Collection of Rental Funds in 3 Easy Steps

Your tenant stopped paying rent a couple of months ago and today is the day you are going to go meet them face to face. Only, they do not know you are coming. Your goal is the collection of funds owed to you for past due rent. You have been concerned since the tenants stopped communicating with you a few weeks ago. Today you are driving into town to find out what is going on.

Shocking Discovery

As you pull up to the home, you quickly realize what is happening. The front door is not secure. Vandals have damaged windows and entered the home. There is a sleeping bag on the floor left from a squatter. The inside and outside are beyond not maintained status. Your tenant has left and to make matters worse, the cost to bring the home back to a rent-able status is excessive. You feel your blood boil and the anger reaching a peak. A thousand thoughts run through your head as you comprehend the mess.

Now though you must take action. You need to find somebody to re secure the home so whoever is living there does not come back. You have to start a massive clean up project and you need bids from contractors. Your vacation week is shot.
After the dust settles you know you want reimbursement from your former tenant. Deciding to pursue collection of funds not paid to you, plus the damages from the way the home was left, is an easy decision. You have a lease and believe it is enforceable. You were stiffed and incurred a lot of additional costs. Your biggest question is how to proceed to be sure, at minimum, these tenants do not get away with what they have done. Is the collection of funds owed another do-it-yourself project or will you need help?

We know many owners who try to handle eviction and collection of funds themselves. There is a much more effective approach.

Step 1 – Bring in the Pros

Your simplest decision is to utilize a lawyer for the eviction process and subsequent deficiency judgments. Hiring an attorney costs a little money but dealing with the legal system is better left to professionals. Evicting a is not the hard part. Correctly following legal processes that will enable you to obtain a judgment for funds owed can be tricky. We bring in the pros and recommend you do also.

Step 2 – Determine Damages

Obtaining a judgment for the funds owed is going to require preparation on your part. Offsets to a security deposit must be documented. Utilize a settlement statement that is designed for the resolution of the security deposit. The objective is to complete a well prepared settlement statement that clearly determines the amounts due from your former tenant. This becomes the document your attorney will give the Judge as evidence in order to obtain a judgment.

To prepare a settlement statement start with the amount of your held security deposit. Then create a list of deductions. Subtract rent not collected and add in the liability owed through the end of the lease. Include any late fees.

The settlement statement then will include your list of damages. Take lots of photos of damages and preferably be able to show before and after photos. Obtain at least one estimate to fix the damages. Third party estimates are much better than your estimates. You will need to have these available if requested by the judge.

Deductions will include your court costs, filing fees and interest. Your attorney will be able to get those for you. Just make sure they are not forgotten in the final calculation of damages.

The final net amount is the number for how much this former tenant has cost you. It is called the deficiency. Your attorney will request, and if documented correctly, obtain a deficiency judgment.

Step 3 – Collect

Once you have a deficiency judgment, it is time to figure out how to collect. Most legal professionals will either offer to handle collections or refer you to a collection agency. The cost of collecting is on average one-third of what is collected.

To collect on a judgement is an issue of time and understanding the laws. Just because you have a judgment award, you can’t start stalking the other party for your money. The pros know how to collect legally. The more information collected in the initial application process the better. Garnishment of wages is usually one of the best options. Bank accounts can also be levied. Filing the judgment in the public records will also limit the ability of your former tenant to obtain credit. If you believe the former tenant has other assets, your attorney can file for a debt proceeding to make the tenants appear in court and answer questions about their assets.

Problems That Occur

As a property manager, the biggest problem we face in an eviction and collection occurs after assuming management from another party. If the former manager did not properly screen the tenant, and there is limited information available, filing for a judgment may not be possible. Collecting from the former tenant may never occur. The most important piece of information on a tenant to obtain is their tax-payer ID. We often find this basic information missing.

All of these steps involve knowledge of the law. Unless you are a licensed attorney, choosing to play one is not your smartest option. Turn the case over to the pros and use the time on your next investment.

And get back to that vacation.

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WILMOTH Group is headquartered in Indianapolis, Indiana. We focus on providing creative local solutions for a variety of residential real estate needs including, properties for sale, property management services in Central Indiana.