Re: What would you do with this late paying tenant?(LONG) - Posted by Lonnie
Posted by Lonnie on May 09, 2000 at 19:35:36:
This is an excerpt from one of my books. Maybe it will help you have an “attitude adjustment” also. Like Joe says, send them a gift and hope they keep paying late. I have several that pay late every month, and I hope they never stop. Late fees are one of the best yielding “investments” you have.
Late Payments Are Great
Have you ever had something that just bugs you to death? Some little problem that has a way of waking you up at four o’clock in the morning and keeps you awake the rest of the night? Yeah, I guess we all have. Well, I’m having some degree of success in turning these kind of problems into pleasant experiences. I’ve discovered that sometimes it’s just a matter of how we look at the problem and changing our way of thinking. Let me go over one of those problems that I did have.
This one concerns people that won’t make their payments on time. If you’ve ever had rental property, or sold anything and carried the note, you know what I mean. Regardless of how well you screen tenants, or how good the credit report is on that person, somebody just won’t make the payments on time. It’s their lifestyle, and you can’t change them. This used to irritate the devil out of me. But not anymore, now I welcome late payments. WHAT?! Welcome late payments!?
I Love Late Payments
You’re probably thinking, "Old Lonnie has been staring at that computer screen too long, he needs a break to clear his head Well, let me explain why my thinking has changed on late payments. See if you agree with me.
We sold a mobile home one time to a couple and carried the note. Their payment was due on the first day of each month, and they could never manage to make the payment when it was due. But I could count on it coming in between the 15th-20th of the month, with the late charges. This became such a routine thing that I knew I would receive that payment late every month, and it bugged me.
I Have Been De-Bugged
Until…one night I was trying to relax in my easy chair after dinner. I couldn’t really relax because I was thinking about the payment that I hadn’t gotten from this particularly buyer. Then the thought struck me, “Wonder what kind of penalty this couple have voluntarily placed on themselves by being late every month?” So I grabbed my trusty calculator and started punching buttons. When I finished punching buttons, I had a smile on my face. Let me show you what that calculator told me.
This couple’s payment was $200. If received after the 5th of the month, there was a $25 late charge, plus $2 per day after the 5th. Doesn’t sound like a lot, but here’s is what my calculator said to me.
If someone owes you $200 on the 1st day of the month, and they pay you $225 on the 20th of the month, you have really made them a loan at 150% interest. WHAT? 150%! Punch those buttons again. Sure enough, that’s what this couple is paying every month they are late.
Let’s make another table, I want to see this in print. Only this time, we have to add another block for future value (FV.) Our table shows that if we loan someone $200 (PV), get no payments, and one month later we get back $225 (FV), we are earning 150% on our $200.
N I PMT PV FV
1 150 0 200 225
The payment was usually 15-20 days late but I’m using one month as the number. I won’t try to get into figuring days. Check our table and see if I punched the right numbers.
Now I realize $25 isn’t big bucks, but what if you had 10-15 people like this couple. Then it starts to add up considerably. Let me give you a real eye opener comparison.
They Never Learn
We had one man that bought a mobile home from us ,and his payment was due the 1st of each month. He never could pay on the 1st, but on the 15th, he made the payment, together with the late charges. And this went on month after month.
After about a year, he asked me if I could arrange to make his payments due on the 15th, because he hated having to pay those late charges. So I changed his due date to the 15th. (I’ll bet you’ve already figured it out.)
Sure enough, the very next payment that was due on the 15th of the month, was made the following 1st of the month, with a late charge. And he continued doing that until he paid the home off. If I had told this man that I would have to raise his payments $25 a month, but I would eliminate the late charges, he would probably have thrown a fit. People are strange, huh?
At one time we had about 70 rental units. (Yuck.) There were some months that we collected more in late charges than some people were earning by working a full time job.
Late Again? Thank You
Let me describe another late payor that used to irritate me until I changed my way of thinking. This involves a man we sold a single family house to many years ago. He was a constant pain in my neck, until I learned just how much he was paying me.
His note states that if any payment has not been received by the due date of the next payment, the loan will then, at the option of the note holder, be declared in default and all remaining principal and accrued interest becomes due and payable in full. Other words, if a payment is more than a month late, the note is in default. This is what is known as an acceleration clause.
This man would wait until the very last day to make the payment. And he didn’t seem to mind in the least paying the late charges. But after a couple of years, he slipped up and failed to make the payment within the 30 day period. His note was now in default. Gotcha! After all that time and frustration of not getting my payments on time, he triggered his trap. Now, it was time to do some renegotiating.
I really didn’t want that house back, so foreclosure was the last option for me. But I didn’t let him know that. Instead, I mailed his payment back and informed him that his loan was now in default and under the terms of the note, I had the right to demand payment in full of all remaining principal and interest.
But, I would be generous and give him a choice. He could either agree to an amendment of the note, pay all delinquent payments and late charges, or pay the entire loan balance off, or loose his house in foreclosure. He chose to amend the note. Here is how I structured the amendment.
The original note was a straight amortized loan payable over 20 years. The amended note I drew up states that interest would be computed on a daily basis. This means that interest is figured on the number of days that have elapsed since receipt of the last payment, to receipt of the next payment.
The amendment states that the late charge would now be 10%, instead of 5%, and there will be no grace period. His payment is due the first day of each month, and must be in my hands by 5PM on that date. Otherwise, a late charge is due and must be included in with the mortgage payment.
Also, all payments must be in certified funds, no personal checks would be accepted. (He had given me several bad checks in he past.) And I gave him 10 days to return the amended note and all money owed to bring the note current. If he failed to do so, I would turn the matter over to my attorney and start foreclosure proceedings.
Before 10 days were up, he had the amended note signed, notarized and all the money owed to bring the note current. Now, he could be 30 days late and I didn’t really care. I explained to him that he could now decide how much interest he would like to pay. If he pays early, he pays less interest, if he pays late, he pays more interest.
Guess what? He didn’t learn a thing. His mortgage payment is $637.His late charge amounts to $63.70, and he pays late at least 10 out of every 12 months. But hey, I’ve learned to like this guy. What’s my yield on this payment?
But, as the saying goes, all good things must come to an end. Several months ago, his father took over paying his bills and I’m now getting my payments on time. Sure do miss that little bonus I was getting all those years. (And this man is a school teacher. Is it any wonder why kids finish school and know nothing about money?"