Debt collectors and landlords go together like peanut butter and jelly. When a landlord has a dispute over rental debt, or damage to a rental property, a landlord will frequently turn to a debt collector to collect the debt.
Many times, the debt collector either misrepresents the amount of the debt, or what can happen if you don’t pay it. If you have been contacted by a debt collector about rental debt, here is what you need to know.
You May Not Owe the Rental Debt
Do not assume that if a debt collector is calling, that means you automatically owe a debt, especially when it comes to rental debt. It is very common for a renter to move out thinking that they owe nothing, and then months later hear from a debt collector. For example, a debt collector may later claim that a consumer gave improper notice when moving out, or owes for alleged damage to the property.
It is important to understand the difference between receiving a letter from a debt collector versus a formal lawsuit. A debt collection letter is a demand for money—let’s call it a strongly worded letter. A debt collector can send collection letters and make collection calls, but it cannot forcibly collect money. On the other hand, a lawsuit is a legal action that can result in “forced” collections like a wage garnishment or bank account garnishment. In other words, debt collectors can only request repayment—they cannot forcibly take money from a consumer.
Think back to when you moved out of the property. Did you go through a move-out inspection? Did you get a copy of the paperwork? Did the landlord say you something like “don’t worry about that, you’re fine?”
All of those scenarios are common, and if you kept track of your paperwork, that can help you dispute the alleged debt.
Debt Collectors Cannot Threaten Your Credit Report
Debt collectors frequently make misleading statements and false threats about consumer credit reporting. Those threats are used as leverage to convince a consumer to pay a debt, even if a consumer disputes the debt.
There are a number of false threats to be wary of. One, a debt collector may threaten to report the debt even if a consumer disputes the debt. Or they may threaten to report a false amount. Or a debt collector may threaten to report it without reporting the debt is disputed. Any inaccurate credit reporting can violate both the Fair Debt Collection Practices Act (FDCPA) and/or the Fair Credit Reporting Act (FCRA).
Two, a debt collector may claim that once reported, the debt will never go away. That is false for a number of reasons. Items on a credit report can only be reported for a set amount of time. In addition, disputing a debt can result in the reporting party removing it from a consumer’s credit report. Again, this type of statement would likely violate both the FDCPA and FCRA.
Three, some debt collectors claim that once a debt is reported on your credit report, you will never rent another place again. That is blatantly false. Having an unpaid debt on your credit report can make renting difficult, but claiming renting is impossible is a stretch. Unless the debt collector has spoken with every potential landlord in the consumer’s town, that type of claim is also violative of the FDCPA.
Debt Collectors Cannot Add Illegal Collection Fees
For the most part, a debt collector cannot add collection fees unless the lease provides for it. Many leases contain a provision regarding collection fees and costs, but pay very close attention to the language in the lease.
For example, a lease may say something like “landlord may recover actual collection costs and fees in the event of collection.” That type of provision potentially allows for the recovery of actual costs incurred by the landlord. And that’s where things get interesting. Many debt collectors charge a contingency-fee based on a percentage of the debt owed. In other words, a debt collector may charge 33% for trying to collect on a $1,000 debt. And that fee will get added to the first collection letter. That 33% charge, however, does not reflect the actual collection cost as referenced in the lease. And that is very problematic for the debt collector.
Similarly, some leases provide for the recovery of collection costs and/or attorney fees in the event of a successful legal action. That means if a landlord prevails in a lawsuit, they can request for the addition of attorney fees and or collection costs. However, prevailing in a lawsuit is distinctly different than simply trying to collect on a debt.
Do Your Homework Before Agreeing to Pay Anything
The bottom line is that a consumer should do some serious homework before electing to pay any alleged debt from a rental property. There may be issues with the validity of the debt itself. A landlord or debt collector may also add improper or illegal collection fees. Lastly, a debt collector may make misleading statements, or even report false credit information about the debt.
If you have been contacted by a debt collector about an alleged debt from rental property, feel free to contact me to discuss your options and your rights.