After all the rigamarole you've been through to work through the courts, you now have been awarded a judgment by the court that says you have the right to collect the back rent, missing damages, or other fees that your tenant owed you upon their departure from your property. Unfortunately, the courts will not collect that money for you; you simply have the legal standing to do it yourself. It's important, throughout the process of collecting on judgments, that you focus on the value of the collection for you. Remember:
- In almost every case, you don't want to regain this client, so this is the last money you'll ever get from them.
- The amount of money, despite being money they really should pay you, may be smaller than the value of your time.
- Pouring your efforts into great tenant screening processes and delighting your best tenants with good service may be much more fruitful.
That being said, there are ways to attempt to recoup some losses, and depending on the total impact of the judgment on your finances, different levels of effort are worthwhile. Consider the following options when working to collect on a judgment.
Talk to the Tenant, if Possible
If you have the opportunity to have a conversation with the tenant, do your best to make payment possible and probable. Yes, they are probably less than thrilled with you, but talk to them about paying in installments or how they intend to get the money back to you. Some tenants, especially those who are surprised by the costliness of their damages and expected it all to come out of the security deposit, will be ready to pay you as soon as their next paycheck comes in; let them know the best way to pay you and get some information about their new address so that you can reach out to them in the future if the money doesn't materialize.
Write a Letter With Consequences Outlined
Letters are a very helpful method of communication in the early stages of collecting on a judgment, since most people won't get the chance to speak directly with their ex-tenant at this point. Sending a letter to their new address can allow you to outline the situation in a way that is clear and firm but not rude or spiteful. You can let the tenant know:
- The number you are requesting has been approved by the courts, so you are legally owed the money.
- Mention the methods by which the individual can pay you (making more options available does increase the chance of getting your funds)
- Give a due date, such that you can clearly point out that you gave the person time. Judgments typically are valid for 5-20 years, so you do have time to make the process happen.
- Explain what you will do after the deadline passes: will you work to garnish wages or their bank account? Will you return to the courts? Will you turn the debt over to collections, adding a note to their credit report?
- Give them ample ways to communicate with you - even if they only intend to get angry at you via phone, you may be able to get the information you need to move forward if they establish contact, like a valid phone number.
Making the interaction easy, such as including a self-addressed, stamped envelope, will be more effective for some tenants than others, but the cost of a stamp and an envelope may be worth it to keep a decent tenant from simply forgetting to pay you.
Lean on the Credit Impact of Judgments
As you interact with your tenant through whatever means of communication you have available to you, make it clear to them that paying the judgment can have a positive impact on their credit, which may save them money or headaches in the future. Collection processes appear on credit reports, which can be a red flag to future landlords, and your ex-tenant still needs to have a place to live in the future. Use this information, as well as a clear plan on which you intend to follow through, to work to persuade your ex-tenant. Telling them why you want the money is rarely effective; showing them why paying their debts benefits them can make for a (slightly) more positive interaction.
Work Through the Employer to Garnish Wages
If you have information about the ex-tenant's employer, it is possible to garnish wages. Learn more about the procedure in your state, but generally it involves working through the courts to send a statement to the employer that allows up to 25% of the person's wages to be collected and sent to you before the ex-tenant ever sees that money. If they leave that employment, it may be difficult to continue the process, since it may require multiple months of paychecks in order to fully pay the debt.
Work Through Their Bank to Garnish Their Account
If your tenant paid rent by check or ACH (automatic withdrawals through a checking account), you most likely know where they bank and possibly their account numbers. If you have reason to believe they have enough money in the account to pay you, you can request that the court garnish the bank account. The rules vary place to place for the actual procedure, but make sure that, if you choose this route, you have fully informed the ex-tenant of the likelihood of this eventuality; the possibility of such a sudden loss of funds can be enough to get some people to go ahead and pay you on their own terms.
Return to Court for an Examination
In many cases, you will have no information about long-term employment or about the tenant's current bank accounts, so going to court again to request information or a hearing with your tenant can be the next step. In a process known as a "debtor's examination," you request and receive information relevant to the collection of the debt your ex-tenant legally owes you. The money may not be paid immediately because of this tactic, but you may get the information you need to either garnish wages or a bank account, which can be helpful for avoiding the collections agency.
Get a Referral to a Reputable Collections Agency
Ultimately, you want to avoid collections because they require payment as well - especially in the case of small debts, the efforts that collections agencies have to go through to retrieve your money may not be worth the effort. However, when you've told your tenant your plan for heading to collections, do follow through: just do it with someone reputable. At this point, you know your lawyer and accountant pretty well after all the processes you've gone through with them; ask them who they know in the collections business who will behave ethically and also get results. Clearly, collections also sometimes cannot retrieve the debt you are owed, but for a big debt, this may simply be the logical next step.
Organize Your Books and Wait Out Your Ex-Tenants
As mentioned earlier, most money judgments aren't quick-turnaround experience: you have between five and 20 years to collect the money. This means that, if the reason your tenant won't pay is that they have fallen on hard times and need every dollar to survive, you have the option of waiting them out. By sending periodic letters requesting the payment, or by giving it a year or two before going to collections, you give the individual the opportunity to get on firmer footing and then make things right with you.
Ultimately, however, it gets infinitely less likely that you will receive payment of debts once your tenant has left the premises of your rental property, and accepting that losses are likely to occur after that time is just part of the business. You can set your own thresholds for how much work you will put in in order to get different amounts of money that are due to you, and feel confident that you'll make the money back in the future if you persist with a few key steps:
- Note any red flags that you ignored in the behavior of the tenant so that you can keep an eye out for them in future applicants.
- Rearrange your rent leniency plan and decide whether you need to tighten up your restrictions earlier in the process to avoid ever arriving at large outstanding debts.
- Communicate clearly with incoming tenants about the consequences of missed payments or damages, as well as any routine inspections of the property that you wish to conduct.
- Change your rental rates in response to your experiences with tenants: do you need to charge more for this property in order to make sure that it is viable even if occasional tenants leave with outstanding debt? Do you need to offer a bonus to excellent tenants in order to get them to renew their leases? You have some financial incentive options available to you to help you avoid having to collect debts in the first place.
Have more questions about collecting on judgments? Contact us today.