Judgments. Eight tips to insure they turn into Cash!

Judgments. Eight tips to insure they turn into Cash!

Judgments are great, aren’t they? But only if they turn into money, am I correct? If you are new to the landlording game, and you get your first judgment against some jerk tenant who you had to kick out because they were behind 2 months rent, or messed up your property, the rush of justice is intense! “That’ll show them! You’ve messed with the wrong Marine!” you exclaim in your giddy jubilation. But the afterglow of winning in court is overshadowed by the fact that there is no real way for you to actually COLLECT that money. Unless…..

…you have admitted your tenant and screened them, and done a few things to allow you to garnish once you have received that judgment. Here are Eight things you should do or consider to maximize the chances of getting money for your judgment:

  1. The Application: when screening the app, actually call the employer, and find out if the applicant works there. If they haven’t been there at least two years, that should be a red flag in your screening process. If possible, try and use a number for the company, asking for a specific department and supervisor listed on the form, and not the number listed for that supervisor on the app itself. Depending on your level of desperation in filling the vacancy, not having a sustained income source can also be grounds for requiring a double deposit. People who haven’t been in jobs long are risks that they aren’t attached to the job, and will depart that one for a new one.
  2. Minimum Garnishable income: There are general guidelines in each state as to how much a person has to earn BEFORE their wages can even be garnishable. So when screening that app, make sure that at least one employment source provides them sufficient income above that threshold to even permit garnishing.
  3. Check and Double check: Once you have a vetted income on an applicant that you permit to lease your property, do you just put that info away and just collect the rent? I hope not, because that’s how you end up with a judgment with no teeth. You have to ‘inspect’ your tenant’s income source to insure that their income stays garnishable throughout the term of the lease, just as you inspect the property to make sure they are taking proper care of it. The minimal timetable you should recertify income is at annual lease re-signing. We pretty much go through the application process all over again on income by sending an Income Recertification form with the Lease extension addendum, stating that the lease could be subject to nullification if the income supporting it cannot be determined. If they did quit their original position and have a lower paying job, just make sure that that wage is still garnishable per #2 above.
  4. Fear Factor: When moving a new tenant in or signing the lease, when the topic of unpaid rent comes up, gently insert that they should make every effort to pay the rent monthly because you have a very strict policy of obtaining judgments and (the important part) if they get a judgment it could hurt their chances of getting a car loan, or anything else on credit for a ‘very long time’. It is also smart to add (whether true or not), that you have a 95% success rate in collecting on those judgments through the government and private sources from wages or bank accounts. So it would be wise to pay you before paying their other bills. Always end with, “But I’m sure that’s not going to be an issue here, it’s just something I have to throw out there”.
  5. Double check when Filing: When is the time to make a checkup on #3 above, before, or after you file for eviction? Before obviously. At times, we have even offered an additional grace period of 5-10 days as long as the tenant’s employment can be re-verified. If it can’t, no grace period and you need to be prepared to remove them.
  6. No Personal income avoidance: we have placed more than one low income tenant on the basis that they received TANF or SSI for their sole income source. Depending on how badly you want that tenant, you can place them, but be prepared to act swiftly when rent isn’t paid, as none of those funds are garnishable. We frequently permit persons without a verifiable income source to occupy a rental of ours, but usually ask for a co-signor, additional deposit, or require another member of the lease to have garnishable income to approve them.
  7. Actually send it: There are actually a lot of landlords that I talk to that actually have the appropriate info to get a garnishment, but just don’t bother with it..we are talking about $1k’s of dollars. The forms are pretty simple, the fee’s aren’t usually bad (and they pay them on top of the judgment), the only drawback is you have to wait six months, and there is no guarantee that you’ll get all or any of it, but if you’ve taken the steps above, you probably will. Just File It.
  8. Collections: As much as I’d like to totally promo collections agents as the way to go to get your money, odds are they won’t do much better than you can do yourself. They can save you time doing it, though, but the price is steep, usually 50% of the judgment amount goes to them if they collect. I have heard of some pretty wiley collections agents, with some pretty great investigative and baiting techniques to find deadbeat tenant’s employment info or bank account data to effect a good garnishment. But they are not everywhere.

The basic rule of thumb here is that only you can prevent forest fires….oops, wrong post. Well unless we are taking about whether or not your judgments are better suited for fuel for firestarting and kindling than as a source of potentially recovered losses of rents.

REMEMBER, it’s not about the journey, it’s about the destination.

About the author: Jeff Sullivan has been buying, holding and selling investment property for over ten years. He currently has over 40 units in his private portfolio and consults others on doing the same through his Real Estate Investment Consultancy, Equity Momentum Investments. He can be reached at jeff@eqminvest.com.

 

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