Issue link: https://read.dmtmag.com/i/657319
/ CMP COMMUNITY MANAGEMENT PERSPECTIVE Exploring New Options On Collections and Evictions So a resident has not paid the rent. Not an un- common problem based on the demographic real- ities of many communities. So what do you do? Many community owners would say "file eviction, of course". But we've been testing new methods to increase reduce our cost in doing so, and we think there are interesting points for discussion that has developed from this testing. The costs to evict have skyrocketed First, let's get some facts on the table. The cost of evicting a resident has grown substantially since the 2007 sub-prime mortgage crisis. Before that landmark event, most judges had an easy life. They went to court, went home for dinner, and played golf on weekends. But then came the "robo-signer" lawsuits and other complicated lit- igation, and most judges became afraid of their own shadow. So many require the community owner to use an attorney instead of sending their manager to the eviction trial. While many would argue this is not legally correct, it's pretty hard to fight the judge and win a case. As a result, to file an eviction today, you have to be prepared to pay a legal bill in doing so. And that's typically about two times more than the filing fee. Judgements are not really collectable Let's also all admit that most judgements that you receive against a tenant are rarely collected. Like hardly ever. The odds are so small that at- tempting to do so is hardly worth the effort. The reason is simple: if these folks had the money to pay you, they'd have paid the rent to begin with. So spending a lot in legal fees to get a worthless piece of paper is not good business, right? Most community owners could open a wallpaper busi- ness with the reams of uncollected judgements they possess. Proactive collecting by managers is very important So the first step in trying to reduce your col- lections cost is to get the managers more actively involved in the collections process. This does not mean putting them in the role of being the "heavy" who threatens the tenant into paying (which would get you into serious litigation if you even considered that concept). Instead, it's the polar opposite. You want the manager to be the good-natured "reminder" to the tenant that the rent is due. When they see the resident at the mailboxes, they approach them and say "will you have a chance to drop off your rent today"? Never menacing. Never judgemental or rude. More like a parent that wants the resident to have a happy life and not lose their home. We have one man- ager who has an extremely high collections rate despite being in a not-so-upscale community. If you follow them around, you quickly see that they include "bugging" residents into paying their rent as a big part of their job. This constant stream of reminders really, really works. Finding the most inexpensive attorneys Don't tell the State Bar Association, but legal fees are negotiable. Just like Walmart, it's cheaper in volume. And not all attorneys are worthy of the same rate. We typically seek out the "collections attorneys" in each market we're in. These are folks that do nothing but evictions, typically apartment clients. They often charge a flat fee per case. But even this is negotiable, based on the number of cases you provide. If you're using a typical real estate attorney for $250 per hour on these cases, you're crazy. Call some apartment complexes and create a list of these specialty eviction attorneys. Then call them and negotiate some much better rates per case. Cash for keys Is spending money with the court and an at- torney really the best way to get what you want? Often, it's not. If the goal is to get the resident out quickly and inexpensively, the best route may be what's called "cash for keys". You basically say to the resident "obviously, things are not working out for you right now. We understand that bad things can happen to good people. We'll make you a deal. If you can be out by Monday, we'll give you $200 cash to help you get back on your feet somewhere else". At first glance, you might say "that's crazy to pay money to someone that owes you money". But that's not necessarily the case. Let's look at the options. If you go to evict that resident, it's going to cost you a filing fee, legal fees, and a writ fee. Let's assume that's $700 all bills paid. And the whole process will take a month and a half, which is a loss of $750 in rent (assuming the rent is $500 per month). Then, on top of that, since you are the enemy, they are going to trash the house, and that's an- other $1,000 in repairs. So the total cost of that eviction is really $2,450. Or you can simply ex- ercise a "cash for keys" program, and you are out $200. They leave by Monday and the house is unharmed (except for standard wear and tear). Is $2,250 less a bad thing? Or would you rather prove a point? Understanding FIGHTCO vs. FICO Our nation is obsessed with credit scoring. That's great when you're selling Audi's. But for much or our tenant base, that's not the important score. We are more concerned about FIGHTCO than FICO. FIGHTCO means how hard the res- ident will fight to stay in their home and to not dislocate their family. Most everyone wants to pay the rent. But when the chips are down, those with high FIGHTCO scores will do whatever it takes to bridge the gap between their crisis and stability, and keep a roof over their heads. They basically say to themselves "I am going to work three jobs, I am going to borrow from my family, I will sell my watch to keep the rent paid. Pe- riod". Don't harbor a grudge when someone has economic problems. Instead, have nothing but praise for those who have survived a crisis, and fought their way through them and come out the other side. These folks have high FIGHTCO scores and that's to be admired. If someone goes to eviction, pays us in full, and wants to continue on, we're not going to hold them back. That's a customer who has a high FIGHTCO score, and B y F r a n k R o l f e \ 18