COLLECTING ON BAD CHECKS

A resident of a landlord moved out during the middle of the lease and put a stop payment on his last rental check. When the landlord asked him to make good on the check, he refused, so the landlord took him to court and got a default judgment. Unfortunately, he could not file a garnishment, because the man had recently graduated from school and was unemployed.

The resident then appealed the court judgment through his attorney but didn’t bother to show up for the hearing. The landlord insisted on getting the money, and the resident said he could only afford to pay three cents on the dollar or he’d have to file bankruptcy. The landlord replied, “Okay, file bankruptcy.” The resident told him that a bankruptcy would wipe out the judgment, but the landlord said that he’d prefer to have the resident have a bankruptcy on his record than accept three cents on the dollar for his debt. He also knew that bankruptcy would cost the resident significantly more in the long run.

What else had the resident overlooked? He had written a check for more than $1,000 and then placed a stop payment order on it after having lived in the rental home. InTennessee, for example, it’s a criminal offense to put a stop payment on a check for services after the services have been rendered. According to the law, the resident could get a year in jail for the offense.

The resident then told the landlord that he had moved toNorth   Carolina, which actually made his bad check a federal issue. The resident could get five years in prison for that. The landlord told him that he would process the bankruptcy notice but that, unless the resident picked up the check balance and paid the attendant fees, he would have to notify the federal prosecutor of this situation. The resident told him that he couldn’t do that, because the debt would be wiped out by the bankruptcy. The landlord told him that he was not trying to collect the debt; he was following the legal process required when someone writes a bad check.

So the resident filed bankruptcy, and the landlord filed notice with the federal prosecutor. This legal problem has gone on for almost three years. Yet for $2,500 and two stopped checks, the resident is now running from the law and facing ten years in prison (five years for each bad check).

Most people think that they can threaten others and slink out of their debts. This landlord believes that word gets around whether you are “soft” or “hard” on residents, and he doesn’t want to be known as a softie in his community.

Note: The above story was shared by Robert Hill, a Nashville attorney, to illustrate one landlord’s experience in trying to collect on a bad rent check. However, since state laws vary, it’s important as a rental owner, that you know what rights and options you have in your state when attempting to collect on bad rent checks.

ONE OF THE BEST-KEPT SECRETS FOR FILLING VACANCIES 

Rent to Insurance companies for guaranteed rent and higher Cash Flow!
I’ve known about this strategy for many years, although I initially found out about it by accident. An Insurance company called me up. Said they’d like to rent one of my homes temporarily (approximately six to nine months). Initially, I was reluctant; I was not interested in renting for a short-term period. However, when he mentioned that they would pay 50% more than my regular rent (which was still cheaper than what the local hotel would charge), and pay rent and deposit in advance, AND guarantee against any damages, it sounded like a good win-win situation to me. 🙂
This “best kept secret” leaks out from time to time to other landlords as a way to fill vacancies. I know of one landlord where that is his ONLY strategy for keeping his many rentals filled. He has a database of over 100 insurance adjusters he works with in his local area.

COMMUNICATE “YOUR” STANDARDS WHEN WORKING WITH MANAGERS

A long-distance landlord recently asked a question on LandlordingAdvice.com regarding the expectations and performance of his property. Here was the question:

Question: “I have hired a new Property Manager (PM) for some of my rentals that are far from me and he has placed two residents in two rentals I have recently. He kept the deposit in the company and I paid him one month’s rent to find the residents as usual. The problem is, both residents are deadbeats; they have not paid rents for the last two months they have been there, and they have not even transferred utilities in their name like they were supposed to.

Now I have to evict them both and find new residents and re-do the houses again. My question is, should the PM be charging me again to find new residents? I think the PM failed in his job to find good and paying residents. What would you do?”

Answer:  Some landlords responded to the inquiry, but one response in particular is one I wanted to share that offered several excellent points when working with Property Managers (locally or long-distance). The following response was provided from one of our regular contributors to MrLandlord.com, and this contributor was also a prior workshop instructor at one of the MrLandlord.com National Conventions. Thanks, Katherine (TX)!

I ran my properties inMissourifor about five years fromTexas. Now I am in MO (local to the properties) but I still use a PM because I travel so much for business so I really still need one.

When I first started out with a PM I was very clear about requirements for my rentals. I specified credit scores, income requirements, pet terms, criminal and credit checks, etc., etc., etc. I insisted on these things in our contract although I only had two rentals at the time.

The first PM I had got fed up with me because I required too much time of hers (because she was not concerned about the quality of the person she was placing, she just wanted the fees and to be able to keep her crews busy cleaning and repairing other people’s property to her advantage.) Needless to say we parted ways quickly.
Now I have a PM who I’ve had for years. This brokerage gets all my business, on the transaction side and the management side, and they managed my apartment building for two years for FREE while I did major rehab work. And when I had totally negative cash flow, they put up with me for being very “hands-on” as far as resident selection.
As a result, my portfolio has grown nicely and the apartment now mostly carries itself. I now have 23 rentals instead of two. So, their percentage each month I’m rented up has increased nicely as I have grown my business.

There are some good PMs on this board. But the best PM out there will never manage as tightly as an owner. Some do come close in fairness, but that is part of the business.
Some PMs, like other service people, are great on the sales side, but less great on the service side, so they may make promises they don’t keep. Only you know what sort you are dealing with, but to be very honest with you – I am not surprised about your outcome because you did not set any boundaries about what was acceptable insofar as your standards.

So what happens in a case like that is this: The PM places better renters in houses where the landlord requires better renters. You did not insist on certain standards but you are surprised when no standards were applied. Added to that might be that if you only have one or two rentals, you are not a top priority with the PM as someone who has 10 or 20 rentals – basic economics there. Your one to two rentals require as much management as 10 to 20, but the income your few rentals generate is much less than the guy with 20 rentals, and a vacancy at your rentals likewise affects his bottom line less than the vacancies with a bigger client. Ask me how I know. (Smile)

I’ve been the little guy and I’ve become a bigger guy and so now I enjoy higher priority at my PM. That’s going to be true anywhere, but in your case, you have further placed yourself at a disadvantage by not requiring standards. If I were you, here’s what I’d do: Go to your rentals and see them and talk in person to your PM. You may need a new PM, you may not. If I were you I’d find someone else though because this is going to be tough for your professional relationship to recover from. You think he did a bad job, but really you didn’t require any standards, so there is plenty of blame to go around.

If you do decide to stick with this guy, get your standards in a written agreement and have some sort of repercussion if an eviction occurs or if a resident gets behind, etc. in your updated agreement. If the PM balks at this, you must find a new PM. Be matter of fact but diplomatic.

If I were you I’d say, “Well it looks like this didn’t work out as well as we had hoped, I’m going to require some standards moving forward to avoid this happening in the future, and here is the list of requirements and the fail-safe mechanisms to help us work together and to keep the properties rented to responsible people”, and then give him your list of policies and requirements.

You’ll need to pay for him to place additional residents if your contract doesn’t say otherwise, but going forward you can have a remedy if this happens again after your standards are contractually in place via a signed agreement.

If all this sounds too tough, then you might want to consider selling. You have to be willing to draw these kinds of lines when you have long-distance property. You have to be able to trust the PM, and never forget that the PM is in a position to steal from you in several different ways, including charging too much for repairs with their in-house people or preferred vendors. You need a PM who respects your bottom line. Not all of them do.

The above tips are shared by regular contributors to the popular www.MrLandlord.com Q&A forum. To receive a free sample of Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at www.LandlordingAdvice.com, where you can ask landlording questions and seek the advice of other rental owners 24 hours a day.

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