Posts Tagged ‘Indianapolis’

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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 »

Do You Want To Move?

Friday, April 2nd, 2010

Had a situation recently where a tenant discovered “mold” growing on the wall next to the laundry area.  The tenant was concerned as she has young children who have allergies.  At the point she contacted me she indicated the children were not acting like there was an allergic reaction to anything unusual.  Immediately, I asked her if she wanted to move?

Why?  First I want to be on record that I asked if the “mold” turns into something serious.  Second, I wanted to figure out if she was possibly looking for a reason to break the lease.  Asking the question does not an obligation make.  If the answer is yes, I ask them to put it in writing.  Whether the answer is yes or no, I want our managers to show a level of concern about the habitability of the home so as to indicate empathy but also to recognize the potential seriousness of the matter.

The next step is our own inspection and photos to send to the owner.  With these photos we will contact the owner to request approval for an environmental inspection.  This can be done for a small amount of testing of an area for a few hundred dollars. Frankly, if the owner is not willing to pursue identification of the “mold” the liability of us continuing as a property manager may be too high.  Unfortunately, this is a “must” expense.

As most of you know, mold indicates moisture and while inspecting the property we also try and determine a source of the moisture and a plan to stop the moisture.  This will also be a part of the owner request.  Again a “must” expense.  Throughout this process we continue to update the tenant and ask them if they want to move.   There is no clear cut process here..other than if it turns out you have serious mold in a unit and the tenant has been asking to be released from their lease and those requests were ignored….well get ready for some hefty legal bills to add to your mold problem!

So the steps we take are as follows:

  • Identify the source of the moisture
  • Correct the issue
  • Have a certified mold-remediation company inspect and then handle any current mold issues
  • Obtain a written certificate that the mold has been abated

If we get to step three and mold is identified, the owner is advised to release the tenant and the costs of remediation.  It is best at this point that the tenant not continue to live in the residence for their own health.  Also, during remediation they will likely not be able to stay at the home.

Throughout this process we act quickly to advise the owner and also make sure the tenant has been given the option to terminate their tenancy.  Good business and the ethical way to treat people.

Our tenant situation ended the way we all hope these situations will.  The dryer vent was loose pushing moisture filled air against a wall that now was showing harmless discoloration.  Upon fixing the problem of the vent, and identifying the harmless nature of the mold via a simple test and remediation process, all was fine.  Is the process I would follow in my home?  Probably not, but it is not my home and our job is to provide a safe, habitable residence for the tenant.  This required the “mold” be handled with total confidence and documentation.

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Posted in Liability, Mold, Owners, Repairs | 2 Comments »

Another Dog Story and Why You Need An Umbrella

Wednesday, March 31st, 2010

I was on an eviction recently where we actually ended up having to bring the Sheriff to create an “involuntary relocation”.  The tenant, claiming to be upset like she had no idea this was going to occur, did agree to let the Sheriff and myself inside to assess how much she had in the home for the waiting moving van.  As she was opening the door for us to enter, she said..”Oh, you are OK with dogs right?”  While I am immediately thinking Pet deposits and pulling the application to see if a pet was approved…and what type of pet at that, the Sheriff quickly had a response.  “Ma’am, that dog needs to be put outside immediately.  If that dog is in this home and moves toward me I will shoot it.”  Well, that took the tenant over the top.  As she hysterically went to look for the dog (a collie mix that was approved) the Sheriff looked at me and told me why he responded the way he did.  A few months earlier a tenant in an eviction told the sheriff they had a small mut and he was harmless.  The Sheriff still told them to put the dog in a secure area and proceeded in the property.  The small mut was actually a pit bull mix.  Shortly thereafter the dog was allowed  out of the secure area and charged the Sheriff. He says he did shoot it and killed it.  Rather traumatic event for all.  Of course, he had no idea if the dog was supposed to be there or not. 

As a property owner, the issue of dogs in one of your homes can’t be taken lightly.  We all love dogs and most dogs are nothing but caring friends.  Many young dogs do have destructive tendancies.  While we can’t mitigate every possibility of a problem with a dog as part of a tenancy, you as an owner should do everything you can to avoid possible liabilities.  A dog attack on a normal person, who likely is not carrying a weapon, will result in multiple lawsuits.  Anybody who owns investment properties should carry a large umbrella liability policy.  Discuss your situation with your agent and decide how much is enough but do not waste another day without addressing this important loss protection strategy.

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Posted in Insurance Owners, Liability, Pets | 1 Comment »

Could, Should, Must

Wednesday, March 24th, 2010

Anytime you decide to rent a property you will make decisions about what repairs, improvements, or maintenance will best help to bring the highest dollar rent.  Since we are dealing with tenants and not buyers, this list and its ROI (return on investment) is capped by the market reality.  If the tenant can go next door and rent for $50 less per month, your brand new blinds and towel bars are probably not going to encourage them to select your home and pay more.

Deciding what items could, should, must be done to rent a property is very difficult if you allow any emotion to play into your decisions.  I find owner’s also end up investing far to much when they continue to think in their mind that someday they may live in the home.  For many homes there is renter quality and there is owner quality.  Stick with renter quality on things like carpet, fixtures, appliances and paint jobs.  I find owner quality is a good decision when it comes to mechanicals and exterior siding and roofing.  My rule of thumb is can the tenant mess it up?  If so, then I stick with tenant quality.

Getting back to how hard it is for an owner to decide what could, should, and must be done.  I think it is the perspective of an owner that the property is an investment and spending top dollar is a good thing.  Or making improvement decisions by having to much empathy for possible tenants.  Nevertheless, let your property manager review a property for lease and make a list for you of what COULD be done, what SHOULD be done, and what MUST be done.  Then look at your budget and start with the MUST list.  Hopefully the budget covers the MUST list.  Even if it does not I would say you will have to change the budget.  MUST lists affect the ability to ever get a new tenant.  I am thinking items like a room that stinks of dog urine as an example.  The SHOULD list often is a list that can be extended over a few years but probably a plan needs to be put in place with some of the items completed now.  An example is a 15 year old roof will need to be considered a should item because tenants do not have the same passion for addressing the water stains that appear every time it rains.  So a lot of interior damage could ensue prior to feeling that the roof is a MUST item.  The COULD items are optional and things we feel might improve marketability.  Marketability really means lowering days vacant.  Painting certain rooms a nuetral color from a not so bad color would be a good example.

The owner needs to decide what they can afford but the second set of eyes of a Property Manager should help them to prioritize and plan for the future.

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Posted in Owners, Rent Preparation | 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 »

What To Do With Multiple Unrelated Tenants?

Tuesday, March 16th, 2010

It is not uncommon, particularly if the property you own is anywhere near a college or other center of higher learning, that you will receive an application from parties not related to each other.  It is also common in these situations to experience a change in mid-lease of the occupants.  It is important that rules for these situations are known and uniformly enforced.

One additional problem in these scenarios is that one or more proposed tenants will have limited or no credit or rental history.  For the purpose of this discussion, we are going to assume these are legal adults able to enter a contract…so turning to a parent for additional support is likely not an option.  Lets just leave it that you can always ask…but young adults in this situation may not be able to provide this type of additional support.

The purpose of this post is more to address what we do when there are multiple applicants and only one who really qualifies.  Actually, having one who qualifies is a great thing!  Nevertheless, I have heard property managers propose just having the qualified tenant co-sign for the unqualified.  I am not sure I understand this solution. 

When a group of unrelated tenants make application they are considered as a group.  If co-signors are required, they are co-signing for the entire terms of the lease..not just a portion as represented by their respective association.  Therefore, the burden of strengthening the application to work within our normal parameters (income, credit, rental history) is on the group.  A proposed tenant with an eviction might slip through and be approved based on a really strong overall group.  The entire group of tenants and co-signors are equally considered for approval.  They are all obligated for the entire amount of the lease. 

As a property manager or owner we do not want to be chasing multiple parties for incremental parts of the lease obligation.  The parties to the lease all need to understand they are individually obligating themselves for the entire contract.  One for all…all for one.

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Posted in Qualifications, Tenants | No Comments »

The Home Break-In-Who Pays For What?

Thursday, March 11th, 2010

Lets use the following example to discuss a scenario that actually has  different variations.  Your home is managed by us and the tenant we have placed calls to tell us there has been a break in.  The door is kicked in, cabinet doors ripped off the hinges, torn screens, electronics removed, and a big hole punched in a wall.  The owner is upset and the tenant is scared.  How do we sort this mess out?

Lets start with the first, primary issue.  The home is not secure due to the break-in.  I have seen owner’s stall in wanting to deal with this situation.  There is almost always an assumption that somehow the tenant brought it on themselves.  Maybe… but it does seem in most cases this is not realistic.  The basic fact is that the owner is obligated to provide a safe, secure, habitable property as part of the lease.  So, without delay, Wilmoth Property Services will resecure the home as needed and bill the owner for the cost of these repairs.

Next, we have the issues of the damaged interior items (cabinet doors and a hole in the drywall).  Again, the natural reaction is for an owner to want to avoid these repairs.  The thought is often this is possibly damage that already existed and was caused by the tenant.  We are going to recommend the owner make these repairs immediately, as they affect the value of their property.  If later information is obtained that leads us to believe the tenant might be responsible, we can look to the security deposit for repayment. 

I believe it is important in these situations that we operate with empathy toward the tenant.  If you have ever experienced a break-in, there is a lot of feeling of violation and the resulting trauma of the next few days when you return home wondering if the intruder has returned. For an owner to try and avoid returning a leased property to it’s previous condition is not the way WPS does business. 

As to the tenant, their Renters Insurance will cover the loss of the electronics.  In addition, we require a copy of the police report and any additional updates from law enforement.  In this manner, if a connection is made to the tenant as to any of the circumstances associated with the break-in, we can determine with the owner how to proceed.   The place I can recall a tenant potentially inviting a break-in involved an illegal activity taking place in the property.  By the police determining that the illegal activity was a potential cause of the break-in, a decision ensued to invite the tenants to relocate (with a threat of eviction).

At this point, it is a case by case analyis.  The simple fact for our owners to accept is we must operate with the benefit of the doubt, and immediately provide our tenants safety and security.  For the good of all parties, and the property value, immediate repair of all damages will be strongly recommended.

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Posted in Insurance, Owners, Repairs, Responsibilities, Tenants | No Comments »

Case Study-Tenant Abandons Home Prior To Lease Expiration

Monday, February 22nd, 2010

I wanted to present a real life case that we just completed.  The purpose of this exercise is to give owners, considering renting their homes, a realistic idea of the risk.  This may seem counter-intuitive (aren’t we supposed to be talking you into allowing us to manage and rent your home?) but our principles have always centered on educating our clients so that they are making the best business decisions.   The sum of this case is to present how little money ultimately will be collected when a tenant leaves early.

I am also going to limit this case to the level of detail necessary in order to provide understanding, without violating the privacy of the parties involved.

Last year, one of our properties under management was evacuated 10 months prior to the lease expiration.  Upon discovery, it was also determined that the home had sustained damages of several thousand dollars.   Upon a complete analysis of the damages and rent not collected, we concluded a loss of $24,500.

In working with the owner we hired a local attorney to file suit against the former tenants.  We were able to verify one of their employment had not changed which gave us what we needed to file suit.  We also immediately began to repair the property and attempt to re-lease it.  In this particular situation, the attorney advised us that the actual dollars to ask for in a suit would be adjusted based on when the property was re-leased and if there was any loss of rent by accepting a lower lease.

We were successful in re-leasing within 60 days at a slightly lower rate.  The owner did not receive rent for a period of 90 days due to the lack of collection in the first month that alerted us to the vacate.  When the final calculations were completed, we believed the owner was due $8500 in lost rent and repairs.  The faster you can get the property re-leased the more the potential loss is managed ($24,500 versus $8500).

We had no trouble obtaining a judgement for $8500.  The tenant actually showed up in court and tried to pursue the logic that a small non-maintenance item had not been addressed timely therefore negating the lease.  Fortunately, in Indiana an argument like this holds no weight.

Now comes the fun part.  How do you collect a judgement for $8500?  Most collection agencies take a fee of 30-40%.  The attorney pursued the collection at a fee of 30%.  This is where the owner has a decision.  Does the owner try to settle the judgement in a lump sum payment or allow for a elongated collection period?  The issue in my experience is that people with judgements, usually have more than one.  It is often only a matter of time before they visit bankruptcy court and have the judgements dismissed under a Chapter 7 bankruptcy.  Therefore, I encourage owners, to accept a lump sum settlement and move forward.

These owners agreed with my advise and ended up accepting a settlement of about 50% of the judgement.  Somehow, the tenants had this amount of cash and paid the judgement.  After the attorney collected 30%, the owner received about $3000 on a $8500 loss.

These tenants were screened and I felt we did all we could to avoid what happened.  Turns out they had some personal problems that made living in the same home impossible.  Divorce can’t be planned for.  We do not have, nor are we allowed to ask,  a screening question for “how secure is your marriage”, or “do you have any impending health problems”.  We just have to do the best to mitigate these outcomes.  Unfortunately, the best we can do almost always still involves a loss for the owners.  The management company loses also in lack of revenue and time managing the re-lease and settlement.  Our job is to do the best we can advising the owner and mitigating this loss.   If this happens to you, and you end up with 40 cents on the dollar of recovery, this case illustrates that is a pretty good recovery.   Most tenants have no ability to settle and will file bankruptcy to get rid of the judgement.  Whatever the final outcome,  let the accountant figure out how to factor the loss into your taxes.

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Posted in Risk | No Comments »

What Happens When The Owner Of A Property Under Management Defaults Their Mortgage?

Tuesday, February 16th, 2010

Unfortunately, an issue that use to be an occassional rare one, has today become a frequent problem.  In almost all cases, owners choose to make their own mortgage payments.  We do offer a service to do so, but most owners I believe wish to control their cash flow on a rental.  So, until the day a tenant is actually served a notice (sometimes it is the Notice of Defaul; sometimes they get nothing until an Eviction notice arrives)  the management company  has no way to know this event is occurring. 

The question today is should we?  Are we owed an obligation that an owner, under a property management agreement, should advise us if his property is entering foreclosure?

The answer is yes!  The reason is that the owner needs to be communicating with us to manage the property with an eye that this event is occurring and decisions should be made with it in mind.  The first issue is the tenant and their lease.  The second issue is maintenance.

In the not so long ago days of last year, a tenant would be faced with a potentially devastating one week notice to move presented by a bank representative after a foreclosure.  This could come as a total surprize.  Despite the many ways a foreclosure could get posted, I have seen many owners be served papers throughout the default and not a single notice posted at the subject property.   Today, the 2009 Protecting Tenants In Foreclosure Act  allows tenants to have rights that at worst case will give them a 90 day notice to move.   This topic deserves a whole separate post but the way this act is being enforced is wide open because much of it was written in a way left to interpretation either at a later date by the courts, or in action by the banks.  Nevertheless, the tenants do have some protection that did not exist before.

One of the processes that is very uncomfortable for me is the knowledge an owner is in default (likely not making their mortgage payments) yet still collecting rent from a tenant.  The law actually permits this up until the date of foreclosure.  It may not seem right, but the two issues are entirely separate..a lease between an owner and a tenant versus a debt between the owner and bank.  It is really more of an ethical issue. 

When  it comes to maintenance, I need to be making decisions based on the knowledge that the owner is likely not in a position to fund those repairs.  This creates an awkward position when it comes to emergency repairs as a decision needs to be made regarding the ability to collect repayment.

Why do I write all of this when it seems there is not really a good reason to continue in a management agreement when an owner has walked away from a property?  Because communication is key to working through the situation.  An owner that does not wish to communicate with the management company is also likely to not be willing to work with a tenant or deal with emergency repairs.  For this reason, our 2010 Property Management Agreement has added language obligating an owner to notify us as manager when they receive a Notice of Default.  This notice then allows us to terminate the agreement.  It would not be our intent to terminate unless we find out about the default from a third party-indicating the owner was not going to tell us.   Assuming we are told by the owner, we can start the process, in consultation with the owner, of managingthe property toward the outcome of a foreclosure in the months to follow.

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Posted in Owners, Responsibilities | 1 Comment »

When Is The Rent Late?

Tuesday, February 9th, 2010

When this question arises I usually think, uh-oh here comes a problem.  All of our leases reflect due dates at the beginning of the month. Most of the leases contain a grace period.  I prefer to limit that grace period to five days.  When the fifth day comes and goes, and no rent is received, a late fee is due. 

The problem that arises are tenants that wish to argue that they had the rent mailed prior to day five and the postmark will show it.  Simply put, our leases state the rent must be received in the office prior to the end of the fifth day grace period or a late fee is due.  We have a nightly secure lockbox that a payment can be brought and left after hours in order to avoid the late fee.  None of us control the post office and for that reason simply leaving the rent payment for delivery by US Mail leaves a tenant at risk of a late fee. 

We also offer a monthly ACH withdraw from a tenant’s account.  This is a wonderful service for an owner as it ensures we have real funds and a settlement can occur without a holding period.  Most tenants resist this option though.  We have considered making it mandatory but there are also some costs that arise when a ACH transfer is suppose to take place and an account does not have the funds.  So, case by case is our current policy.  If I am a tenant, I would love knowing I could avoid a late fee, or a late night drive to the WILMOTH drop box, with this convenient option.

Late rent is a common occurence.  There should be a penalty to the tenant.  The responsibility is their’s and  late fees are penalties they can avoid.

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Posted in Late Rent, Tenants | No Comments »

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