When to Send your Tenant to Collections

Posted by Ryan Howard on Mar 4, 2016 9:57:11 AM

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An Insider Guide to Maximizing Apartment Collection Rates

Property managers are busy people. As Monster.com reveals in their property manager job description sample, they have an enormous amount of responsibility. So when it comes to collecting an outstanding balance from a tenant who is no longer living at the property, this task may understandably fall to the bottom of their to-do list. Since the primary job description is managing a property, trying to collect past due rent is an added and unnecessary burden on the property manager.

After the property manager has exhausted all paths to collect, when should the account go to a collections agency? 

 

Attempting to Collect

Some property managers may claim that attempting to collect past due rent takes far too much effort and cost for too little reward. After all, if the tenant did not have the resources to pay while living in the property, they may not have it now or in the future either. Property staff may choose to abandon the collection process unless the amount owed is significant.

The typical process for collecting past due rent from tenants is:

  1. sending the tenant late and/or past-due notices
  2. make a phone call or two
  3. file in small claims court for a judgment.

If still no payment is made, the account may sit for a while before going out to a collections agency.

Please note: The longer a property waits to send an account to collections, the harder it becomes for an agency to recover that account. Logically, the tenant has moved on, could be hard to track down, and may have already started incurring debt somewhere else. It’s a “first come, first serve” concept – and to have the best chance of getting paid, the collector needs to be first in line.

 

Collections Agency Recommendations

Many of your legal options for collections will depend on your lease agreement. Tenant screening and a rent collection policy will dictate a payment agreement already signed by your tenant.  Another best practice for property managers is to have a written policy for sending accounts to collections. This internal process is created for an easy (or easier) way to collect on accounts. As an example collections policy, property manager may wish to use the following timetable:

When Accounts should go immediately: If a tenant has skipped or been evicted, immediately send those accounts to collections without delay. These accounts are much harder to collect and the support of professional collections is recommended.

When Accounts should go after 30 days: If a tenant has completed their lease, has an insufficient security deposit, and left with a balance due (normal damages, such as 1 month rent, unit damage, lost key, etc.), those accounts should be sent to collections 30 days post move-out.

When Accounts should go after 60 days: If a tenant has not completed the full term of the lease and breaks the lease without negotiating an early termination fee or sublease, the property will usually “accelerate the rent”. Accelerated rent accounts are more common in student housing, as student drop out of school early, transfer schools, etc. This leaves them owing months of rent, and balances that often exceed $5000. The reason for waiting till 60 days is to allow the property to try and fill the unit / bed before sending to collections. Typically with accelerated rent, if the unit / bed is re-leased and the property’s occupancy is at 100%, the debt can be forgiven. Certain states have laws against accelerating rent, so it’s important to work with a collection agency that can help you identify these states (and accommodate incremental balance adjustments each month, until the full amount is posted and/or paid).

 

Collections Agency Specialization

Working with a collections agency that specializes in property management collections is also imperative when attempting to collect on past due accounts. BYL has expertise in property management collections including student housing, multifamily housing and military housing. We offer recovery of pre-and post-move out tenant collection as well as credit reporting to Experian, TransUnion, Equifax and Experian Rent Bureau. With our collections specialists and their property management experience, plus low collection fee rates, BYL Collections can help reduce or remove the collections headache for property managers and maximize collection rates. Request a quote to see how BYL Collections can help.

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Topics: Debt Collection, Rent Collection