When Can I Send a Non-Paying Tenant to Collections?

As a landlord, you can legally contact a collection agency whenever a tenant fails to pay rent. Trying to collect the late payments yourself is usually a more cost-effective first move, however. If you're convinced the tenant is never going to pay, evicting him should be a higher priority than calling a debt collector After all, until you move in a new tenant who does pay the rent, your rental can't generate any money for you.

Before taking any other action, talk to your tenant. If she hasn't missed a payment before and she says the problem is temporary, giving her an extra week or two may resolve things easily. It's also possible she's withholding rent because you haven't responded to her complaints, or she had to spend the money to pay for repairs you refused to make. In some states, that's legal. If you can work out an agreement to make up the missed rent, put it in writing and get her to sign.

If you decide to evict your tenant, you have to follow all the steps spelled out in your state law. The first step is to tell your tenant in writing he must either pay the past-due rent or leave; most states give him three or five days to pay. If the tenant stays put, you have to file an "unlawful detainer" lawsuit in court, serve the tenant with a summons, then go to court to prove your case to a judge. If the tenant contests your lawsuit, hearings can take weeks or months.

After you've evicted the problem tenant, it may be simpler for you to turn her debt over to a collection agency rather than hounding her yourself. You can sell the debt to an agency outright, or pay it a percentage of the amount it collects from your former tenant. Collection agencies are legally barred from using threats or violence, but knowing you've called one in may convince your renter to contact you and offer to settle the debt.

The most cost-effective way to deal with late payments is to do everything possible to prevent them. Make it easy to pay the rent: Requiring that your tenant pay in cash every month or drop off the rent at your office makes it harder for him to comply than allowing the renter to set up automatic payment. Treat your tenants like business clients, satisfying legitimate complaints quickly and regularly checking that everything's going well. If a tenant's in a money crunch, the creditor he likes best may be the one that gets paid first.