Property managers and landlords would probably admit that the worst part of the job is collecting past due rent. Some property managers give up too soon believing that it's hopeless to try to collect. In fact, there are many options to pursue, including these 7 tips on tenant debt collection, before hiring a debt collections agency. With the proper documentation, a little effort and the selection of the right collections agency, property managers can recover past due rent successfully.
HERE ARE QUESTIONS FOR PROPERTY MANAGERS TO ASK WHEN HIRING A DEBT COLLECTION AGENCY.
Is The agency Professionally licensed? In which states?
Licensing is different in every state and the agency must be licensed in the state in which it's collecting. The Association of Credit and Collections Professionals (ACA) has a searchable member directory to inquire which agencies are licensed in your state.
Is The Collections agency bonded and insured?
The agency will carry liability insurance, also referred to as Errors and Omissions insurance. If a tenant feels they are being treated unfairly during the collections process, they may attempt to sue for an FDCPA violation. The insurance will offer protection by reducing risk to the property management company or landlord by not holding them liable for the violation.
Has the Collections agency been taken to court for FDCPA violations?
Again, if the debt collections agency is not following the collections regulations set forth in the Fair Debt Collection Practices Act (FDCPA), they could be taken to court by the tenant and the Federal Trade Commission. If the agency has a fairly clean record (no more than one or two), and they are insured, the property manager can rest easier knowing the agency will remain compliant and protect their interests.
Does the debt collections agency report to the big 3 credit Bureaus?
When the debt collection agency reports to Experian, TransUnion and Equifax, there is a higher rate of rent recovery. When the debtor knows that their refusal to pay rent on time will affect their credit, and therefore loans for mortgage, cars or credit cards, they're more likely to pay up.
Does the debt collections agency specialize in property management?
Collections are handled differently in different industries. The agency should specialize, beyond familiarity, in property management collections. In order to collect successfully from tenants, collections agencies should understand the business and the terminology.
What is the collection agencies recovery rate in tenant collections?
Will the agency be able to provide references to other property management companies or individual landlords? It's important to recognize if the collections agency has a minimum number of properties or accounts they will take on or if they will work with individual landlords. They should also be able to provide a recovery rate or rate of success in recovering past due rent.
What is the agency's debt collections process?
Since the property management company wants to remain compliant with the FDCPA, another great question is to ask about the collection agency's collections process. If the agency is relatively transparent, including regularly reporting, property managers will feel more comfortable in trusting the agency with their accounts and their tenant relationships.
What fees are charged to collect past due tenant debts?
Ask what specific fees will be charged in order to collect past due debts. Some agencies will charge a flat fee, no matter the amount. Some will charge a percentage, contingent on the amount of the debt. Other collections agencies may purchase the debt from the property manager at a reduced cost and then obtain their fees through the collection of the debt.
The right debt collections agency will work in concert with property managers with no surprise fees or non-compliant collection tactics. Property managers must maintain accurate records and documentation throughout the leasing and collections process. The better the documentation, the faster the agency can get started recovering past due rent and allowing property managers to focus on the rest of their responsibilities.