The decision to send a renter or former resident to collections should not be taken lightly. Federal laws, such as the Fair Debt Collection Practices Act (FDCPA), regulate how you and the collection agencies you hire can legally pursue unpaid debts. When it comes to rental and multifamily property debts, specific considerations unique to the housing industry must be accounted for to protect your business from legal risk and maintain good practices.
In this guide, we’ll cover the key steps for handling unpaid rental debts and explain how to navigate the collections process within the bounds of the law.
What Does It Mean to Send a Resident to Collections?
Sending someone to collections involves hiring a professional collection agency to recover unpaid rent, fees, or damages owed by the tenant. Typically, property managers attempt to collect these debts on their own through standard communication methods, such as letters, phone calls, or revised invoices. When these efforts fail, a collection agency becomes the intermediary that takes over the debt recovery process.
Unpaid rental debt is a growing concern in the multifamily housing industry. While delinquent rent and associated fees represent a smaller percentage of overall debt in collections compared to credit cards or medical bills, the impact on property owners can be substantial. Recovering these debts while remaining compliant with federal and state laws is critical to avoiding costly legal consequences.
When Should You Send a Rental Account to Collections?
Experts generally recommend waiting at least 60 days after the rent or payment’s due date before sending the account to collections. This period allows property managers to take preliminary steps to recover the debt while exploring alternative solutions with the tenant.
One such alternative is Resident Advocate, a proactive option that helps resolve unpaid balances before resorting to collections. This program focuses on early intervention by working directly with tenants to recover debts while maintaining positive relationships. For property managers, the program offers the advantage of early recovery and lower fees compared to traditional collection methods. Implementing such programs can reduce the need for escalated actions and provide a more efficient resolution process.
Steps to Take Before Sending a Resident to Collections
1. Reach Out Directly to the Resident
Begin with a phone call or email to remind the resident of the outstanding balance. Maintain a professional tone and be clear about how they can resolve the debt. Avoid accusatory language, and instead, emphasize resolution.
2. Send Formal Notices
Issue clear and consistent written notices, including late rent notices and final demand letters. These documents serve as formal reminders of the outstanding balance and can detail the consequences of nonpayment, including being referred to collections or legal action.
3. Provide an Updated Invoice with Fees
If allowed by your lease agreement and local laws, add late fees or other charges to the balance. Resend the invoice to the resident to encourage payment while clearly outlining how the fees were calculated.
4. Offer Payment Plans or Settlements
For resident who are unable to pay the full balance, consider offering a payment plan or a reduced settlement amount. This can save time and resources compared to escalating the matter to collections.
5. Document Everything
Keep meticulous records of all communications, invoices, and agreements. Documentation is essential if the case moves to collections or litigation.
6. Consult Legal Counsel
If your attempts at resolution fail, consult with an attorney who specializes in landlord-resident law. They can advise whether pursuing collections or another legal avenue is the best course of action.
What to Avoid in the Rental Debt Collections Process
Whether handling collections internally or through an agency, ensure compliance with federal and state laws by avoiding these prohibited actions:
1. Harassment or Excessive Contact
Do not call residents outside the hours permitted by the FDCPA (8 a.m. to 9 p.m.) or repeatedly contact them in a manner that could be considered harassment.
2. Inappropriate Communication
Avoid contacting residents at their workplace if they request otherwise, and never disclose the debt to family members, friends, or employers.
3. Failure to Verify the Debt
Ensure the debt is verified before pursuing collections. A collection agency must provide a validation notice to the debtor within five days of initial contact.
4. Threatening Illegal Actions
Do not threaten eviction, lawsuits, or other legal actions unless you are prepared to follow through and such actions are lawful.
5. Making False Statements
Avoid any misrepresentation of the debt amount, legal consequences, or agency affiliations.
Choosing the Right Collection Agency for Rental Debts
When deciding to hire a collection agency to recover unpaid rental debts, consider the following:
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- Experience in Rental Collections: Select an agency with expertise in housing-related debts. Rental debts involve unique legal and procedural nuances that require specialized knowledge.
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- Licensing and Certification: Ensure the agency is licensed to operate in your state and adheres to industry standards, such as membership in the Commercial Collection Agency Association.
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- Compliance with Laws: Verify that the agency strictly follows FDCPA guidelines and state regulations.
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- Insurance: Ask for proof of errors and omissions insurance to protect yourself from liability arising from the agency’s actions.
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- Transparency in Fees: Collection agency fees can range from 20% to 50% of the recovered amount. Be clear about the costs involved and how they will impact your net recovery.
Additional Tips for Multifamily Property Managers
Include Clear Lease Language
Ensure lease agreements explicitly outline late fees, collection procedures, and the resident’s responsibility for unpaid debts
Use Rent Payment Portals
Digital portals with automated reminders can reduce missed payments and improve record-keeping for delinquent accounts.
Screen Residents Thoroughly
Prevent rental debt issues by performing robust background checks, including credit and rental history.
Stay Informed on Local Laws
Rental debt collections are subject to state-specific laws that can vary widely. Familiarize yourself with local eviction, resident protection, and debt recovery regulations.
Multifamily Debt Recovery Made Easy with Hunter Warfield
When it comes to recovering rental debt, Hunter Warfield stands out as a leading collection agency in the multifamily housing industry. With a user-friendly client portal and seamless integration with most property management software, Hunter Warfield makes the process of sending a tenant to collections straightforward and efficient.
One of the key advantages of partnering with Hunter Warfield is their contingency-based fee structure: property managers only pay fees if the debt is successfully recovered. This ensures a risk-free approach to debt recovery, maximizing your returns without upfront costs.
With years of experience and a proven track record, Hunter Warfield is a trusted partner for multifamily property managers looking for effective and compliant debt collection solutions.