If you’ve been a property owner for long enough, you’ve likely experienced tenants who end up owing more than their deposit will cover when they move out. Even if you are diligent about background and income checks and focusing on the best tenants, it’s still likely a decent percentage will leave owing some money.
The first step in this situation is to send the Disposition of Deposit letter, which shows vacating tenants the breakdown of where their security deposit was applied. It is crucial to mail this out in a certain amount of time, depending on your state, to avoid losing the right to collect anything at all—or running the risk of having to actually pay the tenant.
Unfortunately, most tenants don’t immediately pay their amount owed when receiving the Disposition of Deposit. So what is the best way to approach collecting this debt? Here are a few options to explore the next time it happens to you.
Continue to Bill
You can set up systems that will mail the tenant a reminder of the bill each month so that they won’t forget they owe you money. The cost to you for doing this could run about a dollar each month, so it’s not a lot if you are confident you’ll eventually get paid.
Let it Go
If the tenant owes a very small amount, you might not think it’s worth your time to pursue it. You can just send the Disposition of Deposit breakdown and move on if you don’t hear anything. You can mark in the tenant’s file that they never paid, which will be a good reminder for you if they ever ask for a reference request.
Offer a Negotiation
If the tenant is being especially difficult about the fee and constantly complaining, it might be worth offering to accept only a portion, such as 50% of the amount owed. An angry former tenant is only worth the fight for so long, and at least you get part of your money back.
Send the Amount to Collections
Once the amount is turned over to a collection agency, they will track the tenant down and continue to call them until they pay their debt. This is an option if the amount owed is larger and you’re pretty sure you won’t get the money from the tenant yourself. The downside of using collections is that you will often be charged a large fee—as much as 50%—for the service.
Go to Court
If the tenant owes a lot and you think going to small claims court could make them pay, this might be a good option. Small claims court helps you sue someone for a fee of usually less than a $100. If you win, that will give you a judgment against the tenant that can be used for garnishing tax returns or wages. A judgment can show on a tenant’s background check when they try applying to rent at a property in the future.
These are the most common options for handling overdue payments after a tenant moves out. Many tenants will assume their deposit covers everything, so property owners often have to turn to one of these steps when collecting money owed.