Hiring a collection agency allows landlords to outsource collecting past due rent. However, before agreeing to hire a collection agency for a fee, it's important that landlords pick a reputable agency to conduct the collection process. Otherwise, a landlord could end up spending even more money trying to recover a bad debt.
Look for Specialists
Landlords should always pick a collection agency with experience in collecting past due rent. The agency should be familiar with collecting both past due rent and court judgments for rent due after an eviction. Landlords should avoid agencies that focus on medical, educational, consumer, or other types of debt collection.
Ask About the Methods
If the collection agency only intends to send a letter notifying the former tenant of their past rent debt, a landlord may be better off collecting the rent himself. Before hiring a collection agency, it's important to know the tactics they use to collect debt. Do they rely on phone calls? Can they use skip tracing to find a tenant no longer in the area? The agency should be comfortable explaining both the collection process and the methods they use for collecting rent.
Make Sure They're Insured
Collection agencies should always follow the law when collecting debts. However, if you hire a collection agency that violates debt collection processes, it's important that the company carries insurance in case a debtor files suit against the agency. This type of insurance, called Errors and Omissions insurance, should be written to protect the landlord in case the debtor decides to sue both him and the collection agency.
Research Success Rate and Fee Structure
Any collection agency should be happy to disclose their success rate in collecting past due rent. A high success rate is particularly important if the collection agency charges a flat-rate fee for their collection efforts. A collection agency that charges a flat rate expects to be paid even if they cannot collect from a former tenant. A commission-based collection agency may not charge if no rent is collected, but their fees are often 25 percent or higher of the amount recovered.
Look for Local Companies
Local collection agencies that specialize in past due rent collections should be well-versed in debt collection law. These laws include the statue of limitation on rent due, as well as any state laws that offer the debtor protections against the collection process. Local agencies may also be aware of state laws that grant them greater leniency when attempting to collect debt.
Pick an Agency With Strict Client Requirements
When interviewing potential collection agencies, landlords should expect to answer questions about their own business. A reputable collection agency will require that the landlord can provide the agency with a written lease, supporting documentation about the tenants, a rental application, and any information regarding any eviction proceedings. Most professional collection agencies will also request proof that the landlord attempted to collect past due rent at least once. By requiring this information, the agency demonstrates that it works with professional clients within the bounds of the law.
Before signing a contract with any debt collection agency, it's important to understand any pertinent fees, as well as the agency's success rate. Ideally, a landlord should be able to find a local agency with a high success rate that specializes in rent collections. However, even if the landlord chooses an out-of-state collector, he should still expect a professional, insured agency that issues regular updates on the state of the account.
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