Issue link: https://read.dmtmag.com/i/106888
COMMUNITY CONSULTANT Why Eviction Is Not Always The Best Way To Deal With The Problem Tenant BY FRANK ROLFE In a perfect world, a tenant fails to pay rent, and the landlord files and wins an eviction. Days later, a Writ of Possession puts a constable in the home, removing the tenant. However, that's how things work in theory. The reality is that there are often different solutions that get the same net effect, but are faster and more efficient. And even though they may not seem "fair" to some community owners, they are an economic decision that can save money and gain speed – and that's the goal. The U.S. legal system is flawed It certainly comes as no shock to anyone reading this article that the U.S. legal system has some serious deficiencies. We own and operate communities in 17 states, and you can certainly tell that they are not all created equal. In some cities we operate in, the judges seem downright convinced that anything a landlord does must be illegal, and are so afraid of foreclosure and eviction laws that they prefer just to either throw cases out, or table them until the next session. We have a couple cases that have been dragging on for a year because the judge is not man enough to throw the non-paying tenant out. Paying the tenant to leave Sometimes – and I know this sounds odd – you are just better off paying the tenant to leave. That's right, giving money to the tenant that already owes you rent. Let's assume I've got a tenant who can't pay rent because they've lost their job. They know that it's not possible for them to find another job overnight – we already know that they are doomed. So their plan will be to try and hang out in that house as long as possible. That means you are going to be out $200 to $500 in court costs and attorney's fees to get them thrown out -- and lose probably one to two months of rent before the constable finally tosses them. That tacks another $1,000 on the loss column if the home rents for $500 per month. So if you can pay them $500 to move out today, FEBRUARY 2013 22 THE JOURNAL you're actually ahead by $1,000. Think about it. Sure, it seems contrary to your morals to pay the deadbeat to leave. But it's just a matter of economics. Buy the home Let's take the scenario of the tenant who owns their own home. This time, you're looking at $200 to $500 in court costs, maybe $250 per month in lost lot rent, but even more importantly, you'll either have to pull the house out, or let them abandon it and spend several months and more legal fees to take title. If you instead offer to buy the home for $1,000 – as an example – you are hugely ahead. And anything under $1,000 is a no-brainer. In some cases, it might be yours for $100. But it's back to the same scenario – paying money to someone who owes you money. I know that seems wrong, but it's just a matter of minimizing your loss. And, in this case, you gain an asset for the money you spend. In fact, if you spend $1,000 on that home, you can probably get that much or more for it on a quick re-sale, so you've really not lost any money at all. However, if the home leaves the community, it will cost you $10,000 to $20,000 to replace it. Take over the payments Another scenario that we've run into is taking over the payments on the home. Suppose that the tenant can't pay their lot rent or home payment due to the loss of a job or medical emergency. Sometimes an angle, besides eviction, is to see if you can take over their payments and give them a little money to just move out. The world record scenario I've ever seen on this was a home with only two payments left on a 10 year mortgage. In a case such as this, you'd have to get the tenant to assign their interest in the home and title to you, and then pay off the home. It may not be within the tenant's mortgage agreement, so I'd probably hold off calling the mortgage company and getting their input. I'd just pay the lump sum payment and be done with it. Other ideas If a tenant is in a new home and suddenly can't make the payments – and it's a home that the community owns – you might consider trading them down into an older (and cheaper) home. Again, it's not about getting revenge for the money they owe you, it's about trying to manager a business to make the most money. Sometimes the best thing a landlord can do is to listen to what the tenant's problems are and see if there's an outside-the-box approach that can be a win/win solution. But that's not to say that the community's official position should not be "no pay/no stay" In all of our communities, we have a no pay/no stay policy, in which the tenant has to pay their rent by the 5th or the eviction process begins, with a demand letter and late fee. We believe that this is the only system that works in a manufactured home community. I'm not proposing that anyone start accepting partial payments and payment plans. However, you should always keep your eyes open for the opportunity to mitigate your losses when the tenant is already in a doomsday scenario. Conclusion It seems contrary to logic to pay somebody that owes you money. But you need to take the vengeance out of your thinking, and think strictly economically. Making money is always the best course of action. T J Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 20th largest community owner in the United States, with almost 7,000 lots in 17 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. To learn more about Frank's views on the manufactured home community industry visit www.MobileHomeUniversity.com.