Posts Tagged ‘Owner Mortgage Default’

Help Us!

Friday, July 30th, 2010

Yesterday, one of our clients called her property manager with a complex question regarding something she was seeing in her reports in our owner portal.  The property manager, who always answers his cell phone, was on his way to a lease showing.  He was driving and could not write down a reminder..at least safely (that is what I wanted to hear!).  Our Property Managers are also not accountants and the complexity of the question sounded a little like a foreign language to him.

When he contacted me to say xyz owner has a question about her owner statement, he could not really elaborate.  He knew it had to do with funds advanced by the owner but did not understand the exact nature of the question…partly I assume because he was driving a car when cornered with the unfamiliar question.  I subsequently offered to contact the owner and try and get some elaboration.

I chose to send my question to the owner with email.  A lot of people are still not comfortable with writing down questions, or communicating in this manner.  I suspect that just speaking is easier for most people. At the same time, writing allows one to re-read and make sure the communication is accurate.  It also provides an archive for future reference.  I also find that written communications involving issues, like a bookkeeping question for instance, provides an excellent tool for future training.

My point?  We prefer to use email to serve you better and more efficiently.  We also understand that some matters need to be communicated verbally.  Emergencies for one.  Yet, the majority of the communication we do with owners can best be handled in writing.  The bookkeeping question was easily answered when I discovered that a term was being used by the owner that we call something else.   It was obvious when written.  Not so obvious when a Manager, not a trained accountant, answers your call while driving to rent your property.

I always add….we do not want any of our clients to feel we are not available.  So phone away!  Maybe this will help you understand our reasons for prefering the written word as we serve you in many of our functions as your property manager.

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Posted in Best Practices, Owners, Procedures, Property Manager, Reports | No Comments »

Information To Manage Your Returns

Wednesday, June 23rd, 2010

Wilmoth Property Services Owner Reports

 

I wanted to share a screenshot of what it looks like for our owners who log in to their management portal and click on reports.  A plethora of information is available for each property.  An owner with multiple properties or units can also combine information to see a total snapshot of their portfolio.  To see the screen shot in full, click on the image and then just use your browser back button to return to this post.

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Posted in Management, Owners, Reports, Software | 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 »