Landlords and property owners rely on their rental income to pay the bills. However, if a tenant stops paying, that rental income is left in the air, leaving you with absolutely nothing.
Fortunately, you have many options if you’re dealing with unpaid rent – collections being one of them. Below, we’ll cover the basics of rent debt collection so that you know what to expect and what steps you can take to get the money you are owed.
Let’s find out what happens when rent is sent to collections.
When rent is sent to collections, you, as a landlord or property owner, have contacted a debt collection agency that takes action to get the tenant to pay past-due rent.
In addition to helping you get the money you’re owed, the agency will report the tenant to the three major credit bureaus — TransUnion, Equifax, and Experian. After they’re reported, the tenant will receive a letter from each credit bureau notifying them about the outstanding balance.
While it might seem like you’ll never get the rent back, tenants are more likely to pay a debt once it hits collections since it stays on their credit report for up to seven years and can make it significantly more challenging to find a rental property or qualify for a loan in the future.
Keep in mind that, according to the Fair Debt Collection Practices Act (FDCPA), tenants have 30 days from the initial contact to dispute the debt with collections. They can do so by mailing a written request to the agency asking them to validate the debt.
All rent debt collection activities will cease until the debt is verified. If the debt can’t be verified, there won’t be anything to collect, and you could be left without your money, leaving you to pursue other options.
Below, we will cover the rent debt collection process in detail. Here are the steps involved (more detail below):
Having unpaid rent sent to collections can have a significant impact on tenants. For instance, it can lower a tenant’s credit score, reducing their eligibility for future rentals and loans. It can also result in the tenant owing the outstanding debt and annual interest — usually 12%.
Unpaid collections can stay on a credit report for up to seven years, meaning it could be a while before a tenant is in a financial position to qualify for purchases and rentals. Not only is this stressful, but it can also have a huge financial impact.
The FDCPA governs how debt collectors are allowed to work towards collecting debt for all consumers, not just tenants. When a tenant’s unpaid rent is sent to collections, the FDCPA’s guidelines state that debt collectors are not allowed to misrepresent debts, abuse debtors, or attempt to collect unfairly.
Debt collectors must provide factual information to back up their claims to an existing debt. Tenants have the right to dispute that debt and must file their dispute within 30 days.
Debt collection activities must stop immediately once the written request is sent out. If the debt collector cannot verify that the tenant owes the debt claimed, the tenant will not be contacted again. If the debt is verified as correct, then the debt collector can proceed.
Note: It’s illegal for debt collectors to harass tenants. If a tenant notices signs of harassment, they have many options, including requesting that the debt collector only contact them via email or – if it persists – working with an attorney.
You are unlikely to find a landlord who want to deal with rent debt collection. However, for many landlords, rent is how they make their living, and they have the right to take measures to recoup any money owed to them.
As our step-by-step guide illustrated, the collections process usually happens after a landlord has undergone formal eviction proceedings. If you are considering sending unpaid rent to collections, you should have notified the tenant that the rent is past due, specifying any late fees and a date by which the rent must be paid before additional action is taken.
It’s important to note that we are all human, and tenants may have extenuating circumstances that prevented them from paying on time. Communicating with the tenant could be enough to resolve the issue. Otherwise, if they still have not paid by the outlined agreement, you will need to send a notice to pay or quit.
In the event that rent has still not been collected, you can file an unlawful detainer lawsuit and pursue eviction. Once the eviction process is complete, you may contact a collections agency to help settle the debt.
Tenants can avoid having rent sent to collections by:
At TurboTenant, we know how stressful it can be for landlords to deal with rent debt collection. As a trusted property management software company, we offer various features, including automatic rent reminders and autopay, to help you avoid late rent payments.
When implemented, you’ll gain the peace of mind that comes from on-time rent payments. Once you’ve received the payment, rental accounting software can then be used to track payments properly for tax season.
Want to avoid rental payment issues in the future? Sign up for TurboTenant today. It’s free!
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