I recently had a tenant that broke their lease and left in the middle of the month. These were tenants that I inherited so when I purchased deal 1 the deposit transferred with them. I had increased their rent by 72% but never got more for a deposit but never got more as a deposit. Lesson learned.
They left in a weird way in that they broke the lease but one of the tenants still met me to return keys and do a final walk through. The unit wasn't trashed but there were damages that their deposit didn't cover. It was about $600 and a cleaning fee.
So how do I get the money that is owed to me? Well these are my options!
Before you begin trying to collect the first step will be to send the Disposition of Deposit.
Send a Disposition of Deposit
The next step is sending a Disposition of Deposit to the tenants to show them the breakdown of what their security deposit is applied towards. This usually needs to be mailed within a certain timeframe, or you could lose your entire right to collect any money AND you may have to actually pay the tenant money depending on the state.
This serves as the first bill to the tenant and will demand immediate payment. I imagine they may not be in a rush to pay this because they might think it doesn't cost much to clean and repair a unit or the Security Deposit is the most they could lose.
If they do ignore the bill, what are the next steps?
5 Options to Collect From Former Tenants
The option you chose may depend on the situation, the amount owed, and the kind of tenant. But, let me give you five possible choices for collecting what you are owed.
1. Ignore it
If the amount they owe you is very small, you may choose not to pursue anything else after sending the Disposition of Deposit. If they owe you $75, it might not be worth the time or hassle to try and collect. Just send them what they owe and mark it for future references as someday you may get a request for that tenant.
This may feel like losing but you can look at it as a valuable experience to better understand how to put systems in place or the importance of a full deposit.
2. Bill Repeatedly
If you don’t want to ignore it but it isn't enough to take larger action, you can set up a system that mails out a new bill monthly as a constant reminder of what they owe you.
Who knows, maybe someday they'll get a tax return or win the lottery and want to pay it off.
3. Negotiate With Them
Maybe the tenant doesn't have the $500 they owe but are willing to give you $300 now. It may be worth it to take the money now and move on.
4. Send to Collections
Collection agencies are designed to pursue individuals with past-due payments. They can vary in techniques to get this money, including tracking down the tenant and calling them repeatedly until the debt has been paid. For their services, collection agencies typically charge a hefty fee, oftentimes 50% of the debt recovered. If you are fairly certain you won’t get the money from the tenant, you can send the invoice to collections and let them deal with it. Who knows, someday down the road you might get a check in the mail.
Because you'll be losing half what you are owed it may not be worth it to go the collection agency route unless you are owed between $1,000 and $4,000 and don’t think they have the money right now.
5. Take Them to Small Claims Court
If you you are owed up to $10,000 you could pursue a lawsuit in small claims court. This court is designed to help people sue others without the need of lawyers and a lot of money. Usually, for less than a few hundred dollars in fees, you can sue someone, and if you win, you will receive a judgment against them. The judgement could take money from their wages or tax returns. Plus, this judgment can follow the tenant around for years, even showing up on background checks when they apply for a rental property in the future.
Determine What Steps You'll Take
You really have two options, pursue legal action or not. Pursuing legal action would be smart if they damaged your place, skipped out on your lease early, or stole property like a refrigerator. This option may take longer because if they couldn't pay rent while living there it may be hard to collect. It will also serve as a good warning to any potential landlord after you where these tenants may slide on through.
Not pursuing legal action. Sometimes it may just be what is best for you in terms of time, stress, and even safety. You might be avoiding pushing a person who is currently unstable into a more stressful and aggressive situation. If you have partners or investors it may complicate things but moving on may be best.
At the end of the day there is no real right or wrong answer. In my situation I was owed $590 + cleaning fees but I got rid of a tenant I had been debating about not wanting to resign. There were some damages but it could have been left in way worse condition.
Coming up I will send out my Disposition of Deposit hoping to get what I am owed. If not, I will then try and negotiate and at least get half since that is what a collections agency would take anyways. If that doesn't work then we'll see what I want to do next.
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HELLO AND WELCOME!
I'm Jake, a dude interested in personal finance and travel creating the life I choose.
In 5 years I went from living in a basement with Craigslist roommates to paying off 90k of debt, backpacking 3 continents, getting a house for myself and 5 rental units.
Read my story in the about me section.
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