What Are Your Options if a Tenant Cannot Pay the Rent?

If all of your tenants always pay their rent on time and in full, then count yourself lucky – for now – because it’s not going to last. At some point, every single property owner will deal with rent issues. For many, those fears came abruptly and what seemed to be out of the blue when the COVID-19 crisis halted the world. For those unlucky rental property owners, rent payments stopped coming in completely. The eviction moratoriums were immediately enacted and property owners were left looking for any relief for landlords. 

Today, as we step into a new year and the world begins to normalize, landlords dealing with unpaid rent may start seeing the light at the end of their tunnel. As it stands most property owners now have options for those tenants not making their rental payment. So what are your options if a tenant is facing financial hardships or loss of income? Landlords, you have three roads to choose from.

Disclosure – Because we have such a powerful marketing system, we rarely consider anything other than eviction proceedings. However, for those who may not have the ability to quickly remove then replace a qualified tenant, it is possible a more understanding approach could be beneficial.

Choice #1: The Hard Road

Eviction Proceedings

  As a landlord or property manager, you will inevitably come across those less than desirable tenants. The tenants that consistently feed sad stories one after the next for their nonpayment of rent. As a private landlord, it can be difficult to make the decision to proceed with eviction for nonpayment; especially when those stories tug at the heart. Unfortunately, if your tenant cannot pay the rent, eviction procedures are the easiest route to deal with a perpetual problem. However, as it currently stands in January 2022, only landlords with non-government-backed home loans can begin the eviction process. 

The rental agreement states that if the rental payment is not received within so many days then a landlord can proceed with legal action and file for eviction. You can legally stick to the letter of the law and show no tolerance.

Landlords with Government-Backed Home Loans

Unfortunately, as it currently stands in January 2022, only landlords with non-government-backed home loans can begin the eviction process immediately. For those who finance their mortgage with any type of home loan with government-backing, there will be an additional 30 day notice period to your tenant. This means that if you intend on filing for eviction for late rent payments, landlords much first give their tenants a 30 day notice period to either pay or move out. If after that 30 day period your tenants have not paid or vacated, landlords with government-backed loans can now file against their tenants for nonpayment. 

Choice #2: The Soft Road

The Loss

Another option if your tenant cannot pay is to take the soft road and offer a grace period. Maybe you find out that something tragic has happened in the home resulting in a reduction in household income.
Your heart goes out to them and their situation. You decide to waive one month’s rent to help them get on their feet. It is a considerate thing to do. If you evict, it would only add to their stress and you would lose at least a month of rental income anyway. In some instances, it may even be possible to use this as an advantage when it comes to taxes. Consult a tax professional to see if lost rental income can benefit you.

 

While some situations can call for a soft approach, travel this road carefully and infrequently. If you are perceived as a softy by your tenants, then you must prepare yourself to become a doormat. You will always have sob stories, excuses, and overdue rent.

Assistance Programs

Until the COVID-19 pandemic and in normal circumstances, many landlords didn’t even know there were many outside sources of assistance for tenants’ current and future rent payments. Additional resources can be found through local organizations like churches and non-profits and even local governments have emergency rental assistance programs that tenants can apply to. With more recent funding, many of the emergency rent assistance programs are able to provide more tenant’s and landlord’s financial relief. The application for rent assistance is easily found online and usually processed within a few days. As a landlord, consider accepting funds from organizations like these. While it may take a little time for the final transaction to happen, many of these organizations will pay past and future rent payments depending on tenant need – including late fees. 

Release Them of Their Rental Agreement

Its entirely possible for a landlord to offer the release of obligation to the rental agreement. While it may not seem ideal at first, it can offer a lot of benefits to those landlords able to afford the turnover and finding of a new qualified tenant. Save the stress of eviction action for both parties and offer tenants the option to exit the property. Landlords can still charge back the tenants’ security deposit for damages and rental debt but will need to understand that they’re likely not going to see more funds than what the security deposit amount holds. However, this a great opportunity for those landlords than can afford the lapse of tenancy to find new qualified tenants that are capable of making future rent payments. As with anything, make sure this agreement’s in writing. 

Choice #3: The Middle Road 

Compromise

The third choice, and perhaps the most common, is the middle ground. Eviction is not the first and only choice and neither is giving up the income. There is a lot of middle ground here for some sort of payment arrangement if your tenant can’t pay the rent on the due date. Here are a few options to choose from:

Pay Late:

Some tenants will have the monthly rent money by the end of the month, but not on the first. For example, many public school teachers get paid once a month and usually at an odd time. If you as the landlord are comfortable accepting late payment, feel free to! However, it is standard practice that a late fee is charged to that tenant. Be sure to include the late fee amount into the lease agreement that you and your tenant will sign. 

Change the Lease:

If your tenant gets paid on a day other than the first of every month, consider changing the due date of the lease. Suppose they receive their pension on the 15th, then why not make the rent due then. You will have a better chance of getting paid in full and on time. Just make sure to pro-rate the rent for the month the due date changes.

Pay Half:

It is possible that the tenant just ran into a temporary snag like so many did during the COVID-19 pandemic. Why not consider having them make partial rent payments during the month. For those who get paid bi-weekly make an agreement in writing that during each pay period your tenant makes half of the payment of rent. 

Make an Exchange

In most states, a tenant’s security deposit can be used to cover any rental debt after the lease has been fulfilled. While not always the best decision, cash-strapped landlords can offer to waive a month of tenant rent in exchange for their full security deposit. This can give your tenant the wiggle room needed to get back on their feet and catch up with bills. Unfortunately, landlords will not have access to that money until the lease agreement is fulfilled and any damages done to the rental unit will have to later be billed back to their tenant. This type of arrangement should be completed in writing and signed by both parties.  

We would recommend that the landlord or their property management company meet with the tenant at their home. Keep an eye out for new and expensive purchases. If they cannot pay the $650 in rent but you see a new $800 flat-screen TV, you will undoubtedly handle things differently. Hear them out but don’t be afraid to wait a day or so before giving them the answer. Make them sweat a little so you don’t look like a pushover, but instead the understanding landlord.