How Does Rental Debt Collection for Landlords Work?

Debt collection is a tricky business, and landlords have to be careful about how they go about collecting their rental debt. However, the Consumer Financial Protection Bureau (CFPB) has created a set of guidelines for best practices for handling tenant debt.

Our article outlines the guidelines and provides tips on what you need to know to get the most out of your property’s rent collections.

Collecting on The Previous Tenant Past the Due Date

When taking in new tenants, the lease agreement serves as an understanding between the tenant and landlord of what is expected during their residency. Besides, rent payments are typically due on the first of each month.

If payment is not received by the fifth day of the month, it is considered past due. Depending on state law, landlords may be able to start charging interest or penalties on late payments after this point. In addition, in 2020, CFPB implemented regulation f, a law that helps protect consumers from predatory practices by debt collectors. The law limits the time a creditor or collector can spend collecting on a past-due debt.

As a landlord, it’s crucial to understand how this law works to do your best to uphold it.

When a tenant doesn’t pay rent, there are a few steps to begin the debt collection process, including:

Send a Demand Letter

The first action would be to collect the rent in-house. It can be done by sending a demand letter to the tenant, usually within five days of the rent being due. The demand letter should include:

  • The amount of rent owed
  • The date it was initially due
  • A statement that the rent must be paid within a certain number of days (usually seven) or legal action may be taken.

Report debt

If the rent payment is not paid within the monthly due date, landlords can report the debt to a credit bureau. It will negatively impact the tenant’s credit score and may make it more difficult for them to borrow money in the future.

Hire a Collections Company

If all other attempts have failed, landlords can hire a collections company to try and recover the past-due rent. The collections company will usually charge a percentage of what is recovered, so it’s important to do your research before hiring a collections agency.

Filing a Small Claim Lawsuit

If the collections company isn’t successful in recovering rent owed, it’s possible to file a small claim lawsuit. Landlords can use this option if the tenant is being evicted for non-payment of rent and still owes past due amounts after an eviction judgment has been received.

Dealing with a Tenant with Delinquent Rent

When a tenant pays less than the agreed amount or fails to honor the due date, they will have violated the lease agreement. If the tenant doesn’t honor their rent obligation, landlords have a few options, including:

Offer incentive

If, by the records, the tenant has been honoring the due dates but fails to pay the amount agreed upon, landlords can offer an incentive. For example, the landlord can offer rent discounts and other incentives to encourage tenants to act on their obligations.

Offer Negotiation

Suppose they already accommodate your deadlines and still fail to make good on their payment obligations. In that case, landlords can negotiate with the tenant by asking what’s preventing them from paying. The lack of funds could be like having car issues or other financial trouble. Offering some help may also help you get back rent payments without filing a case against the tenant in small claims court.

Payment Arrangements

A landlord can choose to continue accommodating the tenant. They can accept their late rent payments without changing the lease agreement. The only thing it entails is accepting payment whenever possible, even if it’s days or weeks after the due date.

Landlords should know that by doing so, there will be no incentive for tenants to make good on their obligations since they already receive accommodations from their landlord. But, again, it’s because of who you are and how much money your property generates in monthly rents.

Eviction

Failing to honor the rent agreement has consequences. It’s necessary when the tenant fails to make good on their obligation. The eviction process steps are as follows:

Notice of Termination

A landlord must first give a notice of termination before filing an eviction case. The written notification usually tells the tenant that they violate and vacate the property as soon as possible. Otherwise, you will file for eviction with your local court.

File for Eviction

If the tenant does not comply with your notice, landlords can file for an eviction. The notice is usually done through your state or county court system and costs a filing fee. You will also need to have the service of the process completed, which means giving the tenant notice of the lawsuit by having them served in person or through certified mail.

Wait for Hearing

Depending on your jurisdiction’s backlog, the step is waiting for a hearing date, which could take weeks or months after filing. During this time, it’s best to continue communicating with the tenant and work out some agreement. It’s ideal, so you don’t have to go through with evicting them from their home.

What Happens if You Win at the Eviction Hearing?

If you win the hearing, the tenant will have to vacate the property and likely owe back rent, court fees, and other damages. In addition, the process can be stressful for landlords, so it’s best to avoid it by working out a payment plan or incentive with your tenants.

What if You Lose The Eviction Hearing?

However, if you lose the hearing, the tenant has every right to stay in the property until the court grants an order of possession. It means that you, as a landlord, will need to go through with evicting them from their home. The eviction process is costly and time-consuming.

Rental Debt Collection for Landlords Summary

Rental debt collection for landlords can be a complicated process. Many steps need to be taken to ensure that you receive the money owed. However, you can make the process easy by following our tips.

If you find yourself stuck or unsure of the steps to take, it’s best to reach out to a debt collection agency specializing in rental debt. The debt collections company will provide you with all the information and help you need.