Archive for the ‘Tenants’ Category

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Best Practices For Late Fees and Notices

Tuesday, August 17th, 2010

At the beginning of every month we are prepared to deal with the tenant who, for all kinds of reasons, is not going to make their payment on time.  All of our leases are structured with a five day grace period.  After day five, the late fee in the lease is applied.  From that point on we have standard procedures to follow that are only handled differently if an owner chooses.  Occasionally, an owner take mercy on a tenant and considers special circumstances.  We discourage this as it tends to become habitual.  We also request any tenant who believes a late fee should be waived to submit this request in writing for us to forward to the owner.  Unless approved, on the 6th of the month, all tenant accounts that have not been paid register a late fee and a first notice is sent via email to the tenant.

From this point on we are in pre-eviction mode.   Once in a while when a tenant who has never been late is late, and we think there may be an issue unrelated to finances, we may give a courtesy call as well to serve as a reminder.  The late fee is still accrued but this provides them a chance to settle quickly before we move into posting for eviction. 

Our schedule of notices is as follows: 

  • Rent is DUE on or before the first of each month; and late if received after the close of business on the 1st
  • Late Fees per the contract are automatically added to the tenant’s account on the 6th.  All tenants receive an email notice when this charge is posted.
  • A current statement is available on the Tenant’s web site showing the amount owed.  This is explained to all tenants and is available until the end of the lease or the Tenant is evicted.
  • Pay or Quit notices are posted around the 10th day (depending on Holidays/Weekends)
  • Eviction is filed around the 15th (Evictions can be stopped at any time up to the hearing and order from the court)

 We stress to all tenants that just because there is a grace period  for Late Charges to accrue - the rent is still DUE on the first of the month.  Therefore, it becomes “Late” if paid after the first (which is why we are owed a LATE charge is it is allowed to stay late for five days).

One other issue is tenants who “short pay” or do not pay the full lease amount.  They too are considered late as the balance was not paid in full.  All the above rules and time lines also apply.  If an owner chooses to accept something different, we will follow their direction.  Short pays still accrue full late fees and the probability of an eviction notice.

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Posted in Eviction, Late Rent, Owners, Procedures, Property Manager, Tenants | No Comments »

Family Dinner Time, Your Phone Rings..Do You Take The Call?

Friday, July 23rd, 2010

After months of getting your investment property prepared, the first call comes right as you sit down with your family for dinner.  You are not sure who is calling, but from now on every unrecognized number may be a tenant…a source of revenue to offset the payment and expenses you have incurred.

You ask your family to excuse you as you slip off into another room.  Sure enough, it is somebody calling to find out about the three bedroom home for rent.  As your heart skips a beat, you describe all the personal touches, along with the not so personal touches.  All the fresh paint, and efficient windows, and the extra storage.  The caller sounds nice enough and now they ask if they can see the property!

“This is going to be easy” that little voice in your head tells you.  The caller says they are free after work tomorrow.  You say great, forgetting for the moment that tomorrow is Jimmy’s playoff soccer game.  Remember, you need to get this home rented.   After confirming the time, you hang up and realize that you do not have the caller’s number.  Maybe it is on caller ID…but no…they must have used a blocked number.  You return to dinner as the table is being cleared.

That night your wife reminds you about Jimmy’s soccer game tomorrow night.  Immediately, you realize the conflict and wonder how you can find these callers to reschedule.  That fails, so you hope your best buddy can show it to them tomorrow.  He has plans.  So, you are stuck.  Maybe a quick showing and race across town and still catch the second half.  

The thought hits you, maybe you really should have budgeted for help with this hobby.

The showing time arrives.  You bring two rental applications found on line..just in case.  Not sure how you will get the background checks or credit pulled but you  will figure that out once you have the applications completed. 

 At the agreed time…no prospective tenant.  Fifteen minutes late, they pull up in a 20 year old van falling apart and very dirty.  It is exhuming exhaust.  The prospects both grind out their cigarettes on the driveway as they get out.   Both possible tenants begin to unload children from the rear.  First one, then two, then three and finally four and five.  Lets see, 7 occupants in a 3 bedroom 1000 square foot home.   Your heart sinks a little.

You show off your pride and joy and learn that there are some mysterious circumstances about where these people currently live.  A reference to how nice it will be to actually live in a home instead of the van by one of the kids catches your attention.  At that moment, you decide to ask what they do for a living.   One is unemployed..the other just got a job after months of unemployment.  The job involves selling magazines and appears to not really be as an employee but as a contractor.

Of course, they love the house and request the applications.  You hand them out and ask them to fax or email them back as you really need to run.  They do not have fax or email and want to fill them out now.  You are screwed.  Jimmy scores the winning goal..you miss it.  You waste an hour with a family that you are not even sure how to screen to officially reject.

Why is it again that you are doing this yourself?

Mistakes you learn by and the next time you will be smarter.  No answering the phone during dinner…but what if?  More pre-screening on the phone…but what if they call during dinner and you are in a hurry?  At least get a phone number…that one you can do every time!  How many more summer evenings meeting tenants before you find one?  Then, won’t it be fun to increase the return on this hobby by being there to service the leaky faucets and the oven that does not work on Thanksgiving?  Oh, and collect late fees when rent is late.

Leasing and property management sure sounds like fun when you have a life and a career..doesn’t it?  Most people actually have to enjoy experiences like this to decide that they understand why management and leasing companies exist. 

Save yourself the headaches.

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Posted in Best Practices, Owners, Qualifications, Rent Preparation, Responsibilities, Screening, Selecting A Manager, Tenants, Uncategorized | No Comments »

Defining Damages To Deduct From The Security Deposit

Monday, July 12th, 2010

Traditionally, security deposits are funds reserved for repairs beyond “normal wear and tear”.  This common language is defined by our own perspectives in the way we keep our personal homes, versus what courts of law are going to typically find worthy of a security deposit deduction.  So, sometimes what an owner finds to be a security deposit deduction item is based on personal standards that in a court of law would be found to be actual normal wear and tear.

Security deposit funds are reserved for damages caused by a tenant, whether accidental or intentional.  The fine line is the one between normal wear and tear that even the most careful tenant could incur on a property, and that which would be considered excessive.  The degree of soiling and wear on floor coverings often comes to mind.  Carpets, in particular, show the degree of wear when the furniture that was sitting on top of them are removed.  If a normal carpet cleaning brings the carpets back to life, this would be considered normal wear and tear.  If a large stain takes a $100 extra charge to be removed, or can’t be removed at all, this would be considered excessive and worthy of a deduction to the security deposit to pay for the eventual repair.

A couple of other common areas of confusion.  Paint will incur scuffs and dings in normal living.  Small holes for wall hangings are also to be expected.  Excessive amounts of either (drywall damage or large mollys pounded into the drywall every five feet) would likely be considered damage.

As I have stated in other posts, we mitigate the relative amount of change to a unit with a before and after walk-through to include pictures.  This allows us the greatest leverage if a security deposit deduction is required.  For more information, here is a link to a table posted at WilmothGroup.com with more examples of Wear and Tear versus Damages.

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Posted in Best Practices, Owners, Security Deposits, Tenants | No Comments »

What Happens To The Security Deposit When Changing Property Managers?

Wednesday, July 7th, 2010

Recently, one of our owners lost their investment property (that we were managing) to foreclosure.  In the new day we currently live in, this change in ownership (from individual to bank) will mean little to the tenant.  Unlike just two years ago, the banks are honoring leases under the Protecting Tenants In Foreclosure law passed in 2009. 

Where a bank is not traditionally handling property management, they have had to go out and find companies to handle this task for them.  Unfortunately, the banks have chosen to handle tenants and management the same way they handle property services…wholesale.  The banks are hiring large companies to serve the property management function.  These “wholesalers” are providing nothing more than a back room and a local person with little or no property management experience.  Without going into too much more depth as to the ramifications of this approach, having an inexperienced field person working the transition of a property to a new manager created some issues when it came to the handling of the security deposit.

This issue is relevant to both a tenant and owner.  We hold every dollar of deposits in state regulated escrow accounts.  This money belongs to the tenant unless they violate their lease in a way that creates a need to reimburse the owner.  So, just because Wells Fargo is knocking at the door demanding we hand over the security deposit, we don’t just write a check.

Likewise, if you, as an owner, are transferring property managers, we expect all parties to handle their fiduciary responsibilities as to the security deposit in a manner that honors the tenant’s interests.  Tenants have the right to be made aware that a property manager is changing.  The correct way to handle a change in managers is to:

Utilize a letter explaining the transition.  This letter should be generated by the new property manager and ideally also signed by the owner and tenant.

Issue a check for the security deposit to both the tenant and the new property manager. 

We will usually take this check to the tenant for endorsement with the letter.  In this way we are able to introduce ourselves as the new manager, answer any questions, and have a written record of receipt of the transfer letter and endorsement of the security deposit funds into our escrow account.

Needless to say, the field person hired by the wholesale property management company hired by the bank had no connection to any procedures like this.  Basically, stating that they had the full power of the US government supporting their actions, they insisted that we hand over our lease and write them a check for the security deposit.  The resulting conflict took a few days and a call with the wholesale property manager.  We gave them a check made payable to the wholesale manager and the tenant.  I wonder what happened after that?

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Posted in Best Practices, Owners, Procedures, Property Manager, Responsibilities, Security Deposits, Tenants | No Comments »

Working With The Past Due Tenant

Tuesday, June 1st, 2010

Throughout the years, most owners I have worked with understood that a tenant can run into hard times.  Lately, we have seen more of those than in the past.  When this happens, and the tenant falls behind paying rent, there is a list of questions to consider before deciding to give a “Pay or Leave” letter (leading to eviction) or creating a workout plan for the past due balance.

1. What is the condition of the property as compared to when the tenant began their occupancy?  I feel like this is a indicator of not only the possibility of further deterioration without the correct compensation for rent, but also often an indicator of personal problems.  I am not talking holes in the wall, dogs using the carpet condition.  Even minor things like dirty conditions and any pride of residency (fresh flowers or cut lawns) can provide an indicator that this delinquency could become expensive.

2. How easy will it be to re-lease the property?  What is the market like?  What is the history of how long it takes to rent the subject property?

3. What is the tenant’s issue with paying on time?  Do they earn enough money?  Is the situation temporary or long term?

4. Is the tenant communicating and discussing openly their challenges and requesting assistance?

5. If it is determined that we wish to try and work with the tenant, the next issue is how much can they pay and how long will it take to get caught up?  Can they get caught up prior to the end of the lease?

If a decision is made to work with the tenant, then the payment workout plan needs to be documented.  We have a Agreement that is executed by the tenant and basically states if the payments are not made on time as agreed, then the entire past due amount is immediately due or eviction will proceed.  Payments need to be scheduled to match the tenant’s scheduled pay day so that the agreement is paid before other choices are made for their money.   The required payments also need to be in an amount that makes sense as a percentage of the tenant’s income. 

If a tenant will not agree to a workout schedule in writing..I think the owner has the answer they need to move forward.  I have rarely ever seen much good result from a situation where an owner allows a tenant to stay and make payments “when they can”.  Those situations usually find the tenant falling further and further behind , the property falling into more disrepair and the increased potential for an eviction argument (“the owner told me he would work with me”) from the tenant to the court.

Determine if you want to work with the tenant and if so..document it.  Then enforce the document.  That is what your Property Manager is hired to do.  Use their expertise and experience to navigate through these events.

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Posted in Best Practices, Late Rent, Owners | No Comments »

Personal Property Questions Associated With Death of the Tenant (cont.)

Monday, May 24th, 2010

A couple of weeks ago a post I wrote addressed a new Addendum we have created to add to a lease allowing a tenant to designate a party to be authorized to remove personal property of the tenant when they are not able to due to death or incarceration.   Several questions have arisen since that post and I will do my best to address them here.  I will also be the first to say no policy or procedure can take into account every possible situation…particuarly when dealing with a topic this sensitive.  I am a big believer though that you do what you can to create a path to guide you through situations.  From that path, you may find hurdles or needs to detour..but at least the path shows you the way to the destination or goal.

The first question that I was asked is what happens if the designated party can’t be found or located?  I actually anticipated this.   I thought well maybe we add a back up name but to some extent that seems like overkill and might lead to a dispute.  The fact is that this form will be updated with each lease renewal.  Almost all of our leases are for one year.  This is not like a will where somebody names a beneficiary and then the issue has to be addressed 20 years later.  The contact information should be sufficient in a one year period.  Otherwise, I would submit to a court to provide direction for disposal.  The problem there is the desire to quickly release the property.  My solution will be to first request permission to store the items while a court decides who to release them to. 

The next question was what would we do if the designee showed up the same day as the determination that (how do I say this) the tenant was not going to be making any more rent payments?  I may not have been clear on this but we won’t be releasing anything, or giving access to the unit until the police authorize it.  Every situation like this that I have been involved in, if they involve death, there is usually a period the property is sealed off.  We will get authorization before entering or allowing anybody else to enter.

Who pays the rent during this period?  I guess I am not expecting anybody to pay the rent but it is also limited to a ten day period.  If the designated party wants more time than ten days, at that time we would negotiate a lease payment for the period requested.

Finally, we will require a copy of a photo ID to confirm the party who is reporting to remove items is the party authorized to do so.  We will get a copy of this photo ID to avoid future disputes.

No policy can address every issue.  I continue to think this new Addendum gives us a direction to handle this unusual process.

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Posted in Personal Property, Tenants | No Comments »

Avoiding Personal Property Headaches

Wednesday, May 12th, 2010

Another property manager shared with me something that happened to him recently that was disturbing because most landlords are not prepared for how to handle it.   He had a tenant commit suicide in one of his rentals. 

Without covering  the gory details, there are steps to be taken to ensure a situation like this is handled properly.  With law enforcement authorities as your guide post, what a landlord or manager can or can’t do is pretty much dictated by the determination of these authorities.  Once possession is retained, and it is clear to enter the property, there will be another issue often not addressed in any lease.  What to do about the deceased tenant’s personal property?

In this case, the tenant’s Mother almost immediately wanted to clear out the home of items she believed were her possessions or of personal value to the family.   The problem was compounded when the tenant’s former girlfriend also staked her claim to items in the property.

Our lease has an abandonment clause that allows us to dispose of personal property when the abandonment is due to death.  Most leases have a similar clause as did my friend’s.   What I have not seen addressed is a way to allow a tenant to provide a landlord or manager direction for disposition in cases like this.  Sure, the black and white answer is to dispose of the items and move forward.  Assuming a similar abandonment clause exists in the lease, short of an order from a court, an owner has every right to proceed in this manner.  The problems with this approach are the lack of compassion it may show toward members of the deceased family, but also a potential large cost to the owner.  These personal property items are not going to just walk out and find a new home!  While not an attorney, I suspect some personal property notice laws may also apply.  Open notice will delay getting the home available to lease and not solve managing the issues associated with multiple parties staking claims to personal property.

My friend and I brainstormed what could be done to address this issue.  He had a very difficult situation that many hours were invested managing the disposition of the personal items.  We both started to work on creating an authorization to allow a tenant to name a party to clear out personal property items in the event of their death or incapacitation (a long term stay in the slammer might also qualify).  Such a form has now been implemented as part of our leasing procedures.  The form allows the owner to create a ten day notice period withcontact to go to the named party that they have this opportunity.  Otherwise, items will be disposed.  It requires a contiguous period of removal (not 2 hours one day, and 1 hour the next).  It also is not valid if a Court or law enforcement agency is involved and does not approve.

These are topics we often do not like to think about until they reach up and smack us in the face.  Allowing a tenant to name their desire for settling the release of their personal property (we also included pay out of the security deposit with the same limitations) allows a manager or owner the guidance as to how to proceed with resulting requests for access.  By utilizing a form, the tenant may also change their instructions during the term of the lease.  The solution is now in place.  Neither my friend or I have had to actually utilize it yet, and we hope we will not have to.  We feel better knowing this base is covered if something happens in one of your properties that will allow us to save you money, and hopefully get the property producing income again in the fastest manner possible.

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Posted in Best Practices, Owners, Personal Property, Tenants | 1 Comment »

No Hot Water! If This Was Your House….

Tuesday, April 27th, 2010

Had a situation last week where a water heater stopped heating for a tenant in a property.  Due to the age of the heater, the Owner chose to replace the unit.  Access to the unit was tight and the ease of removal of the old unit, while creating space for the new one, ended up taking a little preparation.   On day two with limited hot water the tenant thought we should put he and his family up in a hotel.

While juggling with the best way to solve the space issue for the heater, now we had a tenant who thought having hot water every day is a reimbursable right.  Maybe..each case is unique.  Interestingly, I did some research and many states have rules that state repairs like this, for the comfort of the occupant, must be completed in an average time of about 5-7 days.  So, day two for lack of hot water was not pushing any envelopes.

I also learned a very good question to ask a tenant in this situation. 

“If this were your house as the owner and the water heater went out, would you go spend the money to go to a motel until it was repaired?” 

Of course, they would rough it.  I do not see an issue like lack of hot water causing an owner to leave their home.  Likewise, heat and air conditioning.  I have seen many tenants rough it for a day with no heat in the winter or air conditioning in the summer.

There is a reasonable amount of time to let a matter like this go before an owner should consider options for their tenant.  I have always felt two to three days was reasonable.  It appears where there are laws addressing tenant rights this is acknowledged.  Now I have some language to help illustrate the point.

By the way,  space was created and the water heater problem was resolved on day three.  I am sure the tenant will always let me know about the harm this caused he and his family.  Of course, he also said if he was an owner he would just boil some water and take sponge baths!

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Posted in Best Practices, Owners, Rights, Tenants | No Comments »

Smoking Ain’t Allowed In School…

Tuesday, April 13th, 2010

I can’t help it.  This topic always makes me start thinking about the 70′s classic “Smoking In The Boys Room“.  For rental property owners, I think smoking is one of the most challenging issues.  I know many owners who have staunchly not allowed smokers to rent their properties but in today’s soft market are now reconsidering this policy. 

I see this as a three choice decision.

  • No Smokers
  • Smoking Only Allowed Outside
  • Smokers Allowed

My experience with “smoking only allowed outside” has not been great.  Smokers are famous for thinking they can actually walk around and smoke and nobody else notices.  Also, depending on the climate extremes, the nicotine habit is not something that allows a smoker to hold off when it is ten degrees below zero, raining like a monsoon, or just plain miserable outside.  So, an innocent exception becomes common place and the smoker thinks nobody can tell because they do not smell it.

The other negative is the risk of fire.  Reports of people smoking in bed, starting fires that destroy property and possibly lives, are common.  Smoking creates a new liability issue.  In researching this post I was surprized to learn that one in four people killed in home fires are not the smoker whose cigarette caused the fire!

Then the obvious.  The smell does not come out.  Once a property owner allows smokers, the only next tenant will be a smoker.  As a population, smokers are decreasing.  Have you made a choice in a soft market that actually will limit your potential tenants the next time around?

My best suggestion if you have a non-smoking property and feel that you are losing tenants by maintaining this position?   Go with option 2 permitting smoking outside the premises.  Then ask for a “smokers damage deposit.”  Simply, this deposit is for the extra cleaning that will be required if the smell of cigarette smoke is detected in the home.  I know, very subjective.  I would worry about subjectivity if smoking is detected inside.  An independent  “sniffer” could be the verification device.  The point is the deposit is enough that the smoker thinks long and hard about smoking inside when it is really nasty outside.  This might also keep the smoker in tune to make sure their friends do not smoke inside.  About $500 should be a nice sum and will provide reimbusement for a thorough cleaning and air ionization.

Start by making all properties non-smoking and then add this deposit only if you need to get a property occupied and feel allowing smokers will open up more possibilities.

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Posted in Liability, Screening | 1 Comment »

Get It Rented..Now!

Friday, March 19th, 2010

Anybody who has ever owned an investment property and looked at it empty has experienced the certain panic that ensues as another month of expenses are paid out of pocket.  The natural sense is to urgently accept the first tenant that comes along and can fog a mirror.  I understand that.  I also can’t express often enough, that when just any tenant is accepted often you’re trading one set of headaches for another.  Unfortunately, the bad tenant headaches are frequently more costly than letting the property sit vacant!

So, at Wilmoth our objective when leasing a vacant property is to properly screen prospective tenants so that we get your property leased to a properly qualified tenant.  There are actually five different points of contact that are a part of our screening process.  Some of these contacts result in objective information, some are more subjective.  It is through this process we ultimately can recommend whether or not to proceed with an applicant.  These points of contact include our first inquiry, the showing, the application, the approval, and the lease signing.  Yes..I said the approval and lease signing are a part of the screening process!  Up until the moment there is ink on a lease, certain types of behavior or incidents, or new information, would allow us to determine this is not the right tenant for your property.  So the screening process continues until the lease is executed.

During the inquiry we get basic information on the proposed tenant (PT).  If the PT has problems answering basic questions like why are they moving, or can they provide references, these are not good signs.  Good PT’s are anxious to answer questions thoroughly..they have nothing they wish to hide.

When we show the property we notice subjective things about the tenant.  Is their appearance well kept?  Their car? Do they have an attitude?  Are they critical of the property or process?  If it is a non-smoking property, do they smell of nicotine (smokers never realize they smell!).

The application process is where we hit both subjective and objective behaviors.  Do they willingly provide the application information promptly or is it like pulling teeth?  Of course, this is where we also gather objective information in order run credit, criminal, and background checks.  This objective information is provided within the privacy laws to the owner, along with our observations and any recomendation.

Letting a tenant know that their application is approved and asking them to schedule the lease signing is another screening hurdle.  Also, specifically identifying the amount of funds required and how it is to be delivered.  It is at the approval notice that we ask for the first month rent to hold the property.  These funds are to be presented in a cashiers check or cash within 48 hours of approval.

Finally, the execution of the lease is a surprizing final screening moment.  I have had tenants not show up, or show up several hours late,  for the appointment.  This is almost always a bad sign.  I have had tenants want to have a copy of the lease so their Uncle John, the Realtor, can review.  This does not have to mean you are going to have problems, but it is also almost always going to produce further questions or requests.  Completing this process in order to have an executed lease can provide indications of what type of tenant we are dealing with.  There are moments when it becomes clear that returning their deposit and getting the property back on the market is the best alternative.

So, prospective tenant screening is an ongoing process that we feel is very important to making sure we have a highly qualified tenant for your property.  The headaches avoided by methodically screening a PT are well worth the effort.

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Posted in Qualifications, Screening, Tenants | No Comments »

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