In our recent post we discussed the new reform in the rent market that was spearheaded by Mayor De-Blasio, it was easy to see that taking apartments out of the rent stabilized status is now very difficult and capital investment in property will be very difficult to recuperate. It is now imperative to collect outstanding debts to keep the investment in the black.
Debt Collection is a process, and like any process, it can be short or long, by implementing some changes to the business operation and culture you can make the collection process easier and improve collection rates. The new reform, made several changes concerning procedural regulations that were made more cumbersome. The first is the decision to extend the statute of limitations on tenant complaints of overcharging rent. The new statute allows filling a complaint up to six years after the rent was paid forcing landlords to keep records longer and exposing them to litigation at a much higher rate. This new regulation requires you to create an airtight system of retention. Logs must be kept in paper or electronic form to document the agreement and payments that were made or are still outstanding. Failing to do so will put a significant burden if a case will go to court.
Another significant change has to do with security deposits. these are now limited to one month’s rent (see GOL 7-108(1-a), and limits application fees to $20 including a background check. This new reality makes it unwise to let debts continue to be outstanding for long periods of time. Limiting the security demands a prudent investor to create a clear and hard date that will transform an outstanding debt to a debt in default that will be sent to a collection agency. These dates need to be clearly stated in the contract and the logs need to clearly show the timeline.
The most significant change in the application process is the banning of blacklists. A lease can not be refused because the tenant was sued in housing courts (see RPL 227-f). The eviction process was extended to give the tenant more time to pay rent and find a new home, now a thirty day notice is required for a rent increase of more than 5% but late fees are capped at the lesser of $50 or 5% of the monthly rent on a delay of five days or more. Mitigation of damages is not mandatory and a termination of lease by the tenant in violation of the agreement will still force the landlord to search for a new tenant for the apartment. (See RPL 227-e.)
Ensure you have the original lease signed by both the renter and the owner, do not lose it! Logs need to be meticulous and include all the payments made including applying the security deposit to the final balance due. It is essential to get the social security number and date of birth from the tenant, and that information is stored securely. Every year send a questionnaire to update information including place of employment, salary, employer contact, and log all the changes.
These steps will require landlords to have more legal tools in their business plan to deal with legal challenges eviction and debt collection. Make that process as easy as possible, instead of searching for the information any time there is need to use a collection agency streamline you business logs and data retention this will significantly improve the chances for a successful collection process.