Property Managers are frequently faced with an all-too-common scenario, these days: The tenant has lost his/her job, and can no longer afford the rent. Here’s a question that came to me via email the other day, and my response:
What’s an owner to do?
We are currently renting out our home, and the tenants signed a year lease(with a co-signer) in Feb. 2011. Yesterday, we received an email from them stating they can no longer stay in the home because the husband has been laid off. They asked us if they could stay until next month and use their security deposit as a rent payment for September. He says his cell phone has been cut off, so he can’t talk to us over the phone, and will only converse through email. I’m so angry but would like to deal with this in a professional and calm manner. Do you have any advice as to how to approach this situation? This is our first time renting our home out.
What does the lease say?
I’m sorry to hear of the difficulties with your tenants, and am glad you took the time to write. This situation occurs rather frequently, unfortunately.
Much of the information you seek can likely be found in your written lease agreement. First, is the co-signer bound to all terms and conditions of the lease? If so, you may have a way to collect lost rent and damages, over and above the security deposit. Ask your attorney about this. Secondly, does the lease language prohibit the tenant’s use of the security deposit as rent during the lease?
Many states require a landlord to mitigate his/her damages when a tenant vacates before the lease is up. In simple language, this means the landlord has a duty to attempt to find a replacement renter at market value as soon as possible. In other words, the landlord cannot simply sit back and charge the tenant for the remaining value of the lease without doing anything to re-let the premises.
In order to re-rent the property, you’ll want access/possession as soon as possible. I assume your lease provides for a due date for the rent that is on or about the 1st of the month. Once the rent is late per the terms of the lease, I recommend you pursue eviction for non-payment of rent. Allowing a tenant to use his/her security deposit for the last month’s rent does nothing to protect you. Once that deposit is used, there’s nothing left to put toward cleaning or damages that may exist, once the tenant has vacated.
Managing rental property in any economy can be a really challenging task. That task is made all the more difficult if the person managing the property is, in any way, emotionally tied to that property. That’s why owner-landlords have a particularly difficult time of it. In the future, I would suggest you consider hiring a professional property manager to look after your interests. If you select a manager from the pool of experts affiliated with The National Association of Residential Property Managers (NARPM), you can be pretty sure whoever you select is an expert in management of single-family homes.
Been there?
If you’ve dealt with an early-termination recently, please consider participating in this discussion by leaving a comment on the blog. Thanks for reading!
Unfortunately, we deal with early terminations all the time. A common question is, ‘Where in the lease does it say how I can get out of it?” to which I usually reply, “the part where it says you have to pay the rent, utilities, and yard care until [DATE].” This is usually met by disbelief, shock, and occasionally curse words. Since it is a common occurrence, we have a special form which the tenant signs that allows us to show the unit any time in an effort to get it rented again. It reaffirms their obligation to pay their obligations, or be served with an eviction for non-payment.
We never allow the security deposit to be used during the tenancy. It’s not a bank account to draw on for emergencies.
With regards to co-signers- beware! The FTC requires specific language which your lease must include when dealing with a co-signer!
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre06.shtm
Hi Bob,
Signing in this morning from a new computer – fried my laptop, and haven’t yet figured out how to get into the “dashboard” for my website. (Loving technology, right now!)
On the issue of co-signers and your lease… my understanding is that a rental/lease agreement on real estate which creates a residential tenancy is not subject to the Debt Collection Practices Act while it is in force. It’s not a “debt,” as defined by the Act.
As you know, I’m not an attorney, and I fully acknowledge I could be mistaken on this, but… did your legal counsel tell you otherwise?
Thanks for reading and commenting. I think it’s really helpful to our readers to get the benefit of many perspectives on the issues we property managers deal with on a daily basis.
-Judy
Judy Cook is correct, generally speaking. The FDCPA does not apply to a landlord collecting rent or past due rent, because direct actions by creditors on their own debt are exempt. Similarly, a rental property management company is not a “debt collector” within the meaning of the FDCPA if it seeks only to collect rent or past due rent as the property manager agent of the landlord.
See In Re Cooper, Bkrtcy N.D. Fla 2000, and Reynolds v. Gables Residential Services, Inc., M.D. Fla. 2006 428 F. Supp.2d 1260.
I am a real estate attorney practicing in the San Francisco Bay Area for 20 years.
Thank you so much, Janet, for clarifying this for us!
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I think the key words here might be, “if it only seeks to collect rent or past due rent.” Damages is also a big part of what we send people to colllections for.
Multi family property owners and managers should look into “Lease Term Insurance” in place of security deposits. “Lease Term” can address the landlord’s potential financial loss far better than a security deposit in an early termination situation.
Hi Greg,
You’ve got my attention! I hadn’t before heard of “Lease Term Insurance.” I’ll blog about it, once I know the specs. Email me, please? judy@judycook.biz
Thanks for reading and commenting!