One of the challenges in the management of rental properties involves collection from residents behind on rent payments. Knowing the laws which govern the methods used for collection is a vital first step.
We can debate how far we’d push the envelope to make sure the rent is collected, but the key to avoiding legal trouble is awareness and compliance with federal, state and local regulations.
A good place to start is the federal government’s “Fair Debt Collection Practices Act” which is enforced by The Federal Trade Commission (FTC). You can go directly to their web page on this topic for details.
Two relevant declarations that motivated Congress to enact this legislation speaks volumes:
- There is abundant evidence of the use of abusive, deceptive and unfair debt collection practices for many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs and to invasions of individual privacy.
- It is the purpose of this title to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action to protect consumers against debt collection abuse.
The complete text of the Fair Debt Collection Practices Act (FDCPA) is found here. It’s challenging to read but it does cover in detail the intentions and protocols of the FDCPA.
Then there are state and local regulations to know about. The good news is that each state and many municipalities have updated online explanations of these laws. Most are common sense, but the details are where managers and their staffs can get entangled.
What Constitutes Being “Too Aggressive”?
One property manager said, “Aggressive to me would entail going door to door instead of the normal practical methods of getting tenants to pay on time. Are there other ways to promote timely payments?”
That’s the main questions and responding to it, another manager stated, “Depending on the property, door knocking, notices, phone calls and e-mail generally work. Using the threat of an eviction after say the 10th or 15th (after proper 3-Day Notices have been delivered) has proven to be most effective for myself as they do not want that on their record, the associated court costs due to dismiss the eviction or the ruined rental history. Being consistent on this and requiring signed arrangements are usually an effective strategy.”
This topic reminds us of how important it is to screen applicants thoroughly. Once you’ve found qualified residents, consider having a question and answer discussion concerning timely payments.
Many property managers have a one-page “collections agreement” that clearly spells out what will happen if the resident is late on paying rent. The manager has them sign it and gives them a copy.
Make sure you know your rights as a property manager and make sure if you use a “collections agreement” the wording is legally sound and in harmony with the laws. There are also agencies and “debt collection specialists”.
One that I corresponded with wrote, “Collection agencies must have licenses in most states. In my company, everybody, including myself, must take courses and get designations from the ACA and other trade organizations. Nobody in my organization talks to a debtor without taking the course, passing the exams and getting the designations.”
Reprinted with permission of the Rental Housing Journal Arizona.