8 Tips for Managing Collections
Operators in clear dialogue with their collection agency can optimize debt recovery and limit litigation exposure, notes Jay Harris and Elaine Owens of Fair Collections & Outsourcing.
Even in a healthy economy, residential rent receivables written off as uncollectible by operators remain at high levels. Rents and damages sent for collections, according to the National Apartment Association’s Survey, range from $79-$103 per unit per year—or 0.5 percent to 0.8 percent of Gross Potential Rent, depending on property type.
Renters’ debt disputes are more complex and frequent compared to a decade ago. Savvy ex-residents rely on the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA) to ask for evidence of the debt and dispute amounts owed. Consumer attorneys and Credit Repair Organizations increasingly deploy technology to supercharge FDCPA and FCRA challenges to property managers’ debt claims. The Consumer Financial Protection Bureau (CFPB) provides a new avenue—and ally—for debtors to complain about lease charges and call-blocking technology enables consumers to duck debt-related contacts.
To fend off these challenges, a well-tuned collaboration between a third-party collection agency and a property manager is essential to maximizing recovery of what is owed—and minimizing avoidable litigation risk. Liquidation recovery and litigation exposure can improve by a factor of six to 10 times between well-run property management firms and those with lax operations.
Here are eight collections best practices for rental property managers:
Integrating the placement of accounting detail and documents from client property management software(s) to agency regularly increases the number of opened accounts, speeds time to placement and reduces inaccuracy and incompleteness, resulting in higher debt collection recovery.
Provide documentation at placement to support the balance sought
A signed lease and application, identification of the debtor, Final Account Statement, repair invoices to support claimed damages, and move-in/move-out inspection reports and photos—this documentation is easiest to obtain right after move-out.
Meet with the resident at move-out to review charges (ideally)
A move-out review and itemization of charges in the Final Account Statement provided to the ex-tenant can ease subsequent recovery of unpaid balances. If the tenant skips out, ensure that the Final Account Statement is sent to the tenant’s provided address to give adequate notice for payment before placing the account in collections.
Damages demand documentation
As a rule of thumb, the documentation a property manager must provide under state security deposit law to withhold from a security deposit (e.g., repair invoices) should also be available to support the damages in a debt claim. Damages owed should be more than normal wear and tear.
Follow the lease
For early exits before the lease is up, ensure that if the lease allows to charge for unpaid rent until the unit is re-rented, that the date of re-renting is included with the placement.
Operators’ charge-off policies matter
Is the property operator charging for full flooring cost replacement for a short-term tenant who moved into a property with aged carpet and tile? Are additional charges for HOA-required fees added at move-out—but not clearly specified in writing at move-in? Make sure that fees to be charged are identified in writing at the beginning of the lease as a tenant responsibility.
Ensure tenant authorizations are broad enough
A well-tuned application or rental agreement makes clear that the landlord has permissible purpose under the FCRA to pull consumer reports for lease-related purposes that include both collections as well as move-in tenant screening. Good leases also make clear that the tenant agrees to accept email, mobile and text communications and to update provided contacts.
After placement, let the agency handle it
Communications with ex-tenants and guarantors who are represented by counsel can be a problem. When a debtor is represented by counsel, communicate this to the agency—forwarding the agency the attorney’s Letter of Representation and inquiries. Credit Repair Organizations may ask an unwitting property manager to delete credit reporting in exchange for settling the debt. Forward these communications too to the agency to resolve.
The road ahead? Technology will continue to be both sword and shield in rental collections: creating new paths for consumer challenges, but easing document transfer through no-cost collection agency integrations. Well-run rental operators in clear dialogue with their collection agency, when they follow best practices in their collections process, can optimize debt recovery and limit litigation exposure.
An attorney in the Washington, D.C. area, Jay Harris is Vice President of Fair Collections & Outsourcing. Elaine Owens is a Senior Account & Marketing Manager for FCO in Dallas. Each has more than 20 years’ experience advising property management firms across the U.S. on operating best practices. They can be reached at [email protected] and [email protected].