Tenants Who Get Behind in Rent
A tenant can have a good credit report and income when moving in, but that doesn't guarantee it will stay that way, especially when the economy is unstable and companies downsize or move to cheaper labor markets. If your tenant is laid off, paying rent might become difficult. That's why it's important to have a lease or rental agreement that clearly states what your policy is about when rent is due, whether you allow a grace period, and whether you charge a late payment penalty.
The lease or rental agreement should say how the late payment penalty is applied and what it is. It also should include whether you have a penalty for bounced checks. In establishing a policy keep in mind that if your tenant pays rent, say, two weeks late, it might not solve anything because rent will be due again within ten to fifteen days.
First Step to Take
If your tenant doesn't make the payment on time, go to him. Find out why it's late and what day it will be paid. Remind your tenant what's in the lease in regard to late payments.
You can also do this by letter, but either way keep a friendly tone and be professional. Don't become emotionally involved in your tenant's problem. You have your own problems when you're not receiving rent payments on time.
If rent is still unpaid after the predetermined number of days, you'll have to start eviction proceedings.
Garnishing Wages and Income Tax Refunds
Garnishment is a legal process that allows creditors to take a specified sum from a person's wages, income tax refunds, or bank account to satisfy a debt such as back rent. You will need to go through a lower court and it may require that you first have had a money judgment awarded through a court of law. The process may vary from state to state, so get information from your local courthouse or professional landlords association. It's essential that you know where your tenant works and have his social security number; you should have that information on the rental application and the lease.
Garnishing wages is called a periodic garnishment. It will give you a percentage of your tenant's wages until the debt is satisfied. All you have to do is go to your courthouse, file three forms, and pay a small fee. The original filing and fee are effective for only ninety days, however, so you can't do it once and forget about it. It may take several filings before the garnishment goes into effect.
It's easier to stay detached from your tenant's problem when you aren't friends with your tenant. Even if you sympathize with tenants for being laid off or in another type of difficult financial position, you have to remain detached. Do everything you can to keep your relationship on a business basis.
Garnishing income tax refunds or a savings account is more likely to give you all or nearly all of what you're owed. To garnish funds in a savings account, if your tenant has one, you need the tenant's social security number and the name of the bank. You have to hope it hasn't changed since the rental application and lease were filled out.
You may also garnish income tax refunds to be paid in the next year. But you have to be careful here about following the rules in your state, because deadlines for filing vary. Plan on filing papers in the fall to collect money being refunded in the following year. Don't miss the deadline; if you do, some states will not process the papers and you'll lose out. Other states may be a little more flexible.
Keep in mind that the earlier you file the income tax garnishment forms, the better chance you'll have of collecting money. Some people don't wait until April 15 to mail the IRS forms. If they file early — which is becoming very easy to do online — they could get a refund at the first of the year, before you've filed your forms.