So, What About the Balance?
Editor’s Note: Second installment of a 2-part overview on community owners’ best practices for debt collection, originally published in MHInsider Magazine. Part I covers delinquency-to-eviction collections.
If it’s not enough that you’re exhausted by the process of rent collection, you’re stuck with the accumulation of unpaid rent and fees, along with potential damages and other expenses. Throw in the accelerated rent if you’re not able to quickly mitigate your damages and re-let the home or site, and these post-eviction outstanding balances can be shocking.
After sending your security deposit notice and demand for payment, you could pick up the phone and call the resident about payment, but they have very little incentive to pay now that the symbiotic part of your relationship has come to an end. Unfortunately, this is typically where the ability of you or your staff to collect these payments runs its course. However, This does not mean give up or write it off and move on — but it is time to internally cut your losses and pursue a third-party alternative to collect that money — it’s your revenue and you deserve it.
Often out of habit, the shortcut option that comes to mind is to hire a collection agency. There are many reasons these boiler-room bill collectors add little value, which is why community owners or operators should turn to a debt collection law firm – beyond the cash value of actual success collecting, law firms are far better equipped to shield their clients from liability.
Bill collectors are handcuffed in their abilities to collect from your debtors – that’s why it’s easy to understand that anecdotally their gross collections rates are most often at 5%. All they can really do is beg for your money with letters and phone calls and have no real tools at their disposal to incentivize these payments other than massive discounts or penny-ante payment plans. You know this is an exercise in futility because you’ve already asked for the money on multiple occasions and had no success.
The Work of a Debt Collection Law Firm
Conversely, a debt collection law firm has an arsenal of tools to legally compel payment. The first letter and phone call from a collection law firm comes with the signature of authority of an attorney and your debtors will understand you are serious about getting paid. If negotiations for a payment plan or settlement do not quickly materialize between the firm and the debtor, the firm will file a lawsuit on your behalf. This will allow the firm to obtain a judgment on your behalf and, depending on where your communities are located; garnish wages, bank accounts, and state income tax returns; seize cars and other assets; lien real property; and compel a debtor’s appearance in court to satisfy a judgment.
Qualified debt collection law firms understand the operation of a manufactured housing community and the laws regulating how you do business, but they’re also studied in the legal risks involved in debt collection, another area where those bill collectors are known to be reckless. Law firms often employ compliance attorneys to ensure the firm is acting responsibly on your behalf. The reality is that the debt collection field – especially as it relates to manufactured housing – is becoming more legally hazardous as time passes. Exposing your community to the unnecessary potential for lawsuits or penalties eventually will hurt your bottom line and rack up losses more damaging than just the defaulting residents.
Constructing a standard operating procedure from move-in to post-eviction collections can be arduous, but the long-term benefits for your community are overwhelming. Take the time to consider today how to improve the best practices to boost cash flow and reduce the likelihood of defaults.