When Your Tenant Won’t Pay

There comes a point when apartment owners find that despite their best
efforts at resident screening, they will have to grapple with evictions and
collections in response to non-payment of rent.

The weak labor market is currently contributing to greater numbers of people
encountering difficulty with paying their rent compared to just eight years
ago—so owners beware.

Where evictions for nonpayment of rent is concerned, property owners should
first make sure they are thoroughly familiar with the local landlord-tenant
laws and regulations. Every jurisdiction has its own rules governing, for
example, the minimum number of days the rent is delinquent before late notices
can be sent out.

The company’s procedures should be to file the papers for a court date in
connection with an eviction as soon as that is permitted by law—whether or not
a payment plan is being worked out with the resident concurrently.

It is important to take action at the earliest possible opportunity because
each step in the eviction process can take time, and it can be at least
one-and-a-half to two months before the resident is evicted. If the resident
appeals, that will cause further delays. And if the property owner wins the
case, it will take at least another 15 to 30 days before the resident is made
to vacate the unit by the marshall.

Follow eviction rules closely

Property owners need to be consistent and regimented in complying with their
companies’ own rent payment rules and procedures, aspects of which may also be
contained in the lease agreements signed by residents. For example, after the
grace period, the notices need to be sent out.

There are absolutely times when residents have genuine and temporary
problems paying the rent. In such cases, the company can deviate from the rule
books and work with them to help them make the payments.

Property owners need to refrain from clearing out residents’ belongings too
early—a common pitfall when a resident skips the rent and moves out. If there
is no court order in place to evict them, the residents may want to be
reimbursed for the items. Landlords can clear the apartment and hold the
belongings in a separate location, but the danger is that things can be stolen.

The other aspect of evictions is collections. The accounts receivable of
residents who leave an apartment, but still owe back rent, may be sent to debt
collectors. The fact is, most property owners may be reluctant to go after
their residents for backrent. A study released by TransUnion late last year
finds that about half of property managers (46 percent) have had renters skip
out on their rents, with 19 percent having had that experience in the past
year. According to the study, which received 476 responses, only 46 percent of
property managers pursue residents who skip out of their apartments and leave
with unpaid rent or damages.

Steve Roe, vice president in TransUnion’s rental screening division, says it
is a mistake for property managers not to try to claim that bad debt. There are
two philosophies with regard to whether the account is turned over to the
collections agency. The first says that “if we have the wherewithal, let us get
a shot at going after someone in the first 30 days. We are not splitting the
recoveries with a collections agency.” The second school of thought says that
“the account should be turned over to a collections agency immediately. There
will be less time spent and aggravation on the part of your staff.”

Property owners can expect recoveries, on average, of 15 percent to 18
percent if the agency is doing its job correctly. The proportion of recoveries,
of course, also depends on the profile of the portfolio. For example, in the
case of affordable portfolios, recovery percentages may be less.

Collection agencies typically do not report to credit bureaus in the first
30 to 60 days of receiving the delinquent account. Individuals are more
inclined to pay if their accounts have not yet been reported to the credit
bureau, as they find it important to maintain their credit files.

Successful recoveries depend on four factors: the applicant screening
criteria of the property management company; the use of nationally licensed
collections agents; how effective the agency is in skip tracing, that is, in
locating the individual who skips out on the rent; and the initial conscientiousness
of the property management company in gathering vital information—such as
social security numbers, emergency contacts and places of employment—from the
resident.

When it comes to choosing a collections agency, it is important that the
company has a national reach. A little over half the states in the country
require collection agencies to be licensed or bonded in the state in which they
operate. So if the agency is not licensed in that state, it would not be able
to contact individuals who have moved there. Larger collection agencies may
also have the resources to pay for, and sophistication to obtain, national data.

Indeed, the reputation of the collections agency is a prime consideration
for the apartment firm. The apartment company should make sure the financial
security of the agency is sound—as there are cases in which collection agencies
collect on bad debt but do not remit the collections to the property owner.
Checking references for collection agencies is also critical.

Apartment companies may also want to make sure the collections agency does
not mistreat its customers. A professional and courteous manner on the part of
the staff yields better responses and results. Also, the apartment company
would “not want to see its names or our names in the papers. You must protect
the image of the agency and the client.

Obtain the information needed by the agency to do its job. And even more
important, get the accounts to the agency as soon as possible instead of
sitting on it.

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