How NOT to get sued by a tenant?

Question

Ok so when I find a tenant that is qualified, I understand there are important forms that they must sign and I have to keep on file such as:

Rental application, tenant screening document, lease/rental agreement, pet policy agreement, move-in checklist, and lease renewal paperwork.

So these forms are supposed to protect me and my rental. Are there any other forms that I need to be aware of or any action I must take to prevent any lawsuit? To be honest, this is what I fear the most, getting sued by a tenant. :(

JD Martin · Answer

You are worrying about something that is ridiculously rare. I had over 100 tenants over the years that I've been doing this and I have never been sued by a tenant. But even if I had been sued, I would not worry because: 1. I carry good insurance, and; 2. I do my best to follow the intent of my state's Landlord-tenant laws, and; 3. Lawsuits are scarier in theory than they are in reality. How do I know #3? I've been sued 5 times - 3 times by insurance companies (2 auto, 1 property) and twice in my capacity as an organization's official. Those 5 suits cost me a total of $500, and that was a settlement on the property one where I was either going to pay my lawyer another $1k to appear (this was before automatic awarding of legal fees for frivolous lawsuits) or $500 to settle with no admittance of wrongdoing. I'm a practical man so I chose the latter. In all other cases, my insurer handled everything and I never even appeared in court - and if I would have had renter's insurance on the property one, I wouldn't have paid my own lawyer on that either. I know a lot of landlords and I don't personally know any that have been sued. I "know" a few people on BP that have been sued but you're talking about a pretty wide net. Most tenants don't have 2 nickels to rub together, so unless they have free legal aid or a case strong enough that a tort chaser will take it on commission, you are unlikely to ever see the inside of a court room from the defendant's podium. Finally, it is possible to file a lawsuit against anyone for virtually any reason in this country. If you worry about getting sued you'll never take any action. Carry good insurance, know and follow the law. That's your best defense against lawsuits.

Julie Hartman · Answer

The best way is whatever your state laws dictate; it's different everywhere. For example, in CO, the deposit "belongs to the tenant" so anything we hold back for damage/cleaning once they vacate, needs to be backed up with proof, and receipts, etc. We also need to supply them with a deposit disposition and/or refund within 30 days of vacating (up to 60 days if written in the lease). In some counties, we also must pay the deposit back with interest. They also have 6 years to come back and file a complaint for it. Failure to handle the deposit correctly can quickly get you in front of a judge and/or paying treble damages. Bottom line, you need to know the laws in your state OR hire a property manager until you do know.

Scott Mac · Answer

Hi Corazon,Maybe talk to an Real estate Accountant and an LLC Attorney to learn about LLC's, their yearly overhead burden (tax prep, state fees, bookeeping fees, etc...) their taxation, their financing and insurance issues, and etc...Good Luck!

Julie Hartman · Answer

@Corazon B. It's not just a matter of using the proper forms. It is critical that you know how to handle the security deposit. The deposit is where many people get tripped up and tenants threaten to sue.

Debbie C. · Answer

@Corazon B.Set up your screening criteria, 3x rent, credit score, etc. however that works for you, and be consistent. List what you require in your ads and stick to it. Treat people in a fair and equal way. That is one way to avoid problems.Good luck!

Scott M. · Answer

Security deposit, lead based paint, lead based paint pamphlet, not sure if you have disclosure requirements in your area. As @Scott Mac said (wait what? Scott Mac lol) you really should talk to a local lawyer. Also you can't just say "lease". I mean what goes in there (or doesn't) alone is important. And not just documents but timing and rules etc....

Joe Splitrock · Answer

This may sound obvious, but don't create a situation where you attract lawsuits. Follow the law, treat people with respect, respond immediately to problems, take steps to ensure your property is safe, don't allow high risk situations on your property, communicate rules and expectations clearing in writing and when someone threatens litigation, try to work out an amicable solution outside the courts. Make sure your lease is reviewed by a local attorney. Attend local fair housing training. Join local landlord associations to keep updated.

Corazon B. · Answer

Hi everyone, thanks for your tips. But how do you know if the insurance is solid?

Alexander Szikla · Answer

You cannot control whether someone will sue you or not. You can control the limit to the damages by keeping good records, staying in line with local laws, forming an LLC to protect yourself and getting solid insurance.

Jeremy Gaal · Answer

@Corazon B. There is a lot to make sure is good to go and even if you line up all those ducks in a row there is always the possibility of one. Have you considered a property manager, sounds like having one at least in the beginning could help build your confidence. With that said where are you renting the unit? The requirements will vary depending on the city and state.With that said, if you're going to self manage a solid lease will offer you some protections and also making sure you do thorough tenant screening (to include reference and background check), holding the security deposit and unit funds seperately (depending on state/local laws but never a bad idea), and once the tenant gets ready to move in a solid pre occupation checklist with photos to document condition of the property. Having solid insurance and requiring the tenant to have documented renters insurance means their insurance gets the hit if they decide to cook bacon naked and start a fire (sadly I have a friend whose tenant did just this).There can always be more, but this would be a general starting point. Hope this helps!