Can Landlords Send Tenants to Collections?
When Rent Is Unpaid, What Are a Landlord's Options?
Table of Contents
Evicting a Tenant
The most pressing issue when a Housing Provider is facing late or missed rent payments is removing a Tenant who is still occupying the unit. Unlike other creditors who simply can disconnect service to a delinquent customer, Landlords must get permission from a Landlord and Tenant tribunal to reclaim possession of an occupied rental property.
To evict a Tenant, the Housing Provider must be able to prove that the eviction is warranted. For example, one late payment may not be enough to justify an eviction, and the Landlord must endure further delinquent behaviour before filing a claim. Other reasons can include damage to the property, disruptive behavior, or violating the terms of the lease agreement.
Once a Housing Provider has sufficient grounds to evict, proper notice must be served on the Tenant. Then, the wait begins for the notice period to expire and the case to be set before an adjudicator. At a hearing, the Landlord must present evidence and overcome Tenant defences such as partial rent was paid, the rent was paid just prior to the eviction hearing, or the Tenant deserves a rent abatement due to the condition of the property.
If the eviction is successful, the Tenant will be ordered to vacate, and the property can be placed back in service. This stops the income loss but does not compensate the Landlord for lost rent.
In certain provinces, the tribunal may issue a monetary award to Landlords if their eviction case is successful and rent has not been paid. This may eliminate the need to file a second legal action to obtain a judgement against the former Tenant for past due rent. However, because the Tenant was occupying the property at the time of the order, it may not cover property damage that is discovered once the Tenant moves out.
In addition to unpaid rent, Housing Providers who are forced to evict a Tenant may also incur repair costs, as well as legal, sheriff and court fees.
Options for Collecting Past Due Rent
In certain provinces, the tribunal may issue a monetary award to Landlords if their eviction case is successful and rent has not been paid. This may eliminate the need to file a second legal action to obtain a judgement against the former Tenant for past due rent. However, because the Tenant was occupying the property at the time of the order, it may not cover property damage that is discovered once the Tenant moves out.
Once the Tenant has vacated, a new Tenant can be brought in to prevent further income loss. At that point, the Landlord must decide how to go about collecting the debt. The choices are to do nothing, attempt to collect the debt personally, hire a professional debt collection company, or report the debt to Credit Bureaus.
By doing nothing, the Landlord emboldens a Tenant to do the same thing to the next Housing Provider, and the next. It also prolongs the bad feelings of being victimized. Regrettably, many Landlords opt for this choice because the collection process can be a difficult and daunting task.
A Landlord can attempt to collect the debt on their own. This usually involves sending written demand letters and attempting to negotiate for at least some of the money owed. Sadly, this method usually fails. The Tenant didn’t respect the tenancy agreement, so it is unlikely the same person is going to spontaneously have a change of heart — not unless the Landlord presents a compelling reason to pay.
Hiring a collection agency is another option. Professional collection agents are trained to locate delinquent Tenants and their assets. Whether the collection is successful will be intimately tied to the accuracy of the contact information that the Tenant provided when applying for the vacancy. The Landlord also will need to substantiate the debt that is owed, typically with the tenancy agreement and any court orders or judgements.
Most collection agencies work on commission. That means that if the agent is unsuccessful, the Landlord has lost nothing. If the collection is successful, however, the Landlord will owe a percentage of the debt, typically 30-50%, to the collection agency.
The average debt collection fee is typically between 30% to 50%.
A lesser-known solution is to report the debt to Credit Bureaus. Indeed, credit card companies and other lenders habitually submit information about on-time, late or unpaid payments; however, Property Managers and Landlords can also provide details of rental debts to the Credit Bureau.
How to Send Unpaid Rent to Collections?
Before hiring a collections agency to help recover unpaid rent it is important to research the various companies and find one that is reputable and has experience in the rental industry. Landlord-Tenant matters are governed by provincial legislation, so it is essential to make sure the collections agency you are hiring is familiar with the specific rules and procedures in your province.
To send unpaid rent to collections a Housing Provider must provide the debt collections agency with pertinent information about the Tenant including:
- The full name of the Tenant or Tenants
- The last known address of the Tenant or Tenants
- The amount of rent owed
- The dates the rent was due
- Any late fees or other charges associated with the unpaid rent
You will also need to provide the collections agency with a copy of the tenancy agreement and any court orders or judgements related to the debt. The collections process will be much easier if the Landlord has a well-organized system that tracks payments and provides documentation of the debt. Once the collections agency has this information, they will begin their investigation.
The collections agency will first attempt to locate the Tenant in order to serve them with notice of the debt. If the Tenant cannot be located, the collections agency may still be able to collect on the debt by garnishing the wages of any employers who have been located. In some cases, the collections agency may also be able to seize assets such as bank accounts or real estate holdings.
If the Tenant chooses to dispute the debt, they must do so in writing within the 30-day period. Once the collections agency receives notice of a dispute they are required to investigate and determine if the debt is valid. If they find that the debt is valid, they will inform the Tenant in writing and demand payment. If the Tenant still fails to pay the debt, the collections agency can then take further action to collect on the debt.
If you are a Landlord who is owed rent from a delinquent Tenant, you might feel like hiring a collection agency for unpaid rent may be your best option. However, it is important to keep in mind that this process can be costly and time-consuming, and there is no guarantee that the collection agency will be successful in collecting the debt. Before taking this step, you might want to consider other options such as reporting the debt to Credit Bureaus yourself.
Reporting Delinquent Rent to a Credit Bureau
Reporting debts to the Credit Bureaus has always been the most effective way of recovering debts. Other industries that use this method of debt collection are Banks, Finance and Telco companies. When a Housing Provider reports a Tenant to the Credit Bureaus, it will appear on the Tenant’s credit report for up to six years, the longer the debt is on the credit report the greater the impact it can have. This information can then be used by other Landlords to screen Tenants and make informed decisions about who they rent to. Housing providers can report a debt to the Credit Bureaus using FrontLobby. *Send to Debt Reporting Page
Reporting the debt to the Credit Bureaus will:
A) Stay on the Tenant’s credit file for up to 6 years, impacting their ability to get future credit;
B) Encourage the Tenant to contact you to arrange payment as they are aware that failure to do so will
Landlords have the right to report Tenants to a Credit Bureau for the purpose of collecting on a debt. This is an alternative solution to sending the debt to a collections agency because it is less expensive and has proven to be even more effective. Tenants are more likely to resolve a delinquency when faced with the reality that their past actions will be noted on their credit report and will follow them around for years to come.
When reporting a Tenant to a Credit Bureau, Housing Providers must provide the following information:
- First Name
- Last Name
- Email Address
- Property Details
- Date of Birth
- Social Insurance Number may be used in addition to a date of birth for accuracy
Housing Providers do not need to work through a collection agency or obtain a monetary judgement to report Tenant debt. If the amount of debt reported is accurate and only includes unpaid rent and unpaid utilities as outlined in the lease, then you do not require a judgement, ruling or monetary order. To report damages or penalty fees, you do require a judgement, ruling or monetary order.
How to Collect Delinquent Rent?
Collecting delinquent rent is often described as the worst part of being a Housing Provider. However, Landlords and Property Managers can greatly reduce the need to chase unpaid rent by using a rent reporting service. By committing to reporting rent payments each month, Landlords can reduce delinquencies and avoid the need to pursue rent collection. The ramifications of tracking monthly rent payments allow Landlords to create an immediate consequence for Tenants who otherwise would pay late or miss rent, without enduring weeks or months of spotty payments.
Responsible Tenants see reporting rent payments as a valuable amenity because they can build a better Credit Report and earn a positive Tenant Record. Tenants with a good rental history are able to use their Credit Report to demonstrate they’re a low-risk renter when they move or apply for other financial products.
How to Choose a Debt Collection Agency?
If a Landlord chooses to send a Tenant to collections there are a number of factors to consider before sending a Tenant to collections, including:
The Cost of Using a Collection Agency:
Collection agencies typically charge a percentage of the total debt owed, so Landlords should be sure that the amount owed justifies the cost of using an agency.
The Likelihood of Actually Collecting the Debt:
While collection agencies do have some success in collecting debts, there is no guarantee that they will be able to recoup the full amount owed. In some cases, it may be more cost-effective for the Landlord to write off the debt entirely.
The Type of Collection Agency Used:
Not all collection agencies are the same. It is important to research the type of services offered, as well as their reputation for success in collecting debts.
Report Unpaid Rent to Collection Agency
Ultimately, the decision of whether or not to report a Tenant to a collection agency for unpaid rent is up to the Housing Provider. There are a number of factors to consider, and there is no one-size-fits-all solution. Landlords should weigh the pros and cons of sending a Tenant to collections before making a decision.
Disclaimer
The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.
