Collecting overdue rent can be one of the biggest headaches any landlord can experience. If you’ve exhausted all other options for collecting your rent, you may find yourself considering the use of a collection agency to recoup your losses. Here is what you need to know about working with a collection agency, how to help them track your former tenant, and how to work with them over the long-term to obtain overdue rent.
Preparing a Proper Case
If you’re at the point where you’re considering a collection agency, you have likely already pursued your rent money through a variety of ways, including demanding payment through certified letter, repeated telephone calls, and may have even initiated an eviction lawsuit.
It’s important to ensure all of these actions are well documented. In some instances, your tenant may claim that he or she already paid your rent and filed complaints against the collection agency pursuing them. Your collection agency will have a better case for collecting if they can demonstrate you’ve already made numerous attempts to collect on the money that’s owed to you.
Hiring an Agency
You’ll want to hire a collection agency that is dependable and communicative. Be prepared to negotiate the specific fee or commission to obtain the best price. However, collection agencies usually offer two different approaches. One is to take no fee upfront but a hefty commission should they collect on the rent owed to you. These commission fees can go up to 35 percent and in some cases even more. Other collection agencies offer a flat fee that they demand upfront, but then give you the entire amount they manage to collect.
Often, it’s worth speaking to other landlords in your network to see if they have any experience with a decent collection agency. Also examine a collection agency’s recovery rate. If an agency charges a low commission but has a track record that demonstrates they often collect only a small percentage of the amount owed to you, it might not be worth doing business with them.
Working with the Collection Agency
When working with a collection agency, send over a copy of the original lease, and highlight the areas that discuss non-payment and penalties. This will help the collection agency understand the specific contract your tenant agreed to.
Also provide the collection agency with your tenant’s social security information, all documents related to your attempts to collect your rent, and any references that the tenant provided when they first applied to rent from you. The collection agency has databases and certain search software that you likely don’t have access to. This will allow them to track down your tenant through car purchases, traffic tickets, his or her new job, or their new address.
You should also request that the collection agency work with you to report past-due rent on your tenant’s credit report. This will help warn other landlords about your tenant’s behavior, and provide further evidence to support your debt claims against your tenant.
Maintaining Communication with Your Collection Agency
It’s important to maintain communication with your collection agency throughout the debt collection process. Feel free to ask for updates regarding your case and what methods your agency is using to track down your tenant. This is especially important with agencies that charge a flat-fee, as they might have less incentive to pursue your tenant.
If a debt collection agency isn’t performing up to standards, let them know that you’re unhappy with the progress being made and that future business may go to other collection agencies. Ultimately, if the collection agency didn’t work well for you, don’t be afraid to try out a new one.
While non-payment of rent can cost you a lot of money, working with an experienced collection agency is often your best shot at recovering some of the money owed to you. Follow some of these tips and you should be able to protect yourself and punish the tenant who tried to rip you off.
Please note: These articles are for informational purposes and we advise you to consult an attorney or accountant for more specific information related to your situation.
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