If you've been a landlord for a while, you've probably already experienced a tenant failing to pay rent at least once. This can often be stressful since you never know if a simple notice would suffice, or if they will be difficult to communicate with. There are proper procedures to take and laws to follow, which make sure that you don't land into any ethical or legal trouble.
Steps to Take to Collect Unpaid Rent
Remind Your Tenant of the Past-Due Rent
While it is within your right to serve a proper notice when rent payments are delayed immediately, it might help your landlord-tenant relationship if you speak to them first. They might be able to explain the reason behind the unpaid rent, and you can offer other solutions to help them out. Being compassionate can even lead to them paying rent late less often.
Provide a Written Notice
Most landlords provide a three-day late rent notice to collect past-due rent after the rent grace period. The notice must include information such as the tenant's name, the address, the amount of unpaid rent, and the deadline for the debt settlement. California law states that you may deliver it in the following ways:
- Hand deliver
- Give the notice to another adult in the home or where the tenant works and mail a copy to the tenant
- Post and mail the notice
Offer a Payment Plan
If you find that the tenant has a valid excuse for the late rent payments like medical emergencies or unexpected layoffs, you may set lease agreement terms aside and offer a payment plan to accept partial rent payments or installments. This could be the more ethical and less complicated route as opposed to an eviction process, which may take months to complete.
Issue Late Fees
There are no local laws that impose specific limits on late fees, so you can determine how much you would charge for late rent payments. Be sure not to overcharge and state it in your lease or rental agreement early on to avoid complications for rent owed. You can collect this during or after you collect unpaid rent.
If the Tenant Doesn't Pay After All Measures Taken
There are several options you can go for when you have done all you can and the tenant still refuses to pay rent. Some are more common while others are more convenient for landlords.
Security Deposit Deduction
If you collect a security deposit before the tenant signs the lease agreement, you can deduct a certain amount to cover unpaid rent as per the lease terms. Many landlords require a deposit to recover unpaid rent in the event a tenant can’t pay. It can also be used to pay for damages to your rental property when needed.
Cash for Keys
A property owner may sometimes want to avoid further legal action. An eviction is a lengthy process and may cost the landlord both time and money. With cash for keys, the tenant may agree to move out of the rental unit and hand over the keys in exchange for payment. The rent remains unpaid, but the landlord can immediately look for other tenants who would follow the lease terms.
Eviction
As mentioned before, the eviction process can be tedious. There are local landlord-tenant laws you need to follow, and seeking legal advice or hiring professionals might be necessary if you move forward with legal action. When the court hearing goes your way after issuing a pay or quit notice, you'll be able to recoup unpaid rent and even have the tenant pay for legal fees.
Hire a Debt Collections Agency
Hiring a professional debt collection agency delegates the task of having to chase after a tenant who doesn't want to pay the rent. One of the downsides to hiring a rent collection agency for unpaid rent collection is you're still not guaranteed to get full rental payments, and you'll have to pay them for services rendered as well.
Report Unpaid Rent to the Credit Bureaus
You may report the tenant to credit bureaus about their outstanding rent, and it might encourage the renter to finally settle their dues. It can affect your relationship with the tenant if they decide to stay, but such measures are sometimes necessary when it's affecting your rental income.
Preventive Measures
- Rent Guarantee Insurance: It serves as an insurance policy that covers the rent when tenants refuse to pay the rent.
- Security Deposits: A security deposit is a good way to collect unpaid rent by simply sending a notice that you'll make the deductions. Be sure to have these terms stated in the lease agreement.
- Automated Rent Collection: Some landlords offer automated payment methods that deduct rent payments from the tenant's bank account, which streamlines operations and prevents unpaid rent.
- Multiple Payment Methods: You can accept rent payments through various payment channels like Cash App and ACH bank transfers. You'll have automatic payment records and the convenience will make it easier for you to collect rent.
- Thorough Tenant Screening: The screening process allows you to rent to people who are capable of abiding by your items. You can do so by checking factors like credit score, criminal background, eviction history, employment verification, and more.
- Comprehensive Lease Agreement: Ensure that your lease terms are clear and comprehensive to avoid misunderstandings and complications. Clearly state the consequences of failing to pay rent so tenants know what to expect should they not meet this responsibility.
Letting a Property Manager Do the Work
Rent collection is just the tip of the iceberg in property management. Between marketing your rental property and handling eviction proceedings, it can easily be overwhelming for a single person, which is why having the help of professionals can be beneficial to your business.
Blue Line Property Management offers services that can maximize the value of your business, including rent collection methods like a tenant portal which can be accessed 24/7. Let us do all the work and help you earn passive income. All you have to do is give us a call to get started!
