Throughout the years I have found most owners understand that a tenant can run into hard times. Learning how to deal with a past due tenant is a regular part of being a rental owner. You need to prepare for it and also have a game plan to follow when it occurs. There is also a difference between a late-paying tenant and one who does not pay. This post is about determining whether to work with a late or partial paying tenant. Non-paying tenants should move straight to the eviction process.
When a tenant is making partial payments or incurring regular late fees here is a list of questions to consider. Every situation is unique and understanding what the tenant may or may not be experiencing is crucial to making the best decisions. The following questions are a sample of points to cover with the past due tenant. They may lead to other questions. They will jump-start the decision process before deciding to give a “Pay or Quit” notice or creating a workout plan for the past due balance.
Condition of the property
What is the condition of the property as compared to when the tenant began their occupancy? Condition can be an indicator of not only the possibility of further deterioration without the correct compensation for rent, but also an indicator of personal problems. Even minor things like dirty conditions and any pride of residency (fresh flowers or cut lawns) can provide an indicator that this delinquency could become expensive.
How easy to find a new tenant?
How easy will it be to re-lease the property? Is the rental market strong or weak? What is the history of how long it takes to rent the subject property?
What is the tenant’s record of making payments?
Are they a long-term tenant and this is the first time there has been a problem? Or, is this a monthly issue?
Why is tenant having problems paying?
What is the tenant’s issue with paying on time? Do they earn enough money? Is the situation temporary or long-term?
Is the tenant communicating about the problem?
Does the tenant request assistance by openly discussing their challenges? Are they keeping you updated on their status?
Does the tenant do what he promises?
What has been your previous experience with the tenant? Can their promises be trusted?
How much can the tenant pay and how long will it take?
If it is determined that we wish to try to work with the tenant, the next issue is how much can they pay and how long will it take to get caught up? Can the past due tenant get caught up prior to the end of the lease?
Payment Workout Plans
Document any payment workout plan. Here are some important steps to take to create the workout plan.
- Create an agreement. The agreement states if the payments are not made on time, as agreed, then the entire past due amount is immediately due or eviction will proceed.
- Payments need to be scheduled to match the tenant’s scheduled pay-day so that the agreement is paid before other choices are made for their money.
- Do not change or alter your late fee accrual.
- The required payments also need to be in an amount that makes sense as a percentage of the tenant’s income.
If a tenant will not agree to a workout schedule in writing.. the owner has the answer they need to move forward. Rarely does anything good result from a situation where an owner allows a tenant to stay and make payments “when they can”. Those agreements usually find the tenant falling further and further behind. The property falls into more disrepair. Worst of all, a tenant who can stand in front of a Judge and argue that “the owner told me he would work with me”.
Decide and Act!
Owning a rental property is ultimately a business. Which course of action will provide the highest return? Quickly deciding to evict a past due tenant may seem like the best solution if you can quickly lease the property. Can you quickly lease the property for the same amount of money and to a better quality tenant? If the answer is not clear, working with the existing tenant may be a better alternative. Determine if you want to work with the tenant and if so..document it. Then enforce the document. That is what your Property Manager is hired to do. Use their expertise and experience to navigate through these events.
Managing past due tenants is best handled with respect for the tenant and their possible hardships. The Golden Rule can be reflected upon. Spending the extra time to determine if a solution can be found for the delinquency is likely what you would hope to happen if the situation was reversed. How would you treat your landlord and how would you hope they treat you? Being wise to when the tenant is no longer living by this creed can certainly help to make the decision to proceed to eviction.