A few months ago, we posted a "Pay or Quit" notice to a tenant who had fallen behind and now owed over four figures. This is the second step in our collection process. It falls after communications and requests for payments, and before evictions and a damages judgment. After posting we received an email that stated the tenant was going to move out that weekend. They were going to avoid eviction but would they avoid a damages judgment?
(A quick sidebar. So what is the correct way to spell judgment? As I will use in this article or judgement? Turns out there is not a right or wrong way so don't sweat it. In my research, the form I am using is more often utilized in legal discussions. Judgement-with an "e"- is used when discussing our teens and their lack of it.)
Back to our story. The tenant did move out and left a small amount of damage that offset the security deposit. This story would have ended at this point if not for the damage. Owners assume they can deduct past due rent against security deposits. They are correct but the ex-tenant still needs to receive a security deposit settlement statement showing the deduction. When the security deposit is offset in full, and it is not enough to settle past due rent, then the owner has a decision to make. Whether or not to pursue a judgment against their former tenant.
This particular tenant had not only fallen a couple of months behind on the rent, but they also had two months left on the lease. We encourage owners to pursue a tenant for one very good reason. Get a court to give you a judgment and someday, years later, you may find that tenant wanting to pay you! Even better, if the tenant has any assets you can attach the judgment to those assets.
The complexity of how and when to get the judgment is best left to an attorney. If the tenancy ended with an eviction, a damages hearing may be part of the process an attorney follows. If you are handling your own evictions (playing attorney) then you will also need to file a second claim and a hearing for damages will be scheduled in a small claims court.
Yes, you can handle this yourself but in my experience letting an attorney appear in front of a judge is the way to make sure your case is presented successfully. Additionally, once the judgment is successfully obtained, you then have to decide how you wish to try and collect. Your attorney may be able to provide assistance, or a professional collection agency may be hired.
The amount of the damages suit is a combination of several items:
Collection of the court awarded judgment will likely start with giving the attorney a copy of a check or the bank account information for the tenant. If the account is still open the attorney can file a levy against that account. Your attorney will also be able to garnish wages which is a reason to try and stay current on your tenant's employment. Also, the attorney will record the judgment in the local county records..making it difficult for the former tenant to obtain any credit until paid.
If the claim is large enough, it may also be worth the cost to request a court proceeding where the tenant must appear in court to answer questions regarding their employment and assets. Such a hearing will cost the owner and it has to be part of a strategy that recognizes cost versus potential gain.
Our owner did sue the former tenant in small claims court. He was able to rent the home within 30 days so typically the amount of the suit is the non-paid rent plus the portion of the lease while the home was vacant. He obtained a judgment that included interest and legal fees. Here is approximately the final ledger after the attorney was successful in the collection effort.
Defaulted Rent= $1800 + One Month of Vacancy under the lease= $900
Property Damage= $800
Total Base Damages Requested = $3500 lost rent plus damages
Legal Costs and Interest- $500
Judgement Obtained- $4000
Attorney Collection Charge (35%)- 1400
Total Recovery by Owner- $4000 less legal cost ($500) and collection charges ($1400) =$2100
Owner Loss- $3500 base damages less $2100 recovery of judgement = $1400
Factor in time and hassle which with a good attorney and property manager should be minimal. The judgment and collection of the judgement will not wipe out all losses but it will improve the situation if collection is achieved. Plus the knowledge the former tenant did not get away with their crime.
The question to consider is whether to invest in a judgment and the cost of pursuit versus the likelihood of collection. Depending on the tenant, the truth is it just might not be worth it. If you can obtain an eviction and the costs include a damages hearing, then by all means get the judgment. But if trying to decide whether to pursue damages and go to court, consider all of the above and the likelihood of any collection before investing your time further.
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