Landlord alleges embezzlement, billing for fake improvements

Robert Griswold
Inman News

Question: I have recently inherited a property from my deceased father and have uncovered that several of my tenants haven’t been paying rent over the last few months. Also, the property manager who was supposed to be taking care of everything never bothered to do anything about it. We also discovered the property manager’s assistant was stealing money from our account. We also believe they have been fraudulently billing us for contractor’s work that hasn’t been performed. What should I do?

Property manager Griswold replies:

It is important that you have a company that you trust acting as your property management agent, and it appears that you have no basis to continue with your current company. My suggestion is that you need to proceed cautiously, and carefully review your management contract and understand the terms and conditions and the proper procedure to terminate the contract.

You also need to make sure you have all financial reports and copies of rent rolls, invoices and other important documents, as once you actually terminate the contract you are not likely to get any additional cooperation. Once you have all of the documents you will have a better understanding of the extent of the mismanagement and can possibly determine whether it is incompetence or negligence or dishonesty.

Then you need to evaluate the pros and cons of filing complaints with any governmental oversight agency, or you may even find it would be worth considering legal action seeking to recover for the damages.

Again, caution is advised and you don’t want to compound the problem by making an emotional decision that wouldn’t be prudent. Remember that unless there was negligence by the property manager, they are not responsible for the fact that some tenants did not pay rent. If they rented to clearly unqualified renters and failed to perform any tenant screening or they allowed weeks to go by without any attempt to collect rent, then you may have an argument; however, some property owners think that the management company is at fault simply because some tenants suddenly stop paying rent, and that is not reasonable.

The theft by the assistant manager should also be verified and pursued, as this is a serious allegation. Another option is to pursue recovery from the loss due to theft and mismanagement in small claims court (if the losses are less than the jurisdictional limits or close to it). If the amounts are much higher, then you may want to retain an attorney. You should also inquire and ask for information about the property manager’s errors and omissions policy or a crime policy against theft/fraud. I would also suggest you seriously consider filing a complaint with the state agency that oversees real estate licensees. Even telling them that you plan to take such action might put pressure on the property management firm to reimburse you for some of the losses without taking legal action, but I would suggest you then report them anyway so someone else is not hurt by their unethical and dishonest actions. Of course, you also need to interview and screen a good property management company that can take over as soon as possible, and you also need a tenant-landlord attorney to go after the tenants that are delinquent in rent if they do not respond to a legal notice to pay the rent or quit.

Question: I own a rental house and want to know what I can do about a “deadbeat” tenant who is consistently delinquent in paying the rent. Is there a way to notify the credit reporting agencies of the delinquencies? If I end up filing an eviction in court, is there any way the public can be made aware to the fact or at least perhaps another unsuspecting landlord could learn that this tenant is not a good risk?

Property manager Griswold replies:

While your question seems simple the issue of credit reporting is fairly complex and is subject to the federal Fair Credit Reporting Act (FCRA). This law is designed to promote accuracy and ensure the privacy of personal information, and landlords do not have the ability to directly contact credit reporting agencies and report the payment patterns or delinquencies of individual tenants. Except for possibly large property management companies, most landlords do not belong to the major credit reporting bureaus, and they obtain tenant screening credit reports through companies or their local apartment association that are members. Check with the company that you use to see what their policy is about reporting slow-paying tenants. The eviction filing is a public record, and generally those are picked up by most credit reporting agencies.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of “Property Management for Dummies” and co-author of “Real Estate Investing for Dummies,” and San Diego attorneys Steven R. Kellman, director of the Tenant’s Legal Center, and James McKinley, principal in a law firm representing landlords.

Copyright 2008 Inman News

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