By Fred Matera, CIO, Redwood Trust A lack of affordability will lead to near-term weakness,…
With investment dollars at stake, the last thing that landlords may want to think about are non-paying tenants. However, the inevitable often occurs and investors are then left with the tough choice between choosing eviction or reaching an agreement. This is why it is critical for real estate investors to prepare themselves – not just financially, but legally and emotionally. From a legal perspective, it is the responsibility of landlords to know what is allowed in their state.
For example, most states will not allow them to file eviction proceedings if they have already collected partial rent – even if it is just one dollar! If the state allows them to collect partial rent and still legally file for eviction, like in North Carolina, it is advisable to collect as much as possible since they will be stuck waiting on collections to recoup any monies – a process which can be very time consuming and negatively impact their bottom line.
On the emotional side, it is helpful for investors to prepare their actions in advance, including what they intend to communicate to the tenant. Posted below is a sample letter landlords can send to their non-paying tenants. This letter is for informational purposes only and does not constitute professional legal advice. Before you send any letter, it is not recommended that you reach out to tenants an inordinate amount of times.
Don’t harass your tenants with incessant phone calls and emails on the same issue. It is commonly acceptable to document two recent late rent notices and one phone call. This will show a reasonable effort to resolve non-payment. Finally, don’t even think about locking tenants out of the unit or house or shutting off utilities before the eviction process is legally complete. Violation of this and other laws may result in the court ruling in favor of your tenant while they continue to occupy your property and not pay.
Dear Non-paying tenant,
I want to give you the benefit of the doubt regarding your lack of payment. I have gone through my records to make sure it was not a clerical error. While the lease does offer a bit of a grace period, it is additional work to review records and then bill any applicable fees. Let’s face it, that is not something you or I truly want.
You will find a late rent notice placed on or under your door. This is a kind reminder of the back due rent and applicable late fees. This letter will be received once the ‘grace period’ is over. You can see that there are some repercussions outlined if rent is not paid. I do not want to extend as far to seek legal actions since it is costly to both of us. The late rent notice is not required but more as a courtesy for my forgetful tenants. In truth, you are in breach of contract.
I am going to place a call to you as a follow up to this letter. It will be only one call to serve as the same purpose as the late rent notice; however, it is an opportunity to have a discussion and find a resolution. If there is not an agreement reached, I will send a more official letter emphasizing that if rent is not received, I will seek the legal action necessary to evict you from the property.
This step can be costly and time consuming for the both of us. I would have everything I need documented and once that process has taken place we will not receive any payment or reach a separate agreement. Anyone on the lease, like a cosigner, will also be named in the legal suit. I know this may seem tough; however, I act quickly and consistently with non-paying tenants. It does come at a cost to me, but I cannot continue to have inconsistent payment especially when you consider that the grace period is not required and we can start the eviction process after one late day.
I hope you can see that I would rather reach an agreement with you over your late rent since the steps involved can cause some heartburn for the both of us. If we do reach an agreement it will be documented and signed; however, it would only be applicable to bring this one month current. If behaviors continue, the steps outlined above will proceed.
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