If you stay in real estate long enough, you will likely be sued. It happens when you or your property managers dealing with so many people over any amount of time. The best thing to do is prepare for the worse through proper planning and organization of the property.
Unfortunately, dealing with legal issues is a part of the job when it comes to real estate. Just about every property manager or landlord out there has come across some legal issue and they can attest to this. For the most part, tenants are good, honest people that want to live their lives. And if they have a legitimate issue, it’s our responsibility as landlords to provide quality places for our tenants to live. However, there are some nightmare tenants. Fortunately, there are things you can do to protect yourself from unscrupulous and problem tenants. Here are the 4 things you can do to reduce the threat of suits and insulate your personal assets:
Proper Tenant Screening
This is where it all begins. When it comes to avoiding lawsuits, the best thing to do is to start with the previous landlords. Call all the numbers they provided on the tenant application and speak to the tenants work ethic, character and cleanliness. Ask about unapproved subletters and pets. You want to create a demographic picture of the person to and determine if it is congruent to the person filling out the application.
Problem tenants may even have their friends pose as landlords. You may also want to verify you are speaking to the landlord by asking them questions about the property and what other properties they own. Looking them up on social media to see what groups they belong to and verify the landlord is real. All this is above your background check, where you can sometimes see past evictions, criminal convictions and other legal incidents. Finally, either you or someone from your management company, have a face-to-face discussion with the prospective tenant as this can foreshadow problems. Specifically, listen to what they complain about as they will likely have similar complaints about you down the road.
Video Record the Units & Audio Record Your Discussions
One of the most frustrating things to deal with is a tenant that makes a false claim of something you said or something you didn’t say. Keep in mind that for many of the tenants you don’t want, they will say just about anything. To avoid this, make sure you record every phone call, keep every email, and scan every document. There are free mobile apps available that allow you to record automatically. If you are in an office, most phone systems will handle call recording. Certain states require you provide notice and obtain consent before recording. If you are on an office phone system, the notification may be enough, but you should talk to your attorney before recording your calls. And never make a verbal commitment to anything. At a minimum, get text message communication and make certain your messages are backed up to the cloud.
Additionally, make sure you video and take plenty of pictures of the unit before handing it over to the tenant. Even go so far as printing the photos and attach them to the lease. This will prevent the tenant from saying the the carpets were stained when they received the keys.
Always have a complete record of all communications and the chances of landing in court for frivolous reasons will disappear.
Have a Detailed and Straightforward Lease
Always get a lease and walk through it with the tenant. Get a signature on it along with an initial on every page. NEVER take a tenant on with just a handshake and a key! The last thing you want to do is go to court for a non-paying tenant and not have an executed lease in your hands. If you are in a courtroom that is tenant-friendly, you will lose your case to a frivolous claim. A comprehensive, ironclad lease is your best bet to protecting yourself and your cashflow. The more you have in writing, the less opportunity there is for the tenant to wiggle their way out of what was promised. And the lesser the chance you will land in court and have them win.
Have a Great Attorney on Speed Dial
The right attorney on your team goes a long way to keeping you out of court. The money spend on creating a bulletproof lease, putting the property in an LLC and protecting your assets will go a long way. This is the one thing you do not want to skimp on as the time wasted protecting yourself from a frivolous lawsuit. A good attorney that specializes in landlord-tenant law is important. If you have a lot going on, form a relationship with a good attorney and talk to them often about what is going on in the city or if there are any new statutes that can impact you as a landlord. (Maybe even take them out to lunch and pick their brain.) You can use this info in your underwriting as well.
Most tenants are good people and many landlords want to provide good housing. However, you can’t completely protect yourself from lawsuits as there are professional criminals, “victim tenants” and people that misunderstand their responsibilities as a tenant. These are the ones that will try to come after you as their mentality is “because they are a landlord, they have money”. These are the people you need to guard against. Your diligence, consistency and thoroughness will save you time and money – and your sanity.
What do you guys think? How do you keep yourself out of the courtroom? Leave a comment and let me know.
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