The Federal eviction moratorium is set to expire on June 30, 2021, with nearly 9 million households behind on their rental payments. Although it’s unclear whether the moratorium will be extended as it has in the past, it appears this is the end of the line for it, along with the few remaining state moratoriums following in suit. As the world slowly starts to return to many pre-COVID processes, you may be wondering how this will affect your collection practices. Here are some tips on how to handle collection from current tenants, previous tenants, and some steps you can take to avoid future collection issues. Please note that this is for informational purposes only and is not intended as legal advice.
Collecting Rent from Current Tenants
Rent collection should continue in accordance with your lease agreement, however, keep in mind that some residents continue to be financially impacted by COVID-19. Since some areas still have local moratoriums in place, you should check the emergency orders in your jurisdiction to see if there are any restrictions to your rent collection.
One of the main stipulations of the lease agreement is that the tenant will pay their rent on time in exchange for the right to live at the rental property. Despite COVID, if a tenant pays rent late or less than the agreed amount, they’re in violation of the lease. Here are a few ways you can proceed:
- Payment arrangements.
If your tenant’s payments are severely delinquent and local regulations allow it, you may consider giving the tenant a fresh start with a payment arrangement. One example would be to have them pay their next months’ rent in full, plus an installment amount that can be put towards their debt. If you decide to allow payment arrangements, be sure to create an addendum to your lease that clearly outlines what you and your tenant agreed upon.
- Payment Incentives
Depending on your regulations, you may consider offering a rental discount for on-time, full, or partial payments. This may encourage tenants to put in more effort to pay their rent – or at least as much rent as they’re able.
- Lease renewals.
If the lease is going to end soon or the amount owed is very large, you may want to consider having the tenant sign a lease extension to give them more time to pay off their debt. This can be a short-term lease or a month-to-month lease if the tenant doesn’t have the financial means or the flexibility to committing to longer lease terms.
- Resident resource lists.
You may also want to consider providing a list of local and national resources to help struggling tenants, including:
- Contact information for national organizations like the Salvation Army, United Way, and American Red Cross
- Local social services, religious, and charitable organizations
- Organizations that assist with food, utilities, unemployment, and other essential services
What You Should Avoid When Collecting Rent
In addition to finding ways to encourage your residents to pay their rent in full and on time, there are also some steps you should avoid when collecting rent:
- Don’t take the matter into your own hands.
Most landlords and property managers understand when rent collection requires an outside party, but every so often you hear about a landlord who takes the matter into their own hands, like shutting off utilities or removing the front door. This type of behavior isn’t just unprofessional – it’s illegal. No matter how frustrating the situation becomes, follow the laws and know when it’s time to turn the matter over to another agency.
- Don’t Harass Tenants.
Even if they’re behind on rent, tenants have the legal right to enjoy the privacy of their homes without harassment. To ensure you’re not accidentally crossing any lines, make sure you’re following all guidelines and regulations when communicating with your tenants about rent. This includes verbal as well as written or electronic communication.
- Don’t Send Unauthorized Notices.
Late rent notices, notices to quit, notices to vacate, and demand letters are all considered legal documents. Check with your state and local laws to make sure you’re sending the appropriate notices and how they should be served. For example, if the laws state you must post a notice on the door, place the notice in a sealed envelope.
- Don’t call tenants outside of business hours.
Make sure you’re following any local guidelines regarding calls during normal business hours. Not only is this polite, but it can also prevent accusations of harassment.
- Don’t abuse electronic communication.
Email and text messaging make it easy to shoot off a quick message anytime, but like phone calls, these types of communication should only be done during your normal business hours. It’s also easy to make electronic messages more informal — but keep in mind that these are business communications. Keep all communication (whether verbal, written, or electronic) between you and your tenants professional and appropriate for the context.
- Don’t show up to the property unannounced.
If you need to visit the property for any reason, make sure to provide appropriate notice. Going to the home for collection purposes is considered harassment unless you’ve otherwise made arrangements with the tenant to pick up payment.
Handling Past Due Balances
Many misinterpret the eviction moratorium to mean rent forgiveness; because of this, some renters may believe any communication regarding a past due balance violates the moratorium. However, any past due amount is still due. So how can you have a discussion about a late balance without the tenant perceiving it as a potential discussion about eviction?
Check your state guidelines to see if you’re still allowed to use a pay or quit notice as part of your collection practices. Even though the eviction moratorium is still active, there should be documentation of the late payments that shows the tenant that they owe rental debt and that it’s still due. Essentially, the consequences of breaking that section of the lease are paused, but the tenant still has an obligation to pay you.
You may also want to check with an attorney to make sure any notices you provide your tenants regarding rent comply with the latest federal and state regulations.
Collecting a Previous Tenant’s Past Due Rent
What if a previous tenant owes you rent? You have a few options:
- Pursue repayment in-house.
You may attempt to contact the previous renter and arrange for them to repay the amount owed, however, this can be difficult if they haven’t provided a forwarding address. You can begin the process by sending a demand letter to the last address on file, even if it’s the address of your rental.
Make sure to write “address service requests” or “address correction requested” and add additional postage to cover the delivery plus the additional service. Once the post office has received it, they’ll research the new address in their database and, if found, will forward the letter. In addition, you’ll also receive a postcard with the corrected address.
- Debt reporting.
Another option is to report the outstanding debt to the three major credit bureaus, where it will remain on the tenant’s credit reports as unpaid rent. To remove this from their credit report, the previous tenant will need to repay the balance.
- Small claims court.
If the first two options are unsuccessful for any reason, you have the option of taking the previous tenant to small claims court, where you may be able to collect past rent due as well as additional damages, late fees, and legal fees. However, keep in mind that this can require a substantial amount of time and resources throughout the process. You’ll need to determine whether the amount the previous tenant owes you is worth your investment of time and money.
If you choose to go this route, check your state collection laws. Once you’re familiar with your rights in the process, contact your local small claims court for the required paperwork and provide your tenant’s new mailing address so they can be notified about the court proceedings.
- Debt collection agency.
In many cases, working with a debt collection agency is the best option for landlords and property managers because you aren’t required to track down your previous tenants. In addition, reputable debt collection agencies will follow the regulations outlined in the Debt Collection Practices Act (FDCPA) and provide access to a team of trained professionals like skip tracers, attorneys, private investigators, and collection agents who are all working to get the debt resolved.
Some agencies offer a flat fee collection option, which allows you to immediately report the delinquent tenant to the credit bureaus and order collection letters to be sent by the agency. This can typically be done online and allows you to keep the majority of the proceeds.
Steps You Can Take to Avoid Collection Issues
COVID-19 has thrown a wrench into many processes, but setting clear expectations for your tenants and keeping communication open remain the best ways to avoid potential collection issues. Frequent and timely communication can help you get ahead of issues and allow you and the tenant to work together to find a mutually beneficial solution. Additional steps you can take include:
- Conducting tenant verification and screening on all new tenants
- Create a rent collection policy that’s clearly outlined in your lease agreement. Consider adding:
- A note that partial payments are a breach of the lease agreement and must be pre-arranged
- Location and office hours for in-person rent payments (you may also want to consider providing pre-stamped, pre-addressed envelopes and a drop box for after-hours drop-offs)
- Outline all the payment methods you accept, if there are any exceptions, and how these payments can be processed
- List any payment processing fees
- The date the rent is due. Be sure to make it clear if the rent is due on or by that date and if you offer a grace period
- List any additional fees, such as late fees, processing fees, returned checks, non-sufficient fund fees, etc. Make sure you check your local laws on fee limits, as well
- A note that it’s the tenant’s responsibility to have the applicable funds available for processing the chosen payment method
- Any consequences for non-payment of rent, such as termination notices
- Offer a variety of payment options.It’s been shown that the more methods available to tenants for paying rent the more likely tenants are able and willing to pay in full and on time.
Although it’s not clear if there will be future COVID-19 restrictions to collecting rent or evictions, your best bet is to stay current with local, state, and federal regulations to ensure your processes are fully legal and conducted by the book. Keeping open communication with your tenants throughout is also important in ensuring not only timely payment but also in preventing relational or potential legal issues. When in doubt, consult with legal counsel to ensure your procedures are conducted within your legal rights.
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