Posts Tagged ‘Wilmoth’

Foreclosure-Out of the Frying Pan (and Into The Fire)

Wednesday, September 1st, 2010

It’s Friday evening and I am just about to wind down when the phone rings from one of our tenants.  Apparently, the Sheriff has just posted a notice on their door with several documents.  The tenant understands one part…the word “foreclosure”.  Immediately I realize that our owner has not been making mortgage payments and now the lives of their tenant is about to be turned upside down.

I understand every foreclosure has its own unique reasons.  It still seems wrong to take a tenant’s rent money and not make sure the obligations concerning the mortgage are kept current.  In fact, over a year ago we added language to our management contract to specifically address mortgage payment default as a term of cancellation.  Within this term of the agreement, the owner permits us to immediately locate a new home for the tenant.  I understand the foreclosure process well enough to not want to gamble with how long a tenant may be able to live in a property when this legal action has been taken.

What about the owner though?  I wonder if the owner has considered the cost of foreclosure?  For that matter, the cost of a short sale?  This is a complicated tax matter, better left to be addressed considering each person’s individual circumstances, but the IRS is likely to still demand payment of taxes on the recapture of depreciation deduction (approximately 25% of the amount previously depreciated), capital gains (state and federal), and the cancellation of debt (assuming the court does not provide the lender a judgement to pursue the owner for a deficiency).  Please note the Mortgage Forgiveness Debt Relief Act does not apply to investors renting a property.  An investor might be able to take advantage of some of the protections of this law if they can prove they actually lived in the home for two of the past five years.  Again, these are matters for your tax professional.  If you do not have one, now is the time to get one on your team. 

In addition to the potential tax hits, a foreclosure will destroy your credit.  I have read certain people think that somehow when the housing market recovers lenders are going to look at this period of time with more lattitude given to those who experienced a foreclosure.  I find that hard to believe, particularly when every event in the credit market has made it harder to get any kind of financing.  Assume that you will be excluded from the traditional housing finance market for 5-7 years.  This also is just the affect on borrowing for housing.  Expect issues with car loans, credit cards, and any other situation requiring a credit report. 

Lets return to the property where the tenant was making their rent payments on time.  In this case I learned the owner had a monthly deficiency of $250 (rent was not covering his payment).  Additionally, he did not wish to make some needed repairs to the structure based on an estimated drop in value.  Yet, assuming a forgiveness of the debt and depreciation recapture, he was going to assume a new obligation with Uncle Sam that exceeded the next two years of rent deficiency!  Nobody had discussed the tax side of the foreclosure coin with him.  He just knew that he did not want to keep losing money every month.

Losing money every month or having the IRS breathing down your throat for their taxes?  It is your decision to make.  I just want our clients to understand the potential ramifications if they decide to “let their property go.”

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Posted in Best Practices, Responsibilities | No Comments »

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 »

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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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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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 »

How Do I Get Ink On The Agreement?

Monday, June 28th, 2010

OK, silly headline.  I am writing about a pretty unsophisticated topic here, but wanted to pass along some tips and a little bit of information on how we get signatures from owners who we can’t meet face to face.  In fact, because so much of our communication is electronic, even owners we could meet seem to prefer other options.

We have an owner who lives overseas.  In the old, old, days we would have used snail mail to get a contract or lease executed.   We would have worked on a telephone authorization (risky and not going to hold up in court!) and wait 2-3 weeks to receive a signed document.   Then, in the 1980′s we had this amazing device that cost $1000 called a fax machine.  (Am I dating myself?)  We had documents that were printed on this thermal paper that curled and faded!  Powerful stuff when a year later you could not read a document!  So, we still needed snail mail to get a original copy.  Faxes improved and in the 1990′s you could get a “plain paper” fax.  No more fading, but often very poor resolution.  So, we still used mail to have an original copy, but by then we had options that sped up the delivery of documents such as Fed Ex and UPS.   Then email became popular and all we had to do was figure out a way to make it easy for clients to return a nice looking document from their email, with their signature.  There are two options, printing and scanning, or faxing the returned document.  Faxing works pretty good unless their fax machine is dated or the telephone connection is bad (overseas connections).  We still like to have the documents in case the resolution is poor.   There is often enough savings that visiting an office store is cheaper than using a delivery service.   Printing, scanning, and emailing the documents back to us is the preferred method. 

Our clients and Associates are recommended to install a free program on their computer for creating pdf documents.  There are a number of ways to send back an executed copy to us via email.  After printing and executing  the document, our client can scan or fax to make an electronic version.   We really prefer not to receive the fax because the phone line issues can often cause resolution problems.  Most of the simplest printers today also offer scanners and copiers for pennies additional.  A document can be scanned with the signature and saved to a computer.  If the scanner does not offer a pdf converter, and makes photograph type faxes, these need to be converted to a pdf.  In fact,a free pdf converter program is a wonderful addition for many different uses.  Check out pdffactory or cutepdf.  

Today we actually have electronic signatures making their way into the popular mainstream.  We have not gone this far but I suspect it won’t be long until we offer this service.  Of all the improvements over the last 30 years, this one may take the most getting use to.  An electronic signature does not actually provide a signature in the traditional sense.  It provides a verification that the person who executed the document on a computer, can be traced to a computer.  In some cases there are verification processes associated with a person but most I have seen go back to an IP address and involve a check box or initials typed.   The most popular service in real estate for this is called Docusign. 

Be warned though, the future is in electronic documents.  The improvements in speed, resolution, and legal enforceability have been made.   We are really just trying to decide which vendors and how to implement.  For now though, the suggestions above should cut your delivery costs substantially and provide all parties a faster turnaround on document execution.

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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 »

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 »