When faced with delinquent renters, owner/operators and onsite teams can face up to four stages of revenue recovery. The quicker each stage is addressed, the quicker it may be resolved. Early and automated communication with the resident is key to achieving success, and recovering lost revenue.
Depending on the location of the property, a complete eviction process can take more than 40 days to reach a conclusion. The chances of revenue recovery, as well as mitigating costs, rely on addressing the problem as soon as legally possible. Some areas of the United States, especially larger metropolitans, are struggling with backlogs that bring significant delays to resolutions. In New York, for example, owners/operators are facing a wait of longer than six months before their cases are brought before a judge.
Figures for delinquencies and recovery vary based on the class of properties. Class A and Class B levels have demonstrated lower rates of delinquency and higher recovery rates than Class C properties. One consistency across all types is the importance of early notifications for delinquent renters.
Stage 1: Pre-Eviction Notifications
This is when the first notice goes out, and it’s the stage where owners/operators are going to recover the most revenue. More than half of delinquent residents will bring their accounts up-to-date if and when notice is given. Late charges are being applied to the accounts at this time, and most residents want to avoid any additional financial burden. Fees can be as high as $50 or more and might be assessed on a daily basis. On top of late fees, few residents want to deal with the time and unpleasantness of the eviction process, adding motivation to pay as soon as possible.
The timeline of the pre-eviction stage is different based on the location of the community. States, and in many cases even counties and municipalities, institute different grace periods for rent payments. In most cases, this ranges from one to six days, and communities are required to produce a legal notification to the resident that payment was not received and the eviction process will proceed if the account is not made current.
Stage 2: Eviction Filing and Notification
After eviction has been filed, communities will see a significant portion of residents make things right. Pre-pandemic, approximately 16.8% to 20.6% of renters were delinquent on their rent on the 6th day of the month, according to research by NMHC. By the end of the month, the number of residents who had not resolved their account or had it canceled dropped down to a range of 2.3% to 4.8% if they had received notice of eviction.
This translates to a success rate of 74.1% to 86.5% for the first two stages of recovery if the community made the effort to contact the resident and they initiated the eviction process when initial contact failed to produce results.
If a resident has not resolved the account after notice has been given, the eviction process can begin. Evictions may be filed 3-7 days after the first notice and the resident has 7-10 days to respond to the eviction filing, depending on local laws. The benefit of this waiting period is an additional incentive for the delinquent resident to finally pay. Being served a court summons, coupled with the realization they will lose their home if they don’t take action, often spurs resolution.
Stage 3: Pre-Collection
Eventually, owners/operators will encounter a point where a portion of renters simply refuses to pay. If a tenant responds to the eviction notice, it will take anywhere from 5-7 days for the eviction to be adjudicated. If successful, it can be up to 3 days for the court clerk to issue a writ of possession, and then up to a week before the writ can be executed.
Almost all residents – about 95% – will surrender possession of the property before a sheriff shows up to force an eviction. Forced evictions are usually carried out on people who stayed because they had no other options available. It’s a safe bet that all of them will leave with their debt unpaid. It’s in these two stages of recovery where a steep drop in successful resolutions occurs.
The pre-collect stage, where a resident has vacated without resolution but the account has not moved into final collections, is another opportunity to offer some incentive for the debtor to pay. Since the account has not reached full collection, it’s still possible for the former resident to avoid a mark on their credit report.
Of the people who still owe, 12% to 15% of vacated renters will pay during this time. This emphasizes why it’s important for communities to have clear guidelines on evictions and ensure that managers follow them.
Stage 4: Debt Collection
Full debt collection is the final stage, and the success rate of this stage can be equal to slightly better than pre-collect. However, since the pool of unpaid accounts grows smaller through each stage, this is still the stage where the lowest amount of accounts will be resolved. Revenue recovery in the final stage runs from 14% to 18%.
Since collections agencies will usually wait 90 days before reporting the account to the credit bureaus, it’s possible to nudge some delinquent account holders in this final phase in order to avoid a poor mark on their credit report.