It's the end of the tenant’s lease term and you visit the unit for the usual post-move-out inspection. If you're extremely lucky, you may be pleasantly surprised and find the tenants left the rental unit exactly as it was given to them. More likely, you'll be slightly disgruntled at the bits of trash left around the unit and a handful of repairs you'll have to spend the time and money to fix. Or you can walk into a rental and discover that the tenants treated the property like their personal dumping ground and had no reservations about leaving old food, trash and damages in their wake.
In the real world, tenant security deposits are often not enough to cover the costs of cleaning, repairing, and otherwise preparing the unit for new tenants. So what can landlords do when renters leave owing more than the security deposit?
Documenting the Damages and Costs
Record & Photograph All Damage. Because you're diligent and care about your investment property's ROI, you documented the property's move-in condition with the tenant, and took plenty of photos when you first signed the lease agreement. Do the same now, walking through and documenting every room's condition along with photographs. This will serve as evidence when discussing the damages with the tenant and if necessary for court.
Document Repairs & Costs. It is important to prepare an itemized accounting of each and every penny you spend on repairs and cleaning expenses. This will allow you to have a specific breakdown of each cost and why it was necessary.
Send a Security Deposit Accounting Statement. Almost all U.S. states and Canadian provinces require landlords to send a security deposit accounting statement (also referred to as the Disposition of Deposit) to the tenant explaining any and all deductions from the security deposit and how the money was spent for the repairs. This document will also inform the tenant if any money is due towards the repairs or unpaid rent. It is important to send this document as soon as possible. Each state and province has different time limits for sending this breakdown, and the penalties for not sending the document within the required time period can range from reducing what can be collected to forfeiture of the entire deposit.
Options for Collecting
How you move forward with seeking reimbursement for the money expended to repair the rental unit will depend on how much the tenant owes and how much time and energy you are willing to spend on the process.
1. Small Claims Court. If you’ve ever been in small claims court you know it is not a glamourous experience. Each jurisdiction has a range for claims, so you can only file in small claims court if the tenant's debt to you falls within your local jurisdiction's range. If higher, there are higher civil courts where you can file your claim.
2. Hiring a Collection Agency. A collection agency will make attempt to reach the tenant to collect the debt in various ways. While collection agencies may successfully collect the debt, they also charge very high fees for their services ranging from 15-50% of the debt collected. You may need to already have a judgment from small claims court, or the collection agency may be willing to file all court paperwork for you.
3. Sending Bills and Negotiating. If the amount is not significant enough to warrant hiring a collections agency or going to court, your last resort is to continue sending the tenant bills for the damage. After you send the security deposit accounting statement to the tenant you should reach out to the tenant to discuss the charges, and negotiate the terms of payment. It may be less headache to mutually agree to an amount the tenant is able and willing to pay to recover at least some of your costs.
4. Write It Off & Screen Better Next Time. Often it's just not worth the hassle to chase delinquent ex-tenants. Suck it up, take the loss, but learn from your mistake. Aggressive tenant screening weeds out most bad tenants before they can cost you money: run criminal and credit checks on all applicants, call prior landlords, verify income and employment, walk through their current residence. Put in the work now, to protect yourself and avoid trouble later.
Trying to recover money is a frustrating, miserable process. But proper documentation and promptly sending the tenant paperwork will lay the groundwork for collection efforts, and aggressive tenant screening will help you avoid this predicament in the future.