 50 percent of what was owed. Three days later we received $100 in the mail, which we gave entirely to our manager to thank her for her efforts in collecting.

4. Send it to collections.

Collection agencies are designed to pursue individuals for their past-due payments. They use a variety of techniques to get this money, including tracking down the tenant and calling them repeatedly until the debt has been paid. For their services, collection agencies typically charge a hefty fee—oftentimes 50 percent of the debt recovered. If you are fairly certain you won’t get the money from the tenant, you can send the invoice to collections and let them deal with it. Who knows? Someday down the road you might get a check in the mail. We will typically choose the collection agency route when the tenant owes between $1,000 and $4,000 and they ignore our attempts at collecting the debt on our own. In fact, this is what we did for the tenant in the previous story.

Related: Tenant Turnover Can Wreck Your Profits: Here’s the Simple Solution to This Costly Issue

You were probably hoping we had a happy ending to that story, but let’s be honest: Getting screwed comes with the territory when you are a landlord. Perhaps someday we will walk out to our mailbox and find a check for several thousand dollars. Unlikely, but we can hope!

landlord-lessons

5. Take them to small claims court.

If the money owed to you is substantial and you think you can get the money from the tenant if a court makes them, you could pursue a lawsuit in small claims court. This court is designed to help people sue others without the need for lawyers and a lot of money. Usually, for less than a few hundred dollars in fees, you can sue someone, and if you win, you will receive a judgment against them. This judgment could be used to garnish wages or tax returns. Plus, this judgment can follow the tenant around for years, even showing up on background checks when they apply for a rental property in the future.

[This article is an excerpt from Brandon Turner’s The Book on Managing Rental Property.]

How do you deal with tenants who owe you money?

Let me know with a comment!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

9 Comments

  1. Jack Knochel

    Hey Brandon,

    We are going through this right now. Used the BRRRR stategy last year for this rental I am going to talk about. Nice rehab and moved in folks with a good background and credit. Right away we could tell it was not going to be good. Van seats in the front yard next to the new front porch and trash collecting in the back. Then the back basement window got busted out and they didn’t fix it like we told them and the outside spiqot line in the basement froze and busted. Then they called about a leak in the roof, so bad a pail would not work, my management company would not send someone out in the storm on the roof so I got my roofing buddy to go. $100 later and no leak. Ok, we are done, 7 months and we give them notice that we won’t be renewing and they have the next 5 months to find a place. Oh wait, when my roofer went there they were smoking in the house and there was a new satellite on the new roof. Well, instead of taking the 5 month notice as a kind gesture and doing the right thing, they bounced the next payment and waited to be evicted. Appealed and lost and then got booted by the sheriff. The house was full of trash, holes in some walls, all brand new blinds ruined, handle on new fridge broke off, brand new bedroom door smashed, etc. And we have to justify keeping the $795 deposit?! The management company is working on going after them for the money but who really thinks we’ll see any? New tenant moving in this weekend, so between no rent for 1.5 months and another month before a new tenant, add that into the loss.

  2. Curt Smith

    Hi Brandon, but no where did you mention that most of these tactics you need their current address. Thats right, in order to have small claims summons serviced you need their current address. Wage garnishment, you need their current address AND employer which may not be who they worked for when they moved in. And win garnishment, they may just quit that job…

    Unless someone offers up a not heard of before tactic and it works in your state, I know of now way to collect a penny from such a tenant.

    Skip trace etc etc need the tenant to be in their current address many months. Ok so you use skip trace, figure out where they live, pay the county to service (sheriff) but the sheriff only knocks during the day not in the evening when they are home. In GA few counties will give you a judgment if only a door tack (red sign on the door) vs an in person service.

    So many problems collecting from problem tenants. Fortunately there’s a solution, only rent to top notch tenants like Brandon says. No red flags, have a bank account with full move in amount plus a bunch, this alone will eliminate most bad tenants. Problem tenants rarely have bank accounts WiTH full move in amount shown on the bank statement. Screen for have bank accounts, no evictions, no in collections except for medical debt, do drive by of their current house. Door knock their current house to verify they do live there and look inside. If one is willing to go the extra steps it is possible to filter out the bad ones.

    Have clear “expectations” list:

    – must be good neighbors no loud parties
    – must keep the yard and house clean and neat
    – must pay your rent on time
    – must keep the house in good repair

    Notice: if you are at all questioning my expectations, then maybe this rental is not for you. Have a great day and good luck.

    … After all this the good tenants know you are a straight guy and they rent from you. The bad ones never turn in their applications.

  3. Warren Lizo

    I manage properties in MA, RI, and NH. Some tactics I use are:
    – lease states exterior is NOT part of the leased premises. Any modifications required prior written approval, including work by the cable company. Any items outside can therefore be considered illegal dumping and I have the right to dispose of them immediately.
    – if I find damages, especially a lot, I repair them while the tenant is there. I could speak for an hour on this, but the biggest reason to do that is that a judge is far more likely to evict for failure to pay damage charges than rent.
    – I bill back for my time and my maintenance person’s time. This has to be reasonable of course.
    All that aside, screening matters most!

  4. Christian Morency on

    Release them of their dept in writing and 1099 the Social Security Admin. or whatever other welfare they are on and those agencies will deduct it from their checks, dollar for dollar. It’s not your karma, it’s theirs.

  5. Tyson Cox

    We usually do not use “good money” to chase “bad money”. We have found that it is better to focus on refurbishing the apartment and finding a quality tenant. We always send them a bill and move on. Even when it is only a minimal amount, we always send a bill if damage was more than the deposit. We have found that most people will never call to complain about not getting any of there security deposit back when they still owe us money. (With that said we have been blessed to have had very few major repair expenses caused by tenant destruction.)

    This last year we did have a major issue with a tenant having two cats that were left to do as they please in one of the bedrooms. This bedroom reeked of cat urine. We ended up tearing out and replacing 30″ of sheetrock on two walls, 1/3 of the subfloor, and 1 interior door. This also included texture, paint, and new carpet. Parts, labor, and lost rent was costing us about $2,500. They had a security deposit of $800 and a pet deposit of $600. As usual when tenants create more damage than they have deposit to cover, we sent them a move out offset statement and a bill for $1,100. The silver lining to this story is that we received a check for the $1,100 from the previous tenants about 2 months later. The moral of the story: always send a bill to tenants who owe for damage even if you don’t think you will ever recover the funds. Sometimes people will surprise you 🙂

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here