Late fee scam by PM - security deposit

[Nancy Sathre-Vogel]

I've posted here a few times about a bad experience I had with a PM. The more I look into it, the more convinced I am that she knew precisely what she was doing - which makes me wonder how common this is. 

Unbeknownst to me, my tenant started paying her rent late every month about 15 months ago. My PM didn't do anything about it at all, except just record the late fees in her ledger. That's it. She never really made an effort to collect the fees. The tenant "knew" those late fees were there, but since the PM never forced the issue, the tenant never paid them.

This went on for a while, with the late fees simply piling up, but no attempt to collect being made. Finally, when the amount of the late fees totaled the amount of the security deposit, my PM told me that the tenant paid late every month and hadn't paid the fees. She suggested evicting the tenant - which I agreed with. 

Now, the PM has used the entire security deposit to pay the late fees, leaving nothing to cover damages when the tenant moves out today. 

My strong suspicion is that the PM knew precisely what she was doing. It was a good racket. She could charge those late fees, do absolutely nothing collect them, and then take the deposit. It was an easy thousand bucks in her pocket.

Is this common at all? Is this something unethical PMs do? What other ruses do they use to get extra money? I am thinking about whether I want to hire another PM or just do it myself, but want to know what things I need to think about should I decide to look for another PM.

[Oren K.]

Nancy,

I don't believe that it is 'common' and I certainly would not accept this from my PM. Service companies work long and hard to land clients so, assuming they pocket 10% ($100), is that worth potentially losing a client and a long term relationship?

Having said that, I do need to push back a bit and ask how did you not know? My understanding is that the VAST majority of PM's send monthly reports. On one of the reports (e.g. Rent Roll, Tenant Ledger, Even Bank Statement) it would show that there is a growing balance (the late fees) or the deposit being made after the due date which should have raised a flag.

Unless no reports were sent (unacceptable) or there were not reviewed (also unacceptable), warning signs were visable after 2 or 3 months.

Oren