Bill Gray – The Landlord Doctor

Insider Advice on Collecting Tenant Debt and Screening Tenants

Tough Economy Makes Tenant Debt Tough, but Not Impossible, to Collect

Posted by Bill Gray on December 28, 2009

[tweetmeme source=”your_twitter_name” only_single=false http://www.URL.com%5DThe downturn in the economy has caused many landlords to lower their credit requirements for new tenants.  Of course, lowering credit requirements increases financial risk. Renting to a tenant with little or poor credit increases the likelihood that the tenant will at some point leave owing the landlord money.

This change in rental criteria is understandable, considering the need to keep all units rented.  But know that when you lower your standards and in turn incur debt, this debt will be tougher to collect than if you had rented to a tenant with good or great credit.  If you use a collection agency to collect the debt, you should also lower your expectations about how much you feel they should collect.

Collection agencies are reporting that they are receiving many more files than two years ago.  The average amount of debt in these files has also increased.  Relaxed rental standards, coupled with the high unemployment rate, have put collection agencies in a tough spot.

The American Collectors Association reports that the collection industry debt recovery rate is down 30-40% over last year.  Angi Pusateri, National Sales Manager for RentDebt Automated Collections, confirmed that her company is experiencing a similar decline in debt recovery.  However, RentDebt Automated is weathering the storm well and has added employees in the last year at their offices, which are located in Nashville, Tennessee and Dallas, Texas.

Jeff Cronrod, the President of Rent Recovery Service, a national collection agency specializing in the collection of tenant debt, estimates that nearly 40% of the debtors his company is trying to collect from are unemployed.  “It is not that these debtors do not care about the debt or their credit. They simply have no means to pay the bill,” Cronrod explained.

Saul Wertzer, President of Rent Recover Solutions in Atlanta, Georgia (not to be confused with Cronrod’s Rent Recovery Service), told me that his company has also seen an increase, not only in the number of collection files, but also an increase in the average amount of each file.  I have heard this from every company I have spoken with, in every corner of the country.  Wertzer went on to say that it is important for landlords and property managers to think long-term about debt they are owed by previous tenants.  Over time a good percentage of tenant debt is collectible.

If your collection agency has served you well in the past, stick with them, even though recent recoveries may have dropped.  Trust me, every agency is experiencing a tough time collecting debt.  Don’t jump ship and hire another agency, because eventually the economy will improve and many of these tenants who owe previous landlords will get back on their feet.  When they do, they will work to clean up their credit and pay their debt. But don’t wait until then to do something about it.  Now is the time to make sure the debt you are owed is reported to all three major credit bureaus. Whether your collection agency reports the debt or you report it via an automated service, make sure every dollar you are owed is reported.

Doing so will greatly increase the odds that you will get paid the debt your previous tenant owes you.

Email me your tenant screening and tenant debt questions.

Bill Gray

www.thelandlorddoctor.com

www.theinformedlandlord.com

Copyright 2009 Click here to reprint/re-post

Tenant Debt & Screening Forum www.theinformedlandlord.com

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One Response to “Tough Economy Makes Tenant Debt Tough, but Not Impossible, to Collect”

  1. Another great tip for landlords! We too have noticed a marked decline in the quality of tenants we are getting applications. It is not unusual for us to go days between even getting phone calls. We recently got an application and in processing it found out that the place she claimed to be currently working said that she had been fired back in February. It turned out she was recently fired from another job recently and was unemployed. She had put false information on the application, filed out a false verification of employment form and had put down a good friend’s cell phone number to call for her alleged manager. The sad part is that she rented from another landlord just two doors down. Evidently they are so pressed to get rental income they would accept anyone. I think this strategy will cost them dearly in the long run.

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