Strategies for Collecting Missed Rent Payments

By Peter Lamandre, Better by Design Realty, Scranton, PA

What to do when a tenant doesn’t pay or skips? I don’t mean hop-scotch I mean what do you do when the tenant leaves the rental prior to the termination of their lease? The process can vary and depends upon the terms of the lease (if there is one). This post will provide some pointers on how to handle this less than ideal situation.

I’ve always tried to be human with my tenants and recognize that sometimes good people fall on hard times. The most important thing to remember is not to make this too personal – it is business and whereas you can empathize with the situation you can’t allow that empathy to blind you to the fact that the non-payment hurts your business. Have a specific policy set for dealing with the delinquent accounts. Here is an example action plan for collection, which based on location and local laws may need to be modified (but I think you will get the idea).

20th of the month – statements go out for next month
1st of the month – rent is due
5th of the month – late fees begin
7th of the month – collection calls/letters begin
10th of the month – eviction notices are posted
13th of the month – eviction filing begins

The big picture here is you need to have a plan and follow it. But what do you do if the tenant wants to make payments? Again it is all about having a plan in place. Some things to keep in mind when setting these policies…

What will you do if the tenant contacts you prior to the rent due date to alert you to a upcoming problem? This shows a certain degree of responsibility and an ownership of the problem. Will you be more willing to work with them? Over what period of time are you willing to spread out the payments? Do you want 100% of the balance in the next week or in the next 30 days? Are you willing to spread the payments over the next 3 months, etc? At what point does the risk that the tenant will default outweigh the demand for a vacant unit? Are you dealing with high demand and low vacancies resulting in a fast turnover or have units been sitting vacant making it cheaper to work something out rather then face the cost of a turnover? If they could not pay the rent what has changed that will allow them to pay the next month’s rent in addition to their outstanding balance? A good practice would be to basically “re-screen” the tenant based on the new payment. Here is an example:

The tenant owed rent of $1,000 and made a partial payment – she now owes $400 spread out over 3 months. This means the tenant would pay $1,133.33 per month using your normal approval method (it’s common to require income to be 2.5-3x rent). Do they make enough money to pay this debt back or are you only postponing the inevitable? Assuming you believe they can make the payments make sure you get the agreed upon payments in writing and have the tenant sign the document. That way if they fail to make the payments as agreed and you end up in court you can show you attempted to reconcile the problem. If you decide it is not in the best interests of the property for the tenant to remain in the unit, hold to your dates, and follow through with an eviction.

There are times when the tenant will leave without being evicted, more often than not when the tenant who owes you money can’t or won’t pay and leaves without telling you. I have even (rarely) had tenants pay the rent on the 1st of the month, clean the apartment, turn in the keys, and leave.

If the tenant has left and owes you money how do you find them? You typically need to find them to have them served with court papers – it’s rare that someone that owes you money lets you know where they are going so that you will have the chance to track them down. Good records will help here, especially place of employment and emergency contact information. If all else fails here is a great tip – once they have left the unit, wait a few days until the mail stops arriving, then mail the tenant a letter – any letter really but on the envelope place the words “RETURN SERVICE REQUESTED.” Visit the USPS.gov website to learn where the service statement needs to be. Then just wait… if the tenant is having their mail forwarded the post office will return your letter to you and provide you with the tenant’s new address. Once you have their new address you can have them served at their new residence and begin collection.

A large portion of our success as property managers is based on creating plans and following through with them – and dealing with missed or late tenant payments is no exception.