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4 Ways to Minimize Eviction Exposure – BEFORE Tenants Stop Paying the Rent

by Editor | ezLandlordForms

Most landlords know the feeling – the mortgage payment on the rental property is due on the first of the month, but the rent payment did not arrive.  Thus begins the long, expensive eviction process, in which the landlord continues to pay the mortgage, and often other expenses like utilities and eviction costs, without any rental income to offset the expenses.  While eviction is a part of being a landlord, and it is a risk that all landlords must prepare for, there are ways that landlords can minimize this risk, from adhering to all the relevant landlord-tenant laws to rental income insurance to knowing the right people and process once eviction must be initiated.

1. Screen Tenants for Income and Credit

In the lending industry, they say that income offers insight into whether someone can pay, and credit history offers insight into whether someone will pay.  Carefully peruse rental applications, verify rental applicants’ income and credit history before signing a rental agreement with them, and avoid 90% of rent default scenarios.

2. Use a Legal Lease Agreement (Specific to Your State or Province)

It may sound self-explanatory and obvious, but it’s shocking how many landlords fail to use a lease agreement that’s even legal in their state or province.  If the landlord expects to be able to enforce their rental contract, then it must be legally enforceable!  Understand your local landlord-tenant laws and restrictions, and use a state-specific residential lease or province-specific Canadian lease.

3. Insure Against Tenants’ Default on Rent Payments

Many U.S. and Canadian landlords are surprised when they learn that they can actually buy insurance to prevent losses from tenants failing to pay rent.  Aon Insurance just launched this type of insurance in North America, and for $250/year in most cases, landlords can insure against their tenants defaulting on the rent.  When the rent becomes late, and the landlord initiates the eviction process, a phone call to Aon creates a claim and they start paying the rent until the tenant either catches up on the rent or the landlord fills the vacancy (up to six months later).

4. Be Prepared for the Eviction Process, and Start It Immediately When Rent Is Late

The eviction process in most U.S. states takes several months, so it is critical that landlords start the process on the first day that the rent becomes late.  Aside from simply avoiding further delays, it sends a message to your tenant that they need to prioritize paying the rent over their other bills.

Each rental agreement sets a different grace period between when the rent is due (e.g. the first of the month) and when it becomes late (e.g. five days later, or the sixth of the month), and each state sets minimum grace periods.  When the grace period for the rent expires, the first step is serving the tenant with an eviction notice specific to your state or province.  Eviction notices give the tenants a second grace period (yet another reason to start the process immediately), the length of which varies depending on your location and the type of lease default.  When this second period expires, landlords must file in their local court for eviction.  If you do not know how to do this, or do not want to do this yourself, there are companies and attorneys you can hire to do it for you – inquire among other local landlords and property managers to find out who they use, or simply search your local listings for eviction specialists.  Once again, be prepared and know who to call before you actually need to file in rent court!

While evictions can’t always be avoided, the risk can be minimized through a multi-pronged approach.  Properly screening tenants for income and credit history is critical, and using the appropriate legal forms for your state or province will prevent the judge from delaying your eviction proceeding due to unenforceable legal forms.  Acting quickly when tenants default will both minimize the period that rent is not flowing inward, and will deter tenants from defaulting in the future.  Finally, rent default insurance will prevent actual loss of income, while you wade through the tedious eviction process (for more, read our overview of the eviction process from start to finish).

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