Evicted tenant owes money. Should I pursue?

Question

Hi!

First time post.  Looking for some advice from the community.  One of the properties we recently purchased in Charlotte, NC had a problematic tenant.  We knew he was problematic going into the deal, and it only took 2 months before he stopped paying and we had grounds to have our PM evict him.  On the way out, he took the range, did some damage (about $1000 worth) and also owes us about $1000 in back rent. Of course he didn’t leave a forwarding address. Our PM says to have any chance of getting any of this money back (probably total $2-3k) we could hire a private investigator to track him down (about $150) and sue him (lawyer fees about $200). But, he didn’t hold out much hope that we’d ever see a penny - all that it would do is guarantee this guy would always have a hard time renting any property ever again.

Should we do this? Or we are throwing good money after bad?

(And yes, we should have done cash-for-keys.. next time!)

Thanks!

Ian

Matthew Paul · Answer

A debt not paid is considered income to the debtor  by the IRS .  So first I would try to find the tenant to sue them . And get the judgement .  Second and what I have done in the past if they dont pay , I send them and the IRS a 1099 for what they owe . They now have to claim that as income . Now if they have a refund due and they have filed right away and miss the 1099 you sent them , they get hit by the IRS .    And it makes it easier to claim a loss on YOUR taxes

Stephen E. · Answer

@Ian S.  I am going to go against prevailing wisdom in this thread. Suing in small claims is easier than you think. You can get current addresses by running a credit check if the form you had the tenant sign allows you to do this for purposes of enforcing a term of the lease. Once you have a current address you can serve the tenant. Personally  I would sue, for two reasons: 1) You have a chance of recovering your losses. If you don't sue then as Gretzky says you miss 100% of the shots you never take. 2) If you get a court judgment and then send the judgment to collections you will warn future landlords off this guy as well as have him harassed by collections which will provide some costs for bad tenant behavior. If you stay quiet and do nothing you are giving a bad tenant a free pass to do this again to some other landlord. You can do some good here. Besides this there is a potential goal of holding the tenant accountable and showing him that bad behavior has consequences. If you don't pursue this the tenant gets off scot-free. I say sue. This advice would be different if your tenant is uncollectible.

JD Martin · Answer

In a case like that, I would sue them. You may not get any money back but as noted, you will get to claim it as a loss on your taxes and you will let there be a consequence for their actions. Small claims court is ridiculously cheap, and it is still a legal judgement that can be acted upon. Also, you may be able to attach things they have financial ownership in - I know a business that was able to get a lien placed on a house a deadbeat later bought from an existing judgement, which then ended up having to be paid off when the deadbeat tried to refinance the house.

Main thing is there has to be consequences, even if the best case is a break even or slight loss. Lack of consequences makes life difficult for everyone else down the line.

Matt Sicignano · Answer

No-No-No-to "cash for keys"!!! Or as I like to call it, bend over, get extorted by the tenant, then screw the next landlord down the line. (how? you should know this already; you're on a landlord blog!) And, because you're lazy, and don't know the law, you'll lose money. I always  institute a dispossessory proceeding( to protect my legal right to obtain possession of the property, if nothing else) , obtain a judgement if possible, then enforce. Worth the trouble? Maybe in the last 10 years, $12,000 recovered.  Money in my pocket, and notice to the next landlord that this is a deadbeat. Too much trouble? Then get out of this business, period-there are collections attached to this business, just like any other business. If you are a "cash for keys" idiot, my prayer is for your next tenant to be the one who has the clean credit rating, but played the system and got stupid, lazy landlords to subsidize their bad behavior.

Account Closed · Answer

Unless they file for bankruptcy, you can renew a judgment every 10 years or so.  You can hire a collection agency to hound them forever.  If they get a bank account, or a car, or a job, etc., you can garnish and levy everything.  And, it just plain feels better to give them a consequence, than to wimp out.

Matthew Paul · Answer

I just have my accountant do it , same as when I 1099 my subcontractors .

Tom S. · Answer

@Ian S.  Sorry to hear!  It depends a lot if the tenant has a good job and may have a chance of paying (or you collecting) in the future.  If you think there's a chance, spend the $300 to a least get him in court and get a judgment.  Here in VT where I have rentals, it's good for 8 years and can be renewed for another 8.

I agree with Michael above, if there's no chance of collecting, don't spend much more.  You can at least spend $25 to report it to credit agencies, and then move on.

- Tom

Michael Bowman · Answer

Hi Ian! As a PM in the Charlotte area of close to 450 properties, your PM company is guiding you in the right direction (it's not every day I get to say that!). I would not pursue getting anything from this tenant. You will spend good money chasing bad debt. Chalk it up as a learning experience and move on.

Also, I thoroughly disagree with the CFK proposal. That rarely works and I dont believe in letting tenants off the hook of an eviction/judgement on their record.. not when it is so cheap to evict in the CLT market.

Let me know if you have any further questions!

Account Closed · Answer

I was successful in getting bad inherited tenants to move, by simply letting them go without having to pay back rent, and avoiding an eviction on their record.  I'd say, if you are out by such and such date, we'll call it even, as long as you remove all your stuff and leave the place clean.

This was not a fancy property, but it was in a great area and neighborhood.  So, although some tenants were kind of low-class (if I may be so vulgar), they weren't ghetto.  So, what I did may not work in all areas or neighborhoods.

But, I think cash for keys can work in some instances.  But, you need to know who you're dealing with and what motivates them.  Bottom line, is that you don't give them what they want until they are out and they have left the place undamaged.

You may think you'll never collect because they are broke, etc.  But, you'd be amazed at how someone supposedly broke finds money for new cars and cigarettes and the casino, etc.  And unless their income is government income like social security or disability, etc., it can be garnished.  And you can put a levy on their vehicles, etc.

But, I think you need to decide where your comfort zone is.  The owner I worked for could afford an army of attorneys, but he was a depression-era kid, and hated the idea of having to spend money on attorneys.  So, he wanted to avoid the courtroom at all costs.  It was almost a traumatic fear for me.

Me, I'd take them to court in a heartbeat.  And I think they could sense that from me.  So, even though I got them to move out in an amiable fashion, I think they could sense that if they didn't, I'd be happy to nail them to the wall LOL.

And, they wanted their deposits back.  So, in a way, I did do a cash for keys deal, because I'd tell them I'd give them their full deposits back if they left without leaving any junk in the unit and without damage and left it clean.

This worked for me.  They didn't leave their units super clean always, but they did haul everything out of the units, and left without causing any damage.

So, it's possible to get them out without them causing damage and without having to pay them anything other than their deposits.  I think they have to see that gleam in your eye that shows them you're not afraid of giving them a legal consequence, if necessary.

Account Closed · Answer

1099 is super easy triplicate form. One copy to you, one copy mailed to tenant, one copy filed with your end-of-year tax return to support the expense. I really like the idea. Thanks @Matthew Paul

Evicted tenant owes money. Should I pursue?

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