Collecting back rent must be done properly and in compliance with the renter's rights. Here's what you need to know...
Collecting back rent can be a stressful process. However, as a landlord, you’ll undoubtedly have to deal with missed and late rent payments at some point during your career. The best way to manage late rent is through avoidance.
As such, when it comes to managing and collecting rent, landlords need to be vigilant. Not only should all tenants be thoroughly screened ahead of time, but landlords also need to have a clear understanding of tenants’ rights in order to collect rent payments.
Collecting back rent must be done properly and in compliance with the renter’s rights. Below we outline six essential tips that landlords need to know to avoid late rent and how to collect back rent efficiently, should the tenant fall into arrears.
Having an established and efficient tenant application and screening process will allow you to quickly identify and secure the very best tenants for your rental – tenants that can and will pay the rent on time and in full every month.
As part of your tenant screening process, you need to have a clear and predefined set of criteria that your tenants fit. This can include things like income level, credit score, rental and criminal background check, etc. Make sure you are familiar with the protected classes and the fair housing act to ensure you avoid discrimination.
The easiest way to manage this is to create a rental listing with Landlord Studio. This allows you to collect and pre-screen tenant applications using our predefined set of pre-screening questions. Once you have likely candidates, you can organize viewings and easily run a comprehensive tenant screening report to check your prospective tenant’s renting history, income, criminal history, debt leverage, eviction history, and more.
Having a clear and well-defined rent collection process will help avoid any confusion down the line. This rent collection policy should be detailed in the lease document and inform your tenants exactly when and how you expect rent to be paid as well as your policy around late fees and grace periods.
A few items to include in your rent collection policy include:
It is important to have your rent collection process detailed in writing and signed by both parties. Any late payments are a breach of contract and could result in triggering and eviction, so it’s important that both you and your tenants are clear on the details of the rent collection policy and the consequences of late rent.
The easier you make it for your tenants to pay the rent the more likely it is that they will pay the rent on time and in full. Having to go to the bank or post office is a barrier and it can be easy to put the task off or forget about it. This is why we advise using software like Landlord Studio to collect rent.
However, logging in and initiating a payment every month is still a process that can be easily forgotten. So, it’s generally agreed the best way to ensure payments are made on time is to use an automated payment system.
The most commonly used system for automated payments is via the ACH network. To use this you’ll need to employ a third-party software such as Landlord Studio.
With Landlord Studio, tenants can log into the tenant portal to view historical and upcoming payments as well as review any outstanding rent payments. They can then set up an automated transfer which will be deducted from their bank account and transferred directly into the landlord’s account.
Our accounting software will then automatically track the income as well and you can even send payment receipts so that both parties have a clear record of all payments made to date.
The first thing you need to do is clearly communicate the lease and rent collection policy to your tenant. Should the tenant miss a rent payment, before issuing a late rent notice or initiating an eviction process you will want to ask them why the rent is late, when they expect to be able to pay it, and what you can do to help ensure this doesn’t happen again.
Pursuing legal action to reclaim back rent can be expensive and time-consuming and as such should always be left as a last resort. Instead, communicate with your tenant and see if you can work out a strategy that works for both of you in order to collect back rent and avoid future late rent payments.
With that being said, if there is a breakdown in communication or if your tenants are evasive, refusing to tell you why or when the rent will be paid, it may be time to move on to other countermeasures (including eviction notices) as outlined in your rent collection agreement.
If, after all the preemptive measurements and communications, rent is still overdue then it may be time to move on to the next steps. One step you might take is to work with a third-party collections agency. If you do decide on this as a next step you will want to do some research:
Once you settle on a collection agency, you will need to give them an itemized list of past dues, proof that adequate notice has been issued to the tenant, a copy of the signed lease agreement, and details of all past attempts to collect the rent.
The agency will then attempt to collect the back rent and will charge a specified fee for their service.
Once a tenant moves out, if they still owe rent you can use the deposit to cover overdue rent. Make sure to check local and state regulations to ensure this is done in compliance with the law.
If however, the rent owed is equal to more than the deposit amount, or the deposit is used for other purposes, for example, to cover damages to the property, then you may need to take the tenant to court or employ a collection agency as explored above.
If you do take them to court and the tenant cannot pay the money all at once they may order a “wage garnishment”. This is a court or government agency order that requires the employer to withhold a certain amount from the tenant’s wages and send it to the landlord.
Owning, renting, and managing a property is challenging enough for a landlord without the added headache of collecting back rent. Sticking to these tips will help alleviate some of those challenges and prepare the property owner for a positive landlord/tenant experience.