World Wide Property Sales
Collecting Money Owed by a Tenant
by Bill Bronchick
Did you ever have to evict a tenant for non-payment of rent, then get stiffed
for the bill? You may be able to collect what is owed to you, even years later.
First, you need a court-ordered money judgment. If you filed for an eviction in
court, you received a judgment and order of possession. The actual name of this
court order may change slightly from state to state, but it's the same thing - a
document signed by a judge that permits a local sheriff or constable to forcibly
remove the tenants from the property. In most states you can also get a money
judgment against the tenant, but this requires one of two things:
1) the tenant must have been personally served with the court papers or...
2) the tenant must have shown up in court. If the eviction papers (the court
papers, not the notice to rent) were posted on the door of the unit and/or
mailed to the tenant, you generally do not get a money judgment from the court.
What About Security Deposits?
If you have a security deposit from the tenant, you can apply that against
anything he owes you for back rent or damages. However, you still must comply
with state law for notifying the tenant of your intent to keep the deposit. Even
if you return the security deposit, you can still sue the tenant for actual rent
owed and/or damages incurred to the unit. If the tenant left before the court
date or you did not otherwise get a money judgment, you can always sue the
tenant in your local small claims court for money owed and any damages to the
property. The process is quite simple, and does not require a lawyer. You have
to file the claim before the end of the statute of limitations, which generally
ranges from three to six years, depending on which state you live in.
Once you have a money judgment, you can collect it against all non-exempt assets
of the debtor. Certain assets, such as retirement accounts, are exempt from
collection by creditors. Also, keep in mind that assets of the debtor's spouse
may be attached as well in states that recognize community property (Arizona,
California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and
Wisconsin). Cash in bank accounts is the easiest target. If you have a copy of a
recent check from your tenant, you can file for a "levy of execution" on their
bank accounts through the local sheriff (this is why it is a good practice to
make copies of your tenants' checks each month to make sure you know where they
are banking).
If the tenant is working, you can garnish wages, but most states limit
garnishment to 25% of the wages of the debtor. Still, if they have a steady
paycheck, you will get your money back, plus interest. If you get a transcript
and record the judgment in county records, the tenant will not be able to buy a
house in that county without paying you off. If the tenant owns other real
estate in his name (not likely, but always possible), the judgment will create a
lien on that property as well. If you do not know where the tenants assets are
located, you can start a debtor proceeding in court to make him appear in court
and answer questions regarding his assets. Failure to comply may result in a
warrant issued for the debtor's arrest. Depending on the amount of money owed
and likelihood of collecting, this process may not be worth your effort. But,
considering a judgment may be valid for as long as 10 years and you get interest
on your money, why not make it a part of your business practice?
Bio:
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney,
author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real
estate since 1990, having been involved in over 600 transactions. He has
appeared as a guest on numerous radio and television talk shows including CNBC
Power Lunch. He has been featured in Who's Who in American Business, Money
Magazine, the Los Angeles Times and the Denver Business Journal. William
Bronchick has served as President of the Colorado Association of Real Estate
Investors since 1996.