Property managers often ask me how I handle pursuing tenants who move out owing sums in excess of their deposit. Owners so frequently expect the property manager to act as a collection agency, and many of our contracts do not address the manager’s responsibility for those activities. Furthermore, federal law strictly regulates the property manager’s efforts in collecting tenant debt. What should the property manager do in these cases?
Make sure your owners know your policies. Communicate those policies in writing. Your management contract should specifically spell out what you will and will not do in the event of “bad debts” by tenants. Should the situation arise, remind your owners of those policies and any associated charges.
Your records speak for themselves. Prove it or lose it! If you are unable to prove a debt, you will be unable to collect it. Make sure your records accurately reflect charges and credits. Report all of this information to the owner in a timely manner.
Get paid for what you do. Depending upon the language in your management agreement, you may be able to charge fees for accounting, administration or collection activities. Exercise those options in your contracts, if they exist.
Send an initial DEMAND letter. After all costs are calculated, and you have distributed the “Security Deposit Accounting” statement as required by your state law, send former tenants a mildly-worded letter requesting payment. Give a “date certain” on which you expect payment to be made. This letter should be sent by registered mail, and include a return envelope for payment.
Make sure all contact with the tenant is in accordance with the Fair Debt Collection Practices Act. The Fair Debt Collection Practices Act is a federal law that regulates the activities of those who collect debts from others. Under the federal law, a debt collector:
- May contact a debtor by mail, in person, by telephone or by telegram during “convenient hours”.
- May not contact the debtor at work if the creditor knows or has reason to believe that the employer forbids employees from being contacted by debt collectors at the workplace.
- May not contact the debtor if he/she is represented by a lawyer (the debt collector must then contact the attorney).
- May not continue to contact the debtor after he/she has sent the creditor a letter telling him/her not to contact the debtor (however, the creditor may contact the debtor to tell him/her that some specific action is going to be taken).
- May not contact the debtor after s/he sends the creditor a letter by mail within thirty days of the first contact that s/he disputes all or part of the debt (however, the creditor may begin collection activities again if the creditor provides proof of the debt to the debtor).
- Must within five days of the first contact send the debtor a written notice stating the name of the creditor money is owed to, the amount of money owing, what to do if s/he believes s/he does not owe the money, and the name of the original creditor if different from the current creditor (in the case of sale or assignment of the debt).
- May not threaten violence, use obscene or profane language, repeatedly telephone or harass the debtor, make collect telephone calls, or use false or misleading information in an effort to collect the debt.
Send a FINAL DEMAND FOR PAYMENT letter. Your second letter is more sternly worded than the first. Again, send a return envelope with postage, and advise your next action.
Send an attorney letter. You may be able to negotiate an arrangement with your attorney to send, at a reasonable cost, a collection letter to your debtors.
Report the debt to the credit reporting agencies. Under the Federal Fair Credit Reporting Act, the Landlord has the right to report a debt, as long as evidence exists to prove the debt. Although this action does not often result in immediate payment, the property manager will likely get paid if/when the tenant applies for credit in the future.
Should you file a lawsuit? Many property managers find that “small claims” actions are a good way to collect tenant debt. Check with your local justice court as to rules and procedures.
Follow up with the owner. Constant communication with the owner is a must. Whether or not you are successful in collecting the debt, the owner will remember your professionalism in handling the situation.
Property Managers, please chime in. Do you pursue collection activities after your tenants have vacated? Are you successful in those efforts? Have any tips to share? Please do so, by leaving a comment on this post. Thanks!