Last modified on March 6th, 2018
By Laurie Lowe

No matter how much work is put into tenant screening, property managers are bound to get some bad renters every now and then. These tenants may fall behind on rent payments or damage your property and leave owing a balance, thereby forcing you to take action to recoup unpaid amounts. When it comes to debt collections for property managers, there are effective ways to go about doing it and there are common practices that end up being counterproductive. Here’s a look at some debt collection myths we’ve debunked when it comes to helping you recover your lost revenue.

Myth 1: The higher the balance, the better my chance of collecting some of it.

Actually, it’s the opposite that’s true. Lower balances have greater liquidation. When larger amounts are placed due to additional fees, you are more likely to settle on less and collect on less and the chance of payment at all becomes very low. For this reason, though it may go against what you believe, it’s often wise to consider charging a reasonable lease-break fee in lieu of accelerating rent to the end of the lease. Also, avoid tacking on penalties or pursuing the cost of collection with high fees. Doing so could put any repayment efforts from the tenant out of reach. As a general rule, staying under three times the rent amount is usually a good bar for improving your chances of recovery.

Myth 2: You should always counter or refuse a past tenant’s settlement offer.

Consider this: when any type of settlement offer is refused or countered, payment is eventually received only about 50 percent of the time. Be sure to tread carefully, as receiving some of the money that you’re owed is better than no money at all. According to some experts, if you’re offered a settlement of at least 40 percent of what is owed, think long and hard about accepting it. It may be the option between settling their debt, their unwillingness to pay at all, or filing for bankruptcy, in which case you would get next to nothing.

Myth 3: Always cancel accounts with third-party agencies and move on to another agency if recovery fails.

We get that as a landlord or property manager, you want to get paid – so this practice is obviously tempting, but canceling your accounts and switching agencies can also be very detrimental. For starters, it creates debtor confusion. It can also complicate things for you and both agencies, as various tradelines have to be fully deleted with the credit bureaus or you risk violating federal guidelines and regulations. What’s more is, doing so creates a gap in credit reporting. Last but not least, doing this doesn’t increase your chances of collecting. Though failure to produce results is a common reason for agency termination, try to be patient on your accounts already in place. The collections process requires persistence and consistency and the length of time it takes to collect can depend on each consumer and their needs as well.

Myth 4: If I don’t have a court judgment, I can’t collect.

Not the case, and you may benefit from attempting to collect without a judgment to avoid paying attorney fees and court costs out of pocket. This is where a good collections agency comes in handy, as they’re often key in resolving debt without the need for legal action. Judgments can serve as valuable proof of debt, but do not guarantee payment.

Myth 5: If I play things by the book, I won’t get sued.

Seriously? The year is 2018, and people will sue for just about anything – no matter how in the right you may be. Going to court costs money, regardless of whether you win or lose. Go back to our response on busting Myth 1 to increase your chances of getting paid and staying out of court.

The best way to avoid debt collections is to find reliable renters and keep accurate data and documentation stored on your tenants all in one place – and a modern property management software can help with that. If you’re backed into a corner with unpaid past tenant balances, make sure you know what to do to recoup more that’s owed to you.