You have to collect rent that is past due. That's not fun, but it's sometimes necessary. This whole process can be a sticky situation for any real estate investor.
Maybe you disagreed with your tenant over their excessively late rent. Or maybe they broke the lease and added another pet without your knowledge. Maybe their kids dropped a firecracker in the toilet, and it exploded.
For whatever reason, either you had to evict, or your tenant packed up and moved out, denying you the ability to collect back rent.
That's not an ideal situation. It's an unpleasant annoyance that a real estate investor contends with as part of doing business. But it doesn't have to be.
In this article, we'll cover three practical and actionable strategies that enable you to collect back rent for the services you rendered.
You can't control that your tenants violated the terms of their lease, broke it, and left. You can control how you respond to their actions.
Suppose your tenant left without paying rent. Their violation is a situation in which they surrender the security deposit to you. Being behind on rent or breaking the lease is probably enough for you to collect back rent.
Check with your real estate attorney to be safe. You never know when your absent tenant might demand the security deposit back.
Even if your tenant left, they still have the responsibility to fulfill the terms of the lease agreement. First, you should try communicating with the tenant to explain their financial obligations. That doesn't always work out.
A lease is a legally binding contract. In other words, your tenant signed a legally binding contract stipulating that they would pay rent to live on your property. Once they violate the terms of the agreement, you have legal recourse in the form of your state's small claims court system.
Small claims court is a relatively cheap and time-efficient way to collect back rent. The process differs from state to state, but in general:
You'll get an enforceable judgment if you win in small claims court. With that enforceable judgment, you can collect back rent from your tenant via:
Another excellent, straightforward legal remedy to collect back rent is to sue in assumpsit.
When you sue your former tenant in assumpsit, all you're doing is asking the court to get them to pay what they owe you. That's it. Some states don't believe you're entitled to just back rent but also interest on the unpaid rent. We're fans of such landlord-friendly statutes.
It's always a good idea to check local laws and retain counsel if you plan to go to court. The court may be a worthwhile endeavor for large enough sums that the tenant could plausibly pay. Others may prefer to negotiate directly, arbitrate the dispute, or seek small claims damages as alternatives.
Your mileage with success in court will vary. The most significant considerations are their likelihood of success and the value of their own time. State law largely determines the former, how much you can recover, and in what venue.
The second consideration--about the value of your time and how you wish to spend it--is far more personal. Lawsuits are lengthy, often painful affairs. Most people will go well out of their way to avoid one. The reward and chances of victory need to be sufficiently high for the stress to be worth the trouble for most of us.
That said, court remedies exist for a reason. They're there when all your other, more straightforward solutions to your problems fail. When diplomacy, asking nicely, raising your voice, lowering your voice, offering to solve it between yourselves, offering to "release" from or any won't do anything.
If you've lost money from nonpayment, you can be made whole financially. Just understand that with anything court-related, there are never any guarantees.
It's never fun to have to collect back rent. It's time-consuming for you and takes you away from running your business. Unfortunately, collecting back rent is a necessity sometimes.
You have several options to collect back rent that we covered. You can use each or all of the following strategies to get your money:
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Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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