Q: I am a new landlord and not quite sure how to handle tenants that offer partial payments. About a year ago my wife and I were fortunate to buy an almost new rental house in our neighborhood as an investment property. It was a foreclosure property and we got a great deal. We had heard that being a landlord was really easy and would be a good supplemental source of income in our retirement days.
Everything went well at first and we quickly found a nice family who were great renters for the first few months. But then they had their hours cut back at work and we began to see excuses as they were clearly having problems meeting their rent obligation. When we served them a legal "Notice of Nonpayment of Rent," they asked us to accept their rent on a weekly basis until they could get their financial situation in order.
We reluctantly agreed and that seemed to be OK for a few months, but now they are falling behind again and currently owe us more than one month’s rent. To make things worse, we are having trouble reaching them and we think they are avoiding us so we won’t be able to serve the required legal notice. We think we are being duped and wonder if we ever should have accepted partial payments in the first place.
A: I do believe that owning rental real estate still is and will continue to be a good investment in the long run for you, but that doesn’t mean you won’t encounter these types of problems. Trust me that you will learn from these experiences and just make sure you do not make the same mistakes more than once.
Occasionally, you’ll encounter a tenant who won’t be able to pay the full rent on time. The tenant may offer to pay a portion of the rent that is due with a promise to catch up as the month proceeds. Your written rental collection policy should not allow partial payments of rent, and deviating from this policy is generally not a good idea. However, in some instances, allowing for partial rent payments may make sense.
If your tenant has had an excellent rental payment history and you can verify that this will be a one-time situation, then you are probably safe in accepting a partial rent payment. Of course, you need to be careful and watch for the tenant who is delaying the inevitable and stalling you from pursuing your legal options. If you do accept a partial payment, prepare the proper legal rent demand Notice of Nonpayment of Rent or draw up a written notice outlining the terms of your one-time acceptance of the partial rent payment, including late charges. Then give the legal rent-demand notice or written agreement when the tenant gives you the partial payment. This way, you can be sure that the tenant understands your terms.
In most areas, the acceptance of a partial payment will void any prior legal notices for nonpayment of rent. If your tenant is causing trouble besides the delinquent rent, do not accept any partial payments or you will have to begin your eviction proceedings from scratch — and you can be sure that they will be difficult to serve again.
Rental payments should always be applied to the oldest outstanding past-due rent amount even if the tenant tries to indicate the payment is for a different time period.
Be sure to apply your rent-collection policies, including your late charges, partial payment and returned check policies, consistently with all tenants. If you don’t, you could be accused of discrimination by simply allowing some tenants to pay late or by accepting multiple checks from some roommates and not from others.
This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and "Property Management Kit for Dummies" and co-author of "Real Estate Investing for Dummies."
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