Are you new to the world of real estate investment? If so, you may be wondering what to do if a tenant doesn’t pay their rent or causes damage to your rental property. One option is to send them to collections. Let’s break down what that means.
What is Collections?
Sending a tenant to collections is a process used by landlords or property managers to collect unpaid rent or other debts owed by a tenant who has vacated the rental property. Collecting from a tenant is important for the financial stability of the landlord or property manager, can prevent future financial problems, and helps maintain positive landlord-tenant relationships. First and foremost, landlords or property managers rely on rent payments to cover their expenses, such as mortgage payments, property taxes, insurance, and maintenance costs. When tenants fail to pay rent, it can have a significant impact on the landlord’s financial stability, and ultimately affect their ability to continue providing rental properties to tenants.
In addition to rent payments, landlords or property managers may need to collect other debts from tenants, such as fees for damages caused to the rental property or outstanding utility bills. These debts can also have a financial impact on the landlord, and it’s important to collect them to ensure that the landlord’s costs are covered.
Furthermore, allowing tenants to ignore their debts can set a precedent for future tenants, potentially leading to more tenants failing to pay rent or other debts. This can harm the financial stability of the landlord or property manager and lead to a cycle of financial hardship.
Also, collecting from a tenant can help maintain a positive relationship between the landlord or property manager and the tenant. By following proper collection procedures and communicating clearly with the tenant, it’s possible to resolve any outstanding debts in a way that is fair and reasonable to both parties. This can help prevent further disputes and ensure that the landlord-tenant relationship remains positive.
Using a Property Management Company for Collections
A property management company can assist a landlord in sending a tenant to collections by handling the entire collections process on behalf of the landlord. Some property management companies, like Home365, have an in-house collections specialist, whose services are provided to current owners and investors in contract with the company. Here are some things a collections specialist can do:
Contact and document communication with the tenant: The property management company will attempt to contact the tenant to resolve the outstanding debt. This can be done via phone, email, or written correspondence. Written conversations are preferred to keep track of all communication, including dates, times, and the content of the conversation or correspondence.
Send a demand letter: If the tenant does not respond or pay the outstanding debt, the property management company can send a demand letter requesting payment within 10 days.
File a lawsuit: If the collections specialist is unable to collect the debt, the property management company can advise the landlord on whether to file a lawsuit against the tenant in small claims court to recover the unpaid rent or damages. At minimum, the specialist can report these collections to major credit bureaus.
By communicating clearly, being persistent, and following legal requirements, landlords can increase the chances of successfully collecting outstanding debts from tenants. Here are some tips for sending a tenant to collections:
Review Lease Agreements
Before initiating the collections process, landlords should review the lease agreement to ensure that they have a legal basis for pursuing the unpaid debt. The lease agreement should outline the steps to be taken when a tenant fails to pay rent or damages the property. If the owner utilizes a property management company, take the time to read the lease agreement in order to understand the company’s collection policies.
Follow Legal Requirements & Regulations
Landlords or Property Management should ensure that they are following all legal requirements and regulations when sending a tenant to collections. This may include obtaining the tenant’s consent to collect and use their personal information and complying with data protection laws including:
Fair Debt Collection Practices Act (FDCPA): The FDCPA is a federal law that sets guidelines for how collections agencies can collect debts from consumers. The law prohibits abusive or deceptive practices, such as making false statements or threats, using profanity, or harassing debtors with frequent phone calls.
Telephone Consumer Protection Act (TCPA): The TCPA is a federal law that regulates telemarketing calls and text messages. The law requires collections agencies to obtain prior consent from debtors before calling or texting them, and to provide an opt-out mechanism for consumers who no longer wish to receive calls or texts.
Fair Credit Reporting Act (FCRA): The FCRA is a federal law that regulates the use of credit reports and credit reporting agencies. Collections agencies must comply with the FCRA when reporting debts to credit bureaus and when accessing consumers’ credit reports.
Data protection laws: These laws regulate the collection, storage, and use of personal data and require companies to obtain consumers’ consent before using their data for marketing or other purposes.
Negotiate Payment Plans
At the end of the day it may be more cost-effective to negotiate a payment plan with the tenant and this can be done through the collections department. Owners and property managers should also take precautions to avoid late fees by giving an option to set up automatic payments and conducting thorough background checks on applicants. Landlords should take proper steps to mitigate having to pursue collections and if it comes to it, consider all available options and choose the approach that is most likely to result in the debt being repaid.
Contact Home365 for Expert Collections Assistance
Home365 has all the necessary tools at its disposal to successfully collect delinquent accounts, the education and expertise to adhere to all collection laws and maximize your return, at a rate better than most third party collection agencies.