The tenant moved out leaving a large water bill for the landlord.
Question
A tenant moved out leaving a large unpaid water bill. The deposit was not nearly large enough to cover it, but the owner has to pay to continue getting water service to the property. I am considering two possible actions: 1. Turn the bill over to a collection agency; 2. File a case in small claims court.
Answer
You don’t state whether the water account was in your name or in the tenant’s name or, if the latter, whether the problem is that the water provider has the legal right to make the owner liable anyway. Also, in some states utility providers have a legal right to hold the owner liable for payment of a tenant contracted utility service; in other states don’t. You need to determine whether or not the law in your state allows the water provider to hold the owner responsible for tenant-contracted service. If the account is in your name then you can be held liable no matter who was supposed to pay the bills. In either case, you will need to pay the bill and, if the lease agreement adequately makes the tenant liable, you should file a suit against the tenant.
You can use a collection service, but you will usually be much better off attempting to collect it yourself by suing the tenant, obtaining a judgment, and taking appropriate actions – e.g., liening his assets and/or his garnishing his wages. Furthermore, even if the tenant might be considered judgment proof at the moment – i.e., has no known income or assets – an original judgment can be collected for 5 to 10 years, depending on the state, and it can be renewed for additional periods in most states. Judgments obtained in one state can usually be collected in any other state, although it can require significant effort. Furthermore, judgments appear on a debtor’s credit record and the judgment must often be paid before a debtor can obtain credit – e.g., a home loan or other financing, perhaps even renting an apartment. Finally, the judgment should include legal costs and the ongoing costs of attempting to collect can usually be added to the judgment, with interest continuing to accrue on debtor’s bill until paid. The legal interest rate varies among states, but at a significantly higher rate than can usually be found anywhere else. Rates by state laws are often as high as 10 percent, whereas, it’s difficult to get more than a couple percent on CDs these days.
Regarding using collection agencies, there are numerous disadvantages compared to doing your own collections. First, the collection agency will take a significant portion of anything collected – sometimes as much as one-half. Second, some of their costs may be deducted from the gross amount collected prior to splitting the collected amount. Third, the collection agency may do very little to pursue the debt – perhaps simply make a few phone calls and/or write a few letters to the debtor, the effort depending on the amount and their estimate regarding the chance and difficulty of being successful. Fourth, the collection agency may require that you first obtain a judgment before they will make serious effort to collect. The contract with the collection agency will likely give them the right to receive their share of any amount collected from the debtor when funds are collected through no effort on their part, but is the result of your own actions or simply voluntary payment by the debtor either because of bad conscience or the need to remove the judgment from his credit report.
For any service for which the property owner can be held liable, it is by far best that the owner pay the bills directly and charge enough rent to cover the service. This is true whether or not the owner can be held liable for services not paid by the tenant. It is usually easier to obtain a judgment and/or an eviction against a tenant for failure to pay rent than for any other matter for which the tenant owes the landlord.