Question

Applicants who don’t qualify financially are offering to have a co-signer. What benefit do I as landlord get from this? Do I add the co-signer to the lease agreement?

Answer

The following discussion is an abbreviated version of an article I once wrote for the Web site.

Cosigners or guarantors are sometimes of importance when rental market conditions result in no applicants who meet a landlord’s qualifying criteria. They are also particularly useful when the location of the rental property means that most applicants are college students who depend on their parents for much of their income or for anyone else who has little or no credit history of their own.

A guarantor is often differentiated from a cosigner as someone who assumes certain financial liabilities for a lease, but does not actually sign the lease agreement itself and, accordingly, has no rights to the premises. However, no matter what the person is called, it is best to adequately define all rights and responsibilities in documentation executed by the one guaranteeing the lease agreement on behalf of the tenant-to-be.

Depending upon laws of particular states, there may be little or no legal difference between a cosigner and a guarantor. However, while the terms cosigner and guarantor are often used interchangeably, they can be significantly different, depending on state law and/or on the clauses contained within the documents. In particular, there can be a significant difference between a cosigner and a guarantor if the cosigner becomes a co-tenant rather than simply financially liable for the tenant due to the manner in which the agreement is constructed.

In some states, a cosigner for a lease agreement is the same as a signer of the lease agreement. Accordingly, absent adequate language in the lease specifying otherwise, the cosigner may have all the same rights as a tenant who resides in the subject rental unit or doing business in a commercial rental property. That is, the cosigner can become a co-tenant even though not living in or doing business in the leased premises. Thus, if not specified otherwise in whatever documents the cosigner executes, it is important that cosigners for a lease agreement be served with all notices or other legal documents (e.g., eviction complaint) that are served on those signers who are occupying the unit.

There are basically two different types of guarantees, broad and narrow. As examples, a broad form might make the guarantor liable for all financial matters including rents and damages, whereas a narrow form might limit the guarantor’s liability to the rent.

The cosigner and guarantor documents are often drafted so that there is little or no difference between the two. Both agreements are contracts between the guaranteeing party and the landlord, so they can pretty much be written however those parties can agree and the terms of the agreement are much more important than the title given to it. For simplicity, I will hereinafter use only the term “cosigner” even though all discussion will apply no matter the title of the agreement. Although there are times when there will be multiple cosigners for the same tenant, I will use the singular term “cosigner” unless specifically talking about more than one cosigner.

Whatever the title of the agreement, it is important that the language makes it clear that the co-signer is only guaranteeing financial aspects of the tenant’s lease and is not occupying the premises pursuant to the lease and that the cosigner does not become a tenant.

There are as many different formulations of cosigner agreements as there are publishers of the document. While landlords may wish to start with a form of the document available from a particular source, it is usually best to develop one’s own document if the obtained document does not include the terms I mention in this discussion.

Cosigner agreements can be written to cover only an initial lease term or to include future extensions and/or renewals.

Although lease agreements should always contain clauses prohibiting (within the limits of state law) subletting or assignment without the landlord’s written permission, cosigners should always be held responsible when the tenant sublets or assigns his leased premises during the term of the guaranty.

The cosigner agreement should always make the cosigner fully responsible for the full amount of any reasonable legal and other fees that become necessary because of the tenant’s default on the lease.

When there are multiple tenants, cosigners should, if possible, be made jointly and severally liable for the lease rather than only for obligations of the co-tenant who was required to provide a cosigner. After all, the lease agreement should make each co-tenant jointly and severally liable and the reason for having a cosigner is because the subject applicant is not qualified to be severally liable in the event of default of his co-tenants. A landlord is usually most likely to collect from the one who is best financially qualified and/or the one who is easiest to serve with a lawsuit if some of the co-tenants disappear.

It is best to require a cosigner who lives in the same state as where the rental property in order to avoid the extra trouble and expense of collecting a judgment in another state. This will not always be possible when parents are cosigning for a college student enrolled in another state.

Each cosigner should complete a separate application form, be required to prove identity, submit to the same financial screening procedure, and meet the same qualifying criteria as any tenant applicant. The same fees required from applicants should also be required for a credit report and all other screening reports that the landlord performs.

If a cosigner does not sign the lease agreement in person in the landlord’s presence after providing proof of identity, it is very important that the signature be notarized in order to reduce the possibility of fraud.

If a lease is modified in any way during the guaranty period, the cosigner should be required to sign a new document covering the modified agreement, whether the modification is done via a new lease agreement or amendment to the old agreement.

The cosigner agreement should designate the tenant as the cosigner’s “agent for service of process” and also state that the cosigner or guarantor is not entitled to service of any notices that might be served on the tenant or have any other rights of a tenant. By doing this the landlord need only serve notices or lawsuit complaints on the tenant and does not have to personally serve notices or complaints on the cosigner. It will usually be easier to serve the tenant and it will be up to the tenant to inform the cosigner about notices and complaints filed on the cosigner. Failure of the tenant to notify his cosigner will allow the landlord to obtain a default judgment against the cosigner.

The agreement should make it clear that the co-signer is only providing a financial guarantee and has no rights to tenancy or other type of occupancy. This is to avoid the need to evict the cosigner before obtaining possession in the event of serious problems, an unneeded additional complication.

While one can add the desired clauses and basic cosigner contact information and signature and date lines at the end of the lease agreement, an adequate cosigner agreement is best done as a separate document that refers to the premises, parties, and date of the lease agreement. The agreement should also state that the cosigner has read the lease and that a copy of the lease agreement is attached – and should be done.

Although the cosigner agreement should explicitly continue the cosigner’s responsibilities when the lease agreement is amended, renewed, or otherwise modified, it is still advisable to require that the cosigner sign a new document related to the modified lease.

Many landlords prefer to avoid allowing applicants to qualify via cosigners because of the extra work involved and the limited practical value of them. Fair housing laws prohibit discrimination on the basis of a number of characteristics, but, if the applicant does not qualify because of documented bad credit history, denial would not be on a prohibited basis and that would be demonstrable.

However, there is one situation when landlords must consider cosigners under federal fair housing law. This is when an otherwise suitable disabled applicant having insufficient income to qualify on his/her own requests the use of a cosigner who is willing to pay the rent if needed. In this case, so long as the proposed cosigner is solvent and stable, federal law requires landlords to accept the applicant regardless of the landlord’s policy regarding cosigner qualifications.

Question

Is there a lease clause that can provide landlord the right to prevent a problem guest to access a property?

Answer

What, if anything, a landlord can do about a “problem” guest of a tenant depends on why the landlord considers the guest to be a problem, what clauses might already be in the lease agreement, or what might be a matter of law. Without knowing the specifics of what makes the guest a problem and seeing a copy of your lease agreement I can only discuss the issue in generalities.

A tenant is generally responsible for actions of his guests. If actions of the guest result in violation of a lease clause, the landlord could demand (by written notice) that the tenant correct the problem and prevent it from re-occurring. Failure of the tenant to do so might, depending on the specifics of the problem, be grounds for termination of the lease.

Basically, it is up to the tenant to cease allowing the problem guest on the tenant’s leased premises. A guest causing problems on the property but not on the tenant’s leased space (including any spaces external to the internal living space that are for the tenant’s sole use – e.g., a yard that is included by the lease) would usually best be dealt with by the landlord contacting law enforcement, as the tenant cannot usually be expected to be responsible for activities outside his leased premises.

A landlord cannot prohibit a guest from a tenant’s leased premises because the landlord doesn’t like the way the guest wears his/her hair, speaks, dresses, etc. The landlord certainly cannot prohibit a guest who is a member of a protected class under federal, state, or local fair housing laws unless clearly non-discrimination issues are involved.

Landlords must try to avoid doing things that result in a tenant’s claim that the landlord has violated the tenant’s “right to private enjoyment” of leased premises.

Tenant Property Left Behind

In a previous article we discussed some of the issues related to moving tenants out. We stated in that article that moving tenants out can potentially be more complicated and troublesome than moving them in because of the fact the tenants have possession of the property at the end of tenancy and more rights than when they were the selected applicants but had not yet been given possession of the rental unit or the rights that go with being a tenant.

One of the issues is that when tenants depart they may not always take all of their personal possessions, leaving some items on the premises. Failure to deal with those items in the proper manner can result in claims against the landlord by the departed tenant. Care should be taken to protect against tenant claims of destruction or theft, including photos and using a third party to document items and the condition of those items that were left behind.

When a landlord can reclaim possession and remove personal property left by the tenant and what a landlord can or must do with property that appears to have been abandoned by the tenant depends on the intent of the tenant, clauses in the lease agreement, and the specific laws of a particular state.

Obvious trash or garbage that no one could possibly want to reclaim can certainly be disposed of without causing any problems. However when certain personal effects or items of even small value are left behind, the landlord faces a dilemma. The tenant may or may not have deliberately left those items for discard. Perhaps the tenant ran out of time to pack all personal belongings or did not have enough packing materials or room in the trailer or truck to take care of every item but intends to come back for the remaining property. The landlord must be cautious regarding the disposal of tenant personal property.

It is not highly unusual for a tenant who appeared to have moved out to claim that his personal property left on the property had not been abandoned. As might be expected, the value of what disappeared is usually claimed to be quite high. That is, pieces of junk become valuable antiques.

In many states, the landlord should not be in a hurry to donate, sell or otherwise dispose of any items because the states have certain requirements regarding the handling of abandoned property.

At one extreme, a state does not have a specific law regarding abandoned property. At the other extreme, a state has a statute spelling out detailed procedures for dealing with abandoned property that must be followed even when the lease has expired, all personal property except for a few items has been removed, and the tenant is almost certainly no longer occupying the premises. These procedures often include the requirement of putting the belongings in secure storage, providing notices to the tenant in accordance with that state’s law, holding a public sale of the abandoned property, and providing an accounting of the sale proceeds to the tenant, along with giving the tenant any funds in excess of what the tenant owed the landlord for rent and damages.

State law may stipulate procedures on how to notify the tenant and how much time the tenant may have to reclaim the property. Items may need to be stored until requirements have been met. The law may also have different rules for different situations based on the reason for the tenant’s departure. For example, did the tenant plan a voluntary move-out, were there eviction proceedings, or did the tenant abandon the rental unit with no notice leaving everything behind?

If a tenant leaves and also owes the landlord money, the landlord may think that he is entitled to take or sell whatever property of value that was left on the premises and not worry about finding the tenant. Even with a court order for judgment for money damages, this action might put the landlord at risk.

Some states do allow a landlord to keep or sell abandoned property if the tenant owes the landlord money. This is known as an automatic lien on the tenant’s possessions. The landlord should keep in mind that he may be seizing possessions that may not be paid for and the merchant for those items has a superior lien ahead of any lien interest the landlord may have.

There may be state requirements that the landlord post legal notices (publish) in local newspapers stating his intentions to sell or dispose of items abandoned by the tenant. Typically, the notice must include:

• detailed      descriptions of the properties left behind,
• estimated value      of the abandoned property,
• where the      property may be claimed,
• deadline to      reclaim the property, and
• final disposition      of unclaimed property.

Also, certain items necessary for basic living or employment may be exempt from automatic liens. In addition to state statutes, there may be case law that requires certain other procedures. The landlord should not rely solely on lien statutes for information on how to handle abandoned property.

There are exceptions to state law on abandoned property. One exception to the rules on abandoned property is a motor vehicle, usually left behind as inoperable or as junk. In most states the landlord should notify the local law enforcement entity of the abandoned vehicle. The police department or sheriff’s department will then investigate, tag the vehicle, and arrange to have the vehicle towed away.

Another exception is fixtures installed by the tenant and attached to the structure. Such modifications to the property are usually considered a permanent part of the structure and are considered as the property of the landlord rather than as abandoned by the tenant. An exception to the exception would be that the landlord agreed to allow removal upon vacating. Such an agreement by the landlord should have been in writing and provide for the cost of adequate repair of damages caused by installation/removal.

In order to reduce the uncertainly regarding items left on the premises in spite of the above discussion, it is of benefit to include a lease clause stating that any items left on the premises beyond the date of termination of tenancy shall be considered abandoned and may be disposed of as the landlord sees fit without contact with the tenant. Abandoned property laws of many states might have priority over such lease clauses, but such clauses can still have value before some judges. Even if that isn’t certain, the clauses will likely discourage tenants from pursuing the matter to begin with.

Due to the differences regarding abandoned property laws among states it is very important that landlords understand and follow the specific laws of their particular states. In most cases, a landlord can reasonably decide that the tenant intended to relinquish possession and, if knowledgeable about the abandoned property law of his/her state, can dispose of the abandoned property as he/she deems fit. However, under certain circumstances the landlord should consider consulting with a competent attorney who is knowledgeable and experienced in the particular subjects of possession and/or abandoned property laws before attempting any removal of the tenant’s personal property.

Question

For the first time in my short rental management experience, I recently evicted a bad tenant and need to collect rent and damages from him. What do I do?

Answer

Many novice landlords refer to termination of a tenancy as an eviction. However, in legal terms eviction is lawsuit procedure whereby a landlord asks the court to terminate a tenancy even though the tenant does not want to leave. If you actually completed an eviction action whereby the judge terminated the lease, in most courts of jurisdiction you would have been able to include a money judgment for unpaid rent and damages along with the judgment for eviction if you had so requested.

If your eviction judgment included a money judgment, you can go ahead with collection of the judgment.

If you didn’t obtain a money judgment, you will have to file a separate lawsuit for the money owed to you and begin collection efforts after obtaining the judgment. You can, of course attempt to collect the money without a judgment, but having a judgment opens up a number of avenues for collection not otherwise available, including garnishment, liens, and seizures.

In either case, you must be sure to follow collection laws, including the federal Fair Debt Collection Practices Act and any similar state laws. Also keep in mind that any security deposit must be applied against amounts owed to you and that you must provide an accounting of any portion of the deposit not being returned and to do so within the time period required by your state’s law. In many states, failure to do so puts you at risk of having to pay the ex-tenant significant penalties if the ex-tenant pursues the issue even though he might owe you substantially more money.

Question 2

I live in Phoenix, AZ and own a rental home in Tucson, AZ. Management of my property is becoming a hassle due to the distance and I’d like to find someone in Tucson to manage my property. Any suggestions about how I should proceed?

Answer 2

Although there are many details that need to be considered when utilizing property management companies, selection of the manager can be the most important. The best way to select a manager is by referral from a person you know and trust, preferably one who has used the recommended manager for his/her own rental property. If no personal referral is available, you must take significantly more care to check the person out in as many ways as possible.

It is very important to select a property manager who is properly licensed, has no unresolved complaints on his license record, is knowledgeable about all laws, is experienced at managing the particular type of property at issue, and will competently manage the property. Remember that the manager will be your agent, be in control of your property in many ways, and that you could be held liable for his mistakes or illegal acts.

Of special importance is knowing what should and what should not be included in a management contract. You should consider requesting a copy of the management contract some days before signing one so that you have time to digest its content and decide which clauses are not acceptable to you and attempt to modify the contract. If not possible to obtain an acceptable management contract, consider trying another management company.

Furthermore, even though you turn management over to someone else, you should learn as much as possible regarding property management and be familiar with the licensing and management laws and regulations of your state so that you recognize when they are not managing your property efficiently and legally. You should closely monitor the operation of your property, including regular phone calls related to the monthly financial statements that you should receive and occasional travel to personally check out your property. If you’re not getting good management, you must find another manager.

I recommend that you read our Mini Training Guide titled “9 Property Manager Qualification Issues” for more comprehensive discussions regarding finding and using a property management company.

Question 3

Is there a maximum amount a landlord can charge for security deposits and for performing credit screening?

Answer 3

Although a few states have no statute limit, most states limit the amount of deposits that can be collected and there can be serious penalties for violating the rules. The maximum allowed varies from one to two times the monthly rent in most states. Most states do not allow landlords to avoid limitations by calling the amount of funds something other than a security deposit. You need to check the landlord-tenant law of your state to determine if there is a limit and, if so, the maximum amount.

Some states have specific limits by statute regarding the amount that can be charged for credit reports. Other states limit the charge to the actual cost of obtaining the reports from outside vendors. However, in most states if the matter were to come before the court, the requirement is that the amount be reasonable, taking into account your cost for a report and the time required for you to process it. Typically, $25 to $40 is acceptable. Experienced landlords or property managers in the area of your property should be able to tell you what is considered acceptable in the relevant courts of jurisdiction.