What to do when your tenant bounces a check!

If you own rental property,chances are at least once during your ownership, one day your bank will return the rental payment of your tenant for insufficient funds, or perhaps as the result of a bank error.  When that happens, what should you do and how should you document the event? 

 

First, look at your rental agreement with your tenant.  If you have a good rental agreement, the agreement will spell out what happens.  Most rental agreements allow you to charge a reasonable fee to reimburse you for the cost of the returned item that your bank will charge you, and perhaps a bit more to cover the value of your time in dealing with the returned item, documenting the return, processing the replacement payment and/or going to the bank for the replacement deposit. 

   

It is likely if you have a good rental agreement, you will be required to notify your tenant in writing of the returned item.  Don’t wait for them to contact you.  Send a notification letter immediately.  If you have the resident’s email address and their agreement to allow you to communicate with them via email, send a copy of the letter to them by email. 

 

Advise the resident they need to provide a replacement payment to you immediately and that they should include the agreed upon fee for the returned item.  Depending upon your lease, you may be able to demand the replacement payment be made via certified funds; a good idea if they have just bounced a check to you.  Let the resident know they will have only a limited amount of time (for example three days) to submit the replacement payment before you will take action to protect your legal rights.  And let them know in a sensitive but firm fashion, it does not matter why the payment was returned, but that the returned item charge is due and owning to you to reimburse you for your costs and the value of your time in dealing with the issue.  If their bank made an error by returning their payment, direct them to their bank to collect the returned item charge due and owing to you. 

    

Remind them that timely rental payments is a credit obligation and one to be taken seriously.  If you have a valid late fee provision in your lease, remind them late payments are subject to late fees.  Also important is to advise them that your acceptance of a late payment is not an agreement to permanently modify the payment due date. 

 

It is best to develop yourself or purchase for your use, standardized letters for foreseeable property management occurrences, such as bank returned payments, late payments, reservation of rights when accepting late payments and other typical property management events.  You can find standardized forms and letters at various Internet sites, or you can work with a property management firm as a consultant, or purchase standardized forms from a property management company.  Or, if you don’t want to bother with the complexities of these issues, you can hire a property management company to be responsible for these issues. 

 

    

Finally, let your resident know if they are experiencing economic problems, they should contact you to discuss their payment options.  Reassure them that you will be open and understanding.  If they are having a problem, it is best to find out about it sooner than later.  If you work together in a constructive fashion, chances are you can together prepare and plan for the difficulty ahead, rather than playing the age-old cat and mouse game of the resident avoiding the calls of the owner, or the resident making up stories about the check being in the mail, or making claims of previously unreported problems with their unit. 

 

With luck the replacement payment along with any additional fee will be submitted to your office the very next day.  And the replacement payment can be deposited into your checking account within a business day or two of your receipt of the returned item notice from your bank.  If they do not tender a replacement check or make arrangements to pay late, you will need to take appropriate action.  (Another article.)

 

But it all starts with you facing the problem, taking immediate action and notifying your resident in writing their payment has been returned!  Don’t delay!

 

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Manage your property - don’t let your property manage you!

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