Transcript – How To Use A Judgement To Collect From A Tenant

Announcer: Inspiring interviews with today’s top landlords. This is the rental income podcast. And now Dan Lane.

Dan Lane: Today, I wanted to do a bonus show talking about how we can get a judgment or how we can collect money if a tenant owes us money. Maybe you had to evict them and they owe you some back rent or maybe they did damage to the property. Either way they owe you money and there’s gotta be a way that you can try to get that money back. So, on this show today I’ve brought back my favorite attorney Jules Haas from New York City. Hey Jules, welcome back to the podcast.

Jules: Hi, Dan. How are you today? Thank you very much.

D: Ah, doing great. Doing great. Doing great.

J: Thank you.

D: So let’s talk about this. So, is getting a judgment something a landlord can even do?

J: Okay, so the answer is yes. There are different contexts in which you can get a judgment against tenant. And I’m just going to speak generally. There are different-obviously different type of eviction type of proceedings that you’re going to have. You’re either going to have a residential tenant, you may have a commercial tenant. And so the judgment that you can get against any one of these folks is really two different sort of avenues. You can get a judgment in the context of the actual eviction proceeding where when you’re trying to evict someone the court will also go ahead and say okay, they owe you x number of dollars in rent and enter a judgment in connection with that. Sometimes what happens is because of the nature of the proceeding or what happens in the outcome, the landlord tenant eviction, which here in New York is called a summary proceeding, is for some reason either terminated or ended and there’s no judgment with respect to the rent. That doesn’t-again, depending on, there’s a lot of procedural stuff and law stuff involved, but assuming that that occurs and you still have a valid claim for rent you can then-the landlord can then bring what we call a plenary proceeding, which is basically just a good old fashioned lawsuit for the rent that’s owed based on the unpaid amount under the lease. So it’s basically, you know, the tenant owes $5,000 in rent, you sue them for $5,000 like you would sue any debtor as opposed to having it done in the context of the landlord tenant proceeding. But in either case you can end up with a judgment for whatever that back rent is.

D: So, is the eviction required to get the judgment? Like, say a tenant was there for a month or two and didn’t pay and then they left. And you never completed the eviction. Can you still get a judgment in that case? Or do you have to go through with the eviction to get the judgment?

J: No. At that point there would be—and again that’s a very good question because it’s the perfect example. So what would happen is that you don’t have a landlord tenant summary eviction proceeding, so at that point all you have is a debt. So you’re basically suing them for what they owe you under the lease as opposed to suing them for what they owe you in the context of some sort of eviction proceeding.

D: Okay, okay.

J: So that would be the perfect example when you would sue someone just like they owed you $10,000 because they didn’t pay some bill that you sent them for some work you did in some other manner.

D: So when you go to court, what kind of documentation should a landlord be prepared with to-like what’s the judge going to typically ask for?

J: Well, of course you have to prove your case. So you have to show that there’s a lease, that there’s a contract essentially and that, you know, there’s some agreement for the tenant-person you’re suing-to pay you x number of dollars in the form of rent and/or additional rent or penalties or legal fees or whatever it is you’re going to sue them for. So you really need, you know, the written agreement which obviously is the best proof of what it is that they agreed to pay and what they didn’t pay.

D: Okay.

J: Also, whatever records you have showing that it wasn’t paid. In other words, the office manager, whatever, and also the notices that you sent or whatever. Sometimes, you know, tenants will come in and they’ll say, oh I paid the landlord, you know, $5,000 but I gave it to him in cash. Well, you know, the basic rule is going to be, well, if the tenant doesn’t have a receipt for that, the fact that he says he paid in cash isn’t going to help him. On the other hand the landlord is going to claim x number of dollars owed, you know you should have some record showing how he gets that number. You know he didn’t pay rent for October, November, January, you know, whatever it is. You really have to just show like you would in any law case.

D: Yeah.

J: The basis for your claim and the proof showing the amount of the claim.

D: I’ve heard stories before where the judges will sometimes read through the leases and that’s a reason maybe to use a standardized lease because if you have some weird language in there, they may be-will give you a harder time, where if you maybe have a more standard state lease it’s easier. Is there any truth to that? Or does it matter like, if you have a custom lease, does that-I guess having a custom lease, does that make it harder to get a judgment?

J: Well, it all depends on what the lease says.

D: Okay.

J: So, you know like anything, you know, simplicity and clarity is always the best order. So, if you have let’s say, a standard lease so to speak or even any kind of custom lease and it says, you know, tenant has to pay $1,000 a month on the first of the month, well fine that’s very easy to figure out. You can multiply it by the times a month, you know, number of months and there you go. If you have a more complicated lease where the tenant is paying a base rent plus any additional rent-let’s say for real estate tax or other services in the building and then there has to be some kind of calculation as to what their share of those additional items are in the context of the building as a whole because they pay 15% of the taxes or 15% of the maintenance or—

D: Or like water or something.

J: Or water or whatever exactly. Electricity. Then, when you have to go figure all that out, obviously that gets to be more complicated you got to be able to demonstrate how that number is calculated and that it’s in accordance with the agreement in the lease.

D: Okay. Now, if the tenant also did some damage when they left. I assume the judge is going to want to see receipts for all the work that was done to bring the property back to the condition it was in?

J: Right. Exactly.

D: Okay.

J: Right. Exactly. You’d have to again, prove what the damage is. So if there’s a hole in the wall and you had to pay somebody to fix the hole and do the painting or whatever it might be, obviously you’ve got to be able to support your claim for damages.

D: Would pictures be helpful? Like having to show the judge, hey this was the condition, this is what it looked like beforehand?

J: Pictures are always helpful.

D: Pictures of the property—okay, okay.

J: Pictures are always helpful.

D: Okay. Perfect. Now, what about if you have a lease for a year-maybe it’s $1,000 a month, the tenant is there for two months and then they leave. So they still owe you $10,000. Is the judge going to want to see that you rented the property out or that you took steps to rent it out or could you not rent it out and try to collect that $10,000 from the tenant because they have a contract with you?

J: Right. So the general without me-I’ll give my attorney qualification to my answer here that, you know, without making this a legal opinion so to speak, the general-and again I’m only in New York so I can’t speak for the country.

D: Yeah.

J: I’m here in New York City. The general rule is that the landlord is entitled to the value of the lease. And particularly in commercial leases and also in residential leases, they don’t necessarily have an obligation to try to get a new tenant. They could sue for you know, what you owe them. Obviously they’re not going to sue like tomorrow because you don’t owe them all those months right away. But, you know, as a practical matter you know, most landlords want their properties rented, so they’re going to go out and try to find a tenant, but the answer is they don’t, then yes, they can hold the defaulting tenant liable for what they didn’t pay. And that’s on the residential and commercial side.

Announcer: Coming up on the rental income podcast.

D: I want to talk about what happens once the judgment is issued, and I also want to get into collecting on the judgment because it’s one thing to get a judgment, it’s another thing to actually get paid so we’ll get into that here in just a second. I first want to welcome a brand new sponsor to the podcast. It’s Credit Suite. Business owners need capital to grow and expand, you’ve got a lot of expenses: payroll, hiring, acquisitions, you might need money to rehab a rental property after you buy it. And getting business credit is very difficult. This isn’t credit that’s linked to you personally, this is credit that’s linked to the EIN of the business. And what Credit Suite does is they help business owners build business credit. So they can help you regardless of your personal credit quality, regardless of your cash flow, regardless of your collateral. There’s no personal guarantee needed, and even if you can’t personally get bank financing, your business may be able to. Credit Suite has helped over 15,000 people build business credit for their EIN that’s not linked to them personally. You might be surprised to know that any business can qualify for business credit, even if it’s a startup. You just need to follow the proper steps to obtain it and they map out all these steps for you in their free guide. You can download it right now at CreditSuite.com/rental. That’s Credit Suite: C-R-E-D-I-T S-U-I-T-E.com/rental.

All right, let’s get back to the interview. So, Jules, tell me, is it as simple as just going to court and getting the judgment and then you’re done?

J: Well, you know, the judge may issue a decision from the bench and then you have to-you may have to go a couple additional steps to actually enter a judgment and provide some additional paperwork to the court. But, you know, again that’s all procedure and you know it’s just procedure.

D: Okay.

J: You know, so it depends on the court, it depends on what’s going on. But at some point you’re going to get, you know, you can get a judgment issued from the court.

D: Okay.

J: Or whatever.

D: Alright. Now it sounds fairly easy to get a judgment, but actually collecting it. Is that the hard part? It seems like it may be hard to collect. Is that true?

J: Well, collecting a judgment is always a challenge. And you know, I guess the saying goes, so to speak, that you know, the judgment is great but it’s no better than just wallpaper.

D: Yeah.

J: Because, you know, you can hang it up on the wall, but you know, collecting the money is really what counts.

D: Right.

J: And particularly in landlord tenant cases on the residential side and you know, many times on the commercial side, you know, the amounts are not always that large. And so the time and effort to try to collect may not be very well be worthwhile. Plus if you have a tenant that is not paying rent you’re-in many cases you’re dealing with people that are not going to want to pay no matter what.

D: Right.

J: And may not have any resources for you to go after to try to get payment from.

D: Right.

J: If you can even find them once they’ve left.

D: Right.

J: You know and on the commercial side if you’re dealing with corporations you know, again, unless you have personal guarantees and various other things that can let you go after an individual, you’re not going to be able to collect.

D: Right.

J: So, collection is always a nightmare.

D: Yeah. Can you garnish their wages?

J: Well, if you have a valid judgment and somebody works, you can go to a marshal or a sheriff and yes you can. You can garnish wages.

D: Okay. Okay.

J: Collect against the bank account. You can do a lot of things.

D: Awesome. Okay, so how would you go about doing that? Is that something an attorney would be able to help you with? Or would that be something somebody would have to maybe do on their own?

J: Sure. Okay. Well, to do it on your own would be a challenge, but I’m sure that there may be some very sophisticated landlords that have an in-house operation that might do this, but with in-house attorneys. But with, you know, you’d basically have to go out, you’d have to search for their asset, you’d have to find the job. You know you can do certain procedures in court to require them to provide information as to where they work and where their assets are, but again, this is what collection attorneys do all the time.

D: Okay.

J: So they [inaudible] to do this.

D: Okay. Now, if someone maybe has a tenant that’s a deadbeat and they know they’re probably not going to want to collect, but they want to pay it forward to other landlords so that those landlords don’t rent to this person, or you know, make them pay the judgment before they rent to them. How can we make sure that this judgment shows up in a search when someone’s doing a background check on a landlord? Is there anything in particular?

J: Well, when a judgment is entered against you, like in any kind of case, it’s going to show up when somebody does a search basically on your name. It’s going to be docketed and entered. You know you can enter it in the county clerk’s office or whatever and so when someone does a search it’ll show up.

D: Okay.

J: You know, it should show up.

D: Okay.

J: I can’t tell you about the credit reporting agencies. Now the credit reporting agencies, which I don’t deal with, they, you know, do search these records, so like anything that you do, you don’t pay your credit bills on time, you don’t do whatever, you have judgments and other things against you, it’s going to most likely show up on a credit report.

D: Okay.

J: And, again, I can’t tell you how that might affect a future tenant because there are various rules and regulations about whether or not you can look at a credit report, when you’re leasing to someone, the questions you can ask, and you know, the municipalities sort of getting very restrictive in allowing landlords the ability to sort of do a full search about folks, you know, and get certain information.

D: Yeah. Well I guess as long as legally someone could see it and it’s easy to find. I guess it would just be a good way to stop this person from doing this again to someone else.

J: Yeah. And let me just say this: You know there are many cases where people don’t pay rent because of extenuating circumstances. So every case is sort of a case by case, case by case thing. That’s why in landlord tenant court most of these cases are resolved. You know you may have a tenant who loses their job or runs into some personal tragedy whether it’s a health issue or something and they’re just caught in the middle. They’re involved with a divorce or some other problem that they run into in their life. So, you know, not everyone—and again I’m not making excuses for tenants because obviously you know everybody’s supposed to pay their bills, but there are good folks and bad folks and you know sometimes these things happen and most of the time landlords and tenants in New York City try to work these things out, probably in most places, particularly if they have these types of extenuating circumstances.

D: Yeah. Yeah.

J: So, you know, and the landlords are aware of this and, you know, I think for the most part, landlords want to get paid, but they’re also aware of folks that you know have these issues although it’s not the landlord’s problem but it is the landlord’s problem because these folks still have to stay in the apartment and they want to get their rent paid.

D: Right, right. Yeah. Now, what about selling the collections. So say I get a judgment, could I sell that judgment and maybe get a little bit of money? Like, do people buy judgments?

J: Yeah, I couldn’t really comment on that. I don’t know who might buy that judgment in a single case.

D: Okay.

J: You know if I get a judgment against a tenant for $3,000 nobody’s buying that judgment.

D: Yeah, okay, okay. So is there a certain dollar amount where it maybe doesn’t make sense? Like, if it’s $1,000 judgment, I mean that doesn’t seem like it’s really probably worth the time that you’d put into that. Is there a threshold where you would say, you know this probably, you’re probably just better off to suck up the loss and move on?

J: No hard and fast rule.

D: Okay. Okay.

J: So everyone has-it’s a business decision from the landlord’s perspective.

D: Yeah.

J: So, one landlord may say okay they owe me $1,000 and I’m going to get this no matter what. And another landlord may say they owe me $7,000 and I got better things to do with my life [inaudible].

D: Right. Right. Yeah.

J: So, you know, or whatever. Obviously it depends on the amount, it depends on the circumstance, it depends on a lot of stuff that was going on.

D: Sure. Sure. Well Jules thank you so much for coming on and talk to us. I learned a lot and I think this was really informative. Tell us about your practice and how you could help our listeners if they have any legal problems in the New York area.

J: Sure. Well, my practice involves obviously a lot of real estate, so I do a lot of transactional buying and selling of real estate. I also handle various real estate litigation matters including landlord tenant, so I’ve represented tenants, I’ve represented landlords. And, you know I do other things as well in the trust and estates area. Wills and probate, and if anybody wants to contact me it’s very easy. What they can do is they can just go online and if they type in my name, which is the simplest thing to do. Type in my name Jules, J-U-L-E-S Haas, H-double A-S into Google and then you’re going to see my website. It’s got hundreds of pages on real estate and you know other areas of the law that I deal with and then they can just call me up and you know, get in touch with me. So that’s the easiest way and they can also call me on the phone which is 212-355-2575. My office is right here in Midtown Manhattan although I deal with cases throughout the New York Metropolitan area.

D: Sounds good. Well I will put all your information on the website if someone wants to look it up. Just go to rentalincomepodcast.com/judgment. I’ll have all the information right there and make it easy for you. Well, Jules thank you so much for coming back on and we will talk to you soon.

J: It’s always a pleasure, and thank you and have a wonderful day.

D: Okay, thank you.