Collections agency or bite the bullet?

Question

I have a recent ex-tenant who hadn't paid utilities for about 3-years.  In her lease agreements, she is responsible for water and sewer and electricity.  This is specifically about the water and sewer payments.  The name on the utilities is kept in my name/my LLC's name but the bill is either mailed to the property or to the property manager who then lets the tenant know about it.  As the owner of the house, it ends up being my problem and I've paid it.

I'm wondering what you would do if you were in my shoes. The tenant moved to another city after moving out on April 1 of this year. She was heavily subsidized through Section 8 (and yes, if she was on Section 8, this is a violation but I didn't end up doing anything about it). I've paid well over $3,000 on utilities while she lived there (she didn't pay utilities for the last 3+ years). My original property manager tried to reach out to her and work out a deal but she basically ghosted him so no repayment schedule was set up. She also skipped out on her responsibilities on the annual section 8 inspection so because of that and the fact that we didn't have any access to the house to fix our portion of the violations, I didn't get rent for March. At the end of the day, I didn't end up rehabbing the house at all and instead, I just sold it.

Would you try a collections agency to try to recoup a portion of the monies owed?  If you've gone the collections route, was it successful?  I'm also not sure if this is trying to get blood from a stone.

I've never gone down this road so would love some feedback from those who have.  Thanks!

Bob Okenwa · Answer

A collection agency will end up putting a derogatory mark on her credit which will help the next landlord, but the odds of her paying through collections is just as good as her paying that 3k she owes directly to you. You can seek a judgment and that too will just end up on her credit and she probably won't pay that either. She'll more than likely just ignore the collection calls and letters and let it sit on her credit for 7 years.

Filipe Pereira · Answer

Plenty of others said you won't get the money, and I agree with them. What is your goal here? If it's to get the money back - collection agency is the way to go (it's not a big chance, but it's your only chance most likely).

But - if you're frustrated and just want the tenant to know that, go ahead and "write it off". Forgive the debt. You do this by sending the tenant a 1099 form for miscellaneous income. Make sure you send a copy to the IRS and to their state tax department (if the state you are in doesn't participate in the Combined Federal/State Filing Program). I know my state (CT) and our neighbors to the north (MA) do, but you can check for your state here: https://payable.com/taxes/comb...

This creates an issue with someone much bigger than some collection agency - the IRS. The IRS expects that tenant to pay income tax on that money and they will make sure they get it, come he** or high water. Uncle Same doesn't care what your story is. It may also create a riff with the tenant's section 8 benefits as it may put them in the next income bracket, lowering their S8 benefits.

Just know that if you go this route you can't also collect on the money. At that point the debt is gone and you can't collect on it anymore.

Amy Beth · Answer

@Arthur Wong buoy could sell the debt to a collections agency as a warning to other landlords. But if she was on section 8, you will likely never see your money again.  You mentioned selling the property but if you have other rentals, I would find a new PM or manage the PM yourself.  The tenant should never have been allowed to go three years without paying.  That is a lease violation and the PM should have talked to you about evicting the tenant when the tenant first refused to pay.  And not understanding why you do not require the tenant to put the bills in his or her name also.

Ryan Ingram · Answer

I would encourage you to cut your losses and use this as a painful lesson learned. Several larger landlords that I know pay the utilities but charge it back to the tenants as part of the monthly rent.

I outsource my property management, so I don't do this...but they cite their reasoning for doing with stories exactly like yours.

Percy Matsunaga · Answer

@ Arthur Wong

I’m going to assume that the utilities bill was under your name. I’m pretty sure that the utilities company would not have allowed her to not pay for 3 years.

So I’m sorry but I would eat this 3 of non payment. It’s going to cost you more in the long run to a collection agency, especially if she is out of state.

Put this one in the lesson learn column and move on to the next tenant.

Adam Martin · Answer

I doubt you will collect anything and see this as a self inflicted problem since you let it go so long. I am all for sending it to a collection agency though, I think often we fail as a community when we don't report these events to give a fair warning to the next guy.  If we would all put in the extra effort there would be better data bases the credit agencies would be drawing from and we would have a better idea of who the tenant we are renting to really is.  While I doubt this is likely for a Sec 8 tenant there is bound to be a percent of people that will eventually pay when they want to buy a house or other large purpose so as long as there isn't a large cost it is a gamble I would take if nothing else just for principal.

Steve Morris · Answer

"Would you try a collections agency to try to recoup a portion of the monies owed?"

Once they leave, your odds of collecting are small.  You can get a judgment, but most Sec 8 tenants are judgment-proof. Unfortunately, you need to learn with tenants, you let them cross the line on stuff, it never gets better until you put your foot down.

If they were Sec 8, did their case-worker know the tenant is supposed to pay for utilities?  On income-qual properties, whether the tenant does/doesn't pay for utilities makes a difference in their rent (cf. utility allowances) calculations

Theresa Harris · Answer

I would do the collections agency with the understanding that you are unlikely to get the money.  As Bob said it will put up a red flag to future landlords.  You should have  notified section 8 as well.

Collections agency or bite the bullet?

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