Posts Tagged Collections

Pursuing a Money Judgement Against An Ex-Tenant . . . Should You Even Bother?

Once you have evicted a tenant and have your property returned to you, you are confronted with the decision of whether to invest the time and money to pursue the ex-tenant for money damages or not.

Some of my landlord clients always pursue the ex-tenant for money judgments.  Of that segment of landlords, some will obtain their judgment, docket the judgment, and then sit on it hoping that the tenant will eventually pay it off (plus 12% interest) when they need to obtain a loan to purchase a home.  Other landlords that I work with will not only obtain the judgment against the tenant but they will  also proactively attempt to collect on that judgment via garnishment actions.

On the opposite end of the spectrum, are landlords that never seek a money judgment against a tenant as they consider it to be a waste of time and would merely result in “throwing good money after bad” because the tenant is not collectible.  Still other landlords opt to try and collect from past tenants via alternative means such as using the service of Rent Recovery Services — which allows you to report the ex-tenant’s debt to the 3 credit bureaus without the need to obtain a judgment.

There are many options for a landlord to choose from when it comes to collecting against an ex-tenant.  There is not one correct option for all situations and for all landlords.   The correct option depends on many factors.  I will sift through all of the information (or the lack thereof)  that my client has about the tenant that could assist in the collection process.  Sometimes a discussion regarding the client’s financial situation is needed.  Determining  my client’s ultimate goal is a must.

It is my personal opinion that time should be taken up front to discuss these matters with a client so that there are no false illusions going forward.  Many landlords are astonished to learn that once they obtain a  judgment that they must spend more time and money to collect on that judgment.  It is important to remember that a judgment is merely a piece of paper saying that your ex-tenant owes you money, it does not mean that you will get paid.  Collecting on a judgment is a whole different ballgame  . . . .  and a different blog post.

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TENANT MOVED OUT AND LEFT YOU HOLDING THE BAG!

With a short week ahead of us due to the Thanksgiving  holiday, and the fact that I will be traveling to the wonderful land of flat terrain and tons of wind (a.k.a Kansas), I thought I would take this opportunity to re-post some very good advice from a friend of mine and fellow blogger, Bill Gray of Rent Recovery Services, who is also known as The Landlord Doctor.  http://www.TheLanlordDoctor.com

Bill writes a blog that focuses on collection issues, and specifically collection issues related to past tenants.  He also serves as the regional manager for a great collection service called Rent Recovery Service which I wrote about in a prior blog.  Bill has some very good advice to share and I especially enjoyed his blog post entitled:

TENANT MOVED OUT – LEFT YOU HOLDING THE BAG. 

Perhaps your tenant lied and took advantage of you.  He may have skipped out on the lease or you may have evicted him.  In either case, he damaged your rental and cost you money!  What do you do now?

1.  First, set your emotions aside and spend some time organizing your ex-tenant’s file.  Whether you own one unit or one thousand, or whether you manage your rentals full-time or part-time, you are running a business.  Any successful business keeps well organized, complete records. Read the rest of this entry »

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SUING AN EX-TENANT FOR PAST DUE RENT: What Factors To Consider

Your tenant has already vacated your rental unit – so there is no need to file an eviction action — but they left owing you money.  Is it worth your time and effort to sue them in order to obtain a money judgment?  This is probably the third most frequently asked question that I receive when talking to landlords (the first two most asked questions in case you are curious are (1) which notice do I use when? and (2) how do I evict my tenant?).

There is not a simple answer to this question.  It depends . . . on many things.  Many variables need to be taken into consideration before deciding to spend the time and effort to sue an ex-tenant.  Let’s consider what some of those variables are. 

1.     How much money does the tenant owe you?

Is the amount that is owed to you worth the time, energy, and cost to attempt to collect it?  You will need to purchase a small claims summons which will cost you approximately $100.  You will need to personally serve the ex-tenant with the assistance of the Sheriff or a private process server — typical cost between $35-$100.  If you are representing yourself you will spend time away from work and therefore lose some wages.  If you opt to hire a lawyer to represent you, you need to consider how much you will have to pay the lawyer. 

There is no magic dollar amount that makes suing a tenant worth it or not worth it.  The “breaking point” as I like to call it, will be different for different people.

2.     Do you have the necessary information to sue the ex-tenant?

Do you have a fully completed rental application fro the tenant and have you updated the information contained in the application since the tenant first moved in?  To assist with a potentail collections issue in the future, a good application should at least contain the name and address of the applicant’s employer, the name and address of the applicant’s bank, and emergency contact information for the tenant’s relatives or close friends.  If your rental application contains the above then you will already have some of the information that may assist you in collecting the debt that is owed you.

Other information that you will need is the current address of the ex-tenant.  Did s/he leave you a forwarding address?  If not, you will need to find him or her so that they can be served with the lawsuit.  Check CCAP and/or the Milwaukee Municipal Court site to see if they have recently been sued or received a traffic ticket which may provide you with a current address.  Contact your postman/woman and see if the ex-tenant has forwarded their mail to a new address.  If so, see if they will provide that new address to you (typically the answer is “no”).  You can also hire a skip-tracer to locate the whereabouts of the tenant, but typically you will need to wait a period of time for the ex-tenant to become established at their new address before tht data will become available.  Consider contacting the emergency contact person/s listed on the ex-tenant’s rental application to see if they know where you can reach the debtor.

If you do not have a current address for your ex-tenant, you will end up having to serve them at their last-known address (which is your rental unit) and becasue your process server will not be able to personally serve them since they do not live there any longer, you will end up needing to publish notice against them (this is when you pay a local newspapaerr to publish notice of the court date ) – in Milwaukee the cost to do this is $60.

3.     Is the ex-tenant collectible?

When you obtain a money judgment against a person, you essentially receive a piece of paper which is called a “judgment.”  Having a judgment against someone does not mean the same as getting paid on that judgment.  I have yet to encounter any ex-tenant that came knocking on my door begging me to take the money that they owe me.  Usually they require a little prodding.  So, after obtaining a judgment you will often need to spend additional time and money to collect on that judgment.  If your ex-tenant is not “collectible” then it may not even be worth it to sue them

There are numerous factors that you should consider when determining if a person is collectible or not.  Are they employed?  Do they have a bank account?  Are they receiving need-based public assistance?  Are they self-employed?  Does their household income fall below the federal poverty line?  Are their wages already being garnished?  Have they been employed at the same job for a significant period of time?  Do they have good credit?  Are they currently paying child support?  If so, how many children are they paying child support for and how old are the children?  Are they incarcerated?  Did they move out of state?  These are only a few of the factors that you should consider when deciding how to proceed.

If the person is employed then you might be able to collect the judgment by filing a garnishment of their wages.  A garnishment action is a separate lawsuit that requires you to purchase another summons.  Even if the person is employed there are several exemptions that may prevent you from garnishing his/her wages.  If the ex-tenant’s houshold income is below the federal poverty line then they are exempt from garnishment.  If the ex-tenant is receiving any state-based aid then their wages are exempt.  80% of a debtor’s disposable earnings are exempt from garnishment, leaving only 20% that can be garnished at one time.  If your ex-tenant is currently being garnished by another creditor you will have to wait in line until that garnishment is completed — garnishments last for 13 weeks. If your ex-tenant is self-employed you can bet that they will not voluntarily garnish their own wages – so that option will be closed to you.  If the debtor is paying child support for one child (typically 17% of their gross wages) there will not be much money left over for you to garnish.  If the ex-tenant is paying child support for 2 children (typically 25% of their gross wages) there will be no money left for you to garnish.  You will be forced to wait until these children reach the age of 18 or the child support orders are terminated.  Even if you are fortunate enough to be able to garnish your ex-tenant’s wages, if that individual should decide to leave their job or get fired, your garnishment will end.

Keep in mind that you are not allowed to intercept an individual’s tax refund — only the government can do that.  If your ex-tenant is incarcerated s/he will not have any wages to garnish.  If your ex-tenant has horrible credit already they will not care that you took another judgment against them. 

You can also garnish a person’s bank account.  However, there are many exemptions that can apply here as well.  For instance, the first $1,000 in the account is exempt from garnishment.  Most tenant’s that I have rented to do not have more than $1K in the bank.  Any money in the account that is derived from government benefits is also exempt.  If the garnishment exemptions do not apply, and you are lucky enough to be able to go forward, make sure that you do not make the mistake of serving the debtor before you serve the bank so that the debtor has time to drain his/her account.

If you do not possess the necessary information to evaluate whether or not a person is “collectible,” you are able to serve the debtor with what is referred to as a Financial Disclosure Statement.  This is a document that is signed by a judge or court commissioner and requires a debtor to divulge any assets, jobs, and bank accounts.  The debtor rarely returns this document and therefore the landlord in once again placed in the position of deciding whether or not s/he should spend more time, energy and money to compel the debtor to provide the information.

4.     Is there a chance that the ex-tenant may end up purchasing real estate in the future?

If you think there is a possibility that your ex-tenant will purchase a home within the next 10 years then it may be worth it to at least take a judgment against them and then docket the judgment.  Docketing a judgment is very simple and only costs $5.  By docketing a judgment a lien will be placed on any property owned by the debtor or acquired by the debtor within the next 10 years in the county in which it was docketed.  The judgment will also accumulate interest at the rate of 12% per year.  Because of this some landlords will choose to sue the tenant, obtain a judgment, docket the judgment, and then just sit and wait. 

If you are stuck in a position where it just doesn’t make sense to sue your ex-tenant because the amount owed is too little or the tenant is not collectible you should consider a new service offerred by Rent Recovery Service.  For a small fee, Rent Recovery Service will report your ex-tenant’s debt to the 3 credit bureas even if you do not have a judgment.  By using RRS you will at the very least create havoc with the debtor’s credit and will also alert any future landlords (that are smart enough to run a credit report) that the tenant owes money to a prior landlord.  Who knows, that could be enough of a push to make the tenant pay you what is owed.  For more information on Rent Recovery Service please see my prior post.

The decision to sue an ex-tenant for past due rent and damages is not always an easy decision.  A lot of information and knowledge needs to be sifted through to determine if it is worth your time, effort, and money to initiate a lawsuit.  I would enjoy hearing what other factors you consider when making this important decision — please let me know by posting a comment.

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Worthless Check Diversion Program: An Opportunity To Collect On “Bad Checks”

The Miwaukee County District Attorneys Office has adopted a new program that will hopefully allow landlords to collect on bad checks that were passed by their tenants.  The goal of the program is to get the bad-check writers to pay back the money owed in exchange for not being charged with a crime or referred to collections.

This program, entitled the Worthless Check Diversion Program, is a positive step for landlords because currently the Milwaukee Police Department will not prosecute tenants that write bad rent checks.  See my earlier blog post on this topic entitled “Passing of Worthless Checks Will Not Be Prosecuted in City of Milwaukee.” 

Assistant District Attorney Ron Dague spearheaded this new program for the DA’s Office and even spoke at an AASEW membership meeting about the program back in January of this year.  The goal was for the program to be up and running by April.  According to a recent Journal Sentinel article entitled “Program Allows Writers of Bad Checks To Pay Up, Avoid Charges” written by Tom Kertscher, the program has been operating for the past few months, however the Milwaukee Police Department is not yet participating.

The program will be run by a company called Financial Crime Services.  To participate a landlord that has received a bad check from a tenant must contact Financial Crime Services and provide them with the necessary information.  The company will then send a letter to the bad-check writer.  If the bad-check writer is willing to participate in the program, which they will have to pay for themselves, they must attend an educational based program to teach them about budgeting, finances and bank fees.  Upon completion of the program (which includes paying restitution) the bad-check writer will receive a letter advising them that they will not be criminally prosecuted for committing the crime.

There are no fees to the landlord for participating in this program.  If and when restitution is collected, 100% of the money is returned to the landlord.  Financial Crime Services will not charge a processing fee or take a percentage of the money collected.

If a tenant (who is now hopefully an ex-tenant) wrote you a bad check that you haven’t been able to collect on, this program might be something to look into.

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A NEW COLLECTIONS TOOL FOR LANDLORDS IS AVAILABLE

The Apartment Association of Southeastern Wisconsin has recently entered into a contract with Rent Recovery Service so that AASEW members can receive a discount on this new collection tool for landlords.

You can access Rent Recovery Services from the AASEW website.  After providing Rent Recovery Service with the necessary information about your ex-tenant, RRS will send a letter to the debtor advising them of the debt.  If the ex-tenant has not made payment arrangements to pay you back you will be allowed to report the money that the tenant owes you to the 3 credit bureaus.

This is definitely worth looking into — contact Bill Gray at 212-561-5492 or bill@rentrecoveryservice.com for more information and to sign up.

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