Tenants vanish 1 mth before lease end, owing thsands, what to do?

Question

Hi BP community. I own a single family and as my first house a.k.a 'mistake house' I'm sure experiencing a steep learning curve. I house hacked, then land-lorded and am now out of state so I'm officially a long distance landlord. BP coincidentally just mentioned this issue in their latest podcast, being out of state I made the (now obvious) rookie error of not doing regular touch ins with my tenants, I only did 1 inspection a year and they knew I was self managing and out of state.

Dealt with all the expected.. extra people living in the house, extra pets, expected damage to walls from nails etc etc. BUT I made an agreement with the tenants that I wouldn't evict them mid lease when we discovered an extra person had been living in the house (contract breach), but that we would update the lease to add the extra person as a sublet and they would pay back rent for the time they had lived there. The tenants agreed, and signed a new lease agreeing to pay the rent back by a certain date. Fast forward to the last month of their lease and my friend checked on the property to find it vacant. They had already paid their last month rent at the rate for 2 people (not 3) when they moved in.

Am I surprised? No. Here is what I have already done, leading up to their last month I started sending a weekly email or text asking about the back rent and reminding them of the lease. I was told by them that they would send me a copy of their drivers license and the back rent asap. The replies stopped and obviously the tenants decided to forgo their deposit and bail. I warned the tenants that if I discover that they vacated the property or if they refused to communicate that I would contact the Credit association to inform them of unpaid rent and contract a collections agency to get back the amount owed. ($2500). Note: The house was left clean, I have new tenants moving in this week.

Have you dealt with this before? I know I made some obvious errors here, I didn't train my tenants well, didn't create an environment of accountability, was too friendly initially, I've learnt my lesson. So with that in mind, what would you do moving forward?

Frank Adams · Answer

99% plus of judgements are worthless because the tenants are judgement proof. Back in my landlording days I had an entire spiel I would tell tenants at initial meeting and lease signing. A friend with an equal number of rentals would always pay to get a judgement and never collected a nickel on any of them.

"Mr tenant let me explain the facts of life regarding rent, it's due on the first of the month and late on the second. On the fifth I'm in front of the JP and by the fifth of the next month you're out of the house.

At that point I'm forgiving your debt and sending a 1099 to you AND TO THE IRS. Fogiven debt becomes INCOME to you. That won't get me any money but it'll allow me to wash my hands of you. And unlike me the IRS NEVER SLEEPS AND NEVER FORGETS.

By the time you've been landlording awhile you'll learn to screen tenants and not rent to deadbeats and liars.

Todd Radus · Answer

Get a judgement then turn the judgement over to a collection agency. I had my lawyer add a letter I give with the lease explaining what will happen if they don't pay rent in detail. Yes the collection agency keep's a portion of the money but your previous tenants get a mark on their credit as well as a lower credit score. This way another landlord can see they have a judgement against them for failure to pay rent.

In addition a judgement is easy to get, most of the time they wont show up for court and you will get a summery ruling in your favor. This ruling will allow your collection agency to garnish wages, seize bank accounts and assets until the dept is paid. All you need is the lease, a record of payments made and a summery of payments not made and a total plus any legal fees, court costs or lost revenue because of the tenant so add everything. Clean out costs, repairs, revenue lost for clean out time and vacancy (due to lack of notice of lease termination) back rent so on. Minus their deposit and hit them for all the rest. If they don't show up your going to get a ruling for everything you are asking for provided your T's are crossed and i's dotted. After you do this once or twice you will get the hang of it. You will likely be able to add a couple of thousand to what they skipped out on and collection agencies are persistent to say the least. They will hound these people for everything they can get and a judgement makes it possible for them to seize money.

I can file a small claims suit in my area for less then $50.00, depends on the county.

What I take to court:

Summery of money owed (something the judge can look at quickly)

Lease

Payment History

Itemized list of payments not received

Pictures of property after vacated (all items I had to pay to remove)

Pictures of Damage to the property and repair estimates

Itemized list of lost income IE lost rent due to failure to give notice or early vacancy. If they leave the lease early, say 4 months and it takes 3 to clean and re-lease they will likely owe you an additional 3 months rent. Consult a lawyer to find out what you can charge them for.

All known tenant information

All relevant documentation

Thomas S. · Answer

I would normally strongly recommend going after any tenant that owed money to a landlord. In your case however you have made so many obvious errors that in your case I would advise you just let it go and move on.

You are not out any actual money only the amount for the additional occupant. Nothing out of pocket.

Todd Radus · Answer

This has evolved more into a collections conversation.

I agree with most of the comments, I was assuming (could be a mistake) that you did all the proper notices and legal steps and have legal ground. However, if they just vacated the property with out notice in most cases you just need to prove that. Any certified letters you do send for notice are going to go to the last known address IE your vacant property or your new tenants. Unless of course they have forwarded their address (unlikely) they don't want you to know where they went but you can check. Again these issues are why you contact your lawyer. Once you know what to do in that area it will apply to any similar problems you have in the future. Since you are billing for the extra tenant and they didn't destroy your property your not going to get a lot of extra's built up as mentioned a 1099 is a good choice.

I however do believe that if you do your due diligence on tenants that a judgement won't be worthless. If you put people in that are judgement proof then that's the route you chose, the risk you were willing to accept, so accept it and move on. Use the tax code, recover what you can via write offs and keep moving.

I feel that $2500 cash in my business account is better then $2500 in write offs. I also feel that $1250 cash and $2000 in write offs is better then $2500 in write offs. Why $2000.00 because you are adding the cost of collections, the $1250 for the collection agencies fees and your time and costs to do the collections. While these figures are not exact it's just to make the point.

While this may not apply to your particular situation IE tenant having an extra person sub letting from them, I feel it's likely a good policy and practice to have in place.

Too often people give up due to lack of knowledge or a fear or apprehension of the court system. It's like any other skill, collections is an art form like sales. Using the tools available can help you recover loses and prevent them. I have also found in years of doing business that persistence is necessary when trying to collect past due or owed money.  If you ask that a late bill be paid one time it's likely you are never going to get paid. This is why I stopped doing it myself and turn it over to a collection agency. The time an effort to make collections of small amounts is prohibitive, if you simply do your work and turn it over you are now free to move on while someone else does the persistence work. I let my CPA handle the tax issues.

I may have an edge here because my mother spent 20yrs as an office manager for a collections law firm. It was my exposure to this that taught me that wealthy people pursue money owed. Some amounts were small and others were huge in the $100's of thousands. Some had the law firm on retainer and could send as many cases for what ever amount was owed, others were on a case by case basis. I learned early in life that you pay your bills or someone will come after you for the money. Now I'm occasionally that someone coming after you and I have absolutely no problem doing it.

"Be like the bank" is what Mr. Rich (great name right) the owner of  the the law firm used to say. "If someone owes you go after it, you're not a charity so don't give money away except to those you want to." He also taught me a judgement was key to maintaining a collections case. The fair debt collections act requires that if asked you must provide proof of the debt, itemized and in full. A judgement acts as this proof. If a debt repair lawyer contacts the collection agency they just simply send a copy of the judgement to the lawyer and then they are in compliance. Basically it's real hard to get a judgement removed from your credit report other then actually paying it off or coming to a settlement agreement.

I hope this helps and best of luck to you.

Fradel Schaechter · Answer

@Lauren Weiss I just wanted to comment on your wonderful attitude and not letting this set-back from stopping your success. Way to go :)

Bob B. · Answer

Make sure you send the required notices in the allotted time frame. Go after them if for nothing else than to put future LLs on notice.

Lala Weiss · Answer

Todd Radus This is super comprehensive, great answer to my question. Getting a judgment seems to be the true right of passage to becoming a seasoned landlord. I'm going to start the process on Monday. Out of the frying pan, into the fire I guess. I'll let you know how it goes.

William Hochstedler · Answer

@Lauren Weiss

By cost of collection clause, I mean does your lease provide for the costs associated with collection (legal fees or a collection agency)?  It should be in the "Default" section and may say something like this:

If Landlord assigns any debt or amount owing by Tenant to a collection service, then all collection costs and additional attorney’s fees will be added to the principal balance or judgment.

Kirk Cullimore is Utah's largest eviction attorney

The Utah Apartment Association will have some guidance on this and maybe have preferred providers.

Up here in Logan, we have a collection agency (also with in-house attorneys for judgments and garnishments) called CSL.

One of these agencies should provide the service where you can turn over the leases with outstanding amounts and they will take over from there.  With the provision in your lease, they can add their fee on top and pay themselves from that.   If not, they will simply deduct their fee from any monies collected.

But check with these folks first and see if you can turn it over to the professionals and get on with your life.

Good luck!

Steven Hamilton II · Answer

You cannot 1099 tenants who have not paid you. As you did not pay them anything. A lack of income is a lack of income which means nothing to claim.

William Hochstedler · Answer

Is the rental in Utah?  It's pretty creditor friendly here.

There are collection agencies here that you can hand the whole mess to and let them do everything @Todd Radus is talking about.

Hopefully your lease provides for the cost of collection.  But, like others have said here, don't go chasing it.  The good news is there are companies that will do the chasing for you.

Tenants vanish 1 mth before lease end, owing thsands, what to do?

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