8% max late fee

mobile home university
1

We just bought a park in Minnesota. 50% of our tenants have not paid their lot rent yet. This is our first month of owning the park, so our first rent collection has been really bad and worrisome.

Under Minnesota law, a late fee may not exceed 8% of the overdue rent payment.

Our lot rent is $295, and therefore, the max late fee we can charge is $23.60.

I do not believe that $23.60 is enough to incentivize our tenants to pay on time payments.

What can we do?

We thought about doing this… Raise the lot rent by $100, but give $100 discount if they pay on time. But I am not sure if this would be legal.

Any other ideas please?

Thanks.

2

OK, I need some more information.

  1. What date did you close on the park?

  2. Did you give the residents a letter announcing that you had bought the park and where to send or deliver the rent?

  3. What is your rent payment method/system (how do they get the rent to you)? Did you send them an invoice for this month?

  4. Have you given them new lease and rules?

  5. What does the old lease say about late fees?

  6. Have you had your manager go to these people and ask about the rent?

  7. Do you have a handle on demand letters and evictions?

  8. Have you sent the demand letters yet?

It’s possible that the tenants need to be educated about the no pay/no stay style of living – and you can cure that in three cycles of evictions. Those that want to live there will pay (including court costs, etc.) and those that don’t will be gone. Typically that first cycle – in a rough and tumble park – is around 25% so you’re running two times the norm. This may be because the former owner was so weak on collections, or it may be that there is a problem in the way you started up the billing system for this month.

I would not be worried about the amount of late fees. You still hold all the cards with the option of non-renewal and eviction. You don’t convince people to pay just because of the late fee, but because of the eviction threat. The late fee should be used to offset your bad debt – but not until you have no pay/no stay running on all 8 cylinders.

3

@Frank, thank you very much Frank. Here is some info…

We closed on January 3rd.

We gave an introduction letter to the residents announcing that we had bought the park.

We (together with the seller) sent an invoice and told them exactly how and where to deliver their rent at the end of 2016. We made it very clear, because we wanted to prevent the tenants from using the “Oh, I did not know” excuse.

We kept the same method of rent collection as the previous owner had. The tenants can only pay with check or money order, and they put their payments into a very strong drop box in the park. Rent has to be paid before the 5th. The current lease says $30 late fee on the 6th, and $2 extra every day after the 5th. We believe that this is illegal, because Minnesota law limits late fees to 8%.

We have not given them new leases and rules. We are working on these and will send them out before the end of this month.

We have not had our manager go to the tenants yet, but we are sending out a Notice to Quit before the end of the week.

I totally agree with you - the tenants definitely need to be educated about “no pay/no stay.”

Something interesting about Minnesota…“Unless otherwise stated in the lease, rent is due on the first day of every month, even if the first is a weekend or holiday. A landlord is not required to give a tenant a grace period before charging late fees or beginning the eviction process. This means that if rent is not paid on the first day of the month, the landlord can file an eviction lawsuit with the court on the second day of the month. Unlike most states, Minnesota law does not require a landlord to give a tenant any kind of notice before filing an eviction lawsuit against the tenant. As soon as the tenant fails to pay rent when it is due, the landlord can file a complaint and summons with the district court of the county in which the rental unit is located. The tenant can stop the eviction at any time until the eviction actually occurs by paying the rent due and owing, any accrued late fees, and the court costs of the eviction lawsuit.” Source: http://www.nolo.com/legal-encyclopedia/eviction-notices-nonpayment-rent-minnesota.html

Things being as they are, I think that we are not going to give a grace period going forward. We want to show that we mean serious business, and late/non payment will not be tolerated.

4

I own a park in MN and have never seen that 8% figure - do you have a source?

5

@mhp, Minnesota Rules on Late Fees:

Rent is legally due on the date specified in your lease or rental agreement (usually the first of the month). If you don’t pay rent when it is due, the landlord may begin charging you a late fee. Under Minnesota law, a late fee policy must be agreed to in writing, and may not exceed 8% of the overdue rent payment. Late fee policy must be agreed to in writing, and may not exceed 8% of the overdue rent payment. The “due date” for late fee purposes does not include a date earlier than the usual rent due date, by which date a tenant earns a discount.

source: http://www.nolo.com/legal-encyclopedia/minnesota-termination-nonpayment-rent-other-rent-rules.html

6

I’m not sure what nolo.com is… My view is that the state website is the holy grail when it comes to the law:

http://www.ag.state.mn.us/consumer/Handbooks/HomeParks/CH5.asp

There is no mention of a maximum late fee. The language specifically reads:

“Late rent, if this is specified in the rental agreement.”

1 Like
7

Frank has covered the main points of rent collection. The fact is late fees do not motivate tenants to pay on time, late fees cover your costs and time involved of having to chase and process late payments. Late fees are a message to tenants that rent is due when they choose to pay.
Training is the key to collections. If you want to reduce your collections issues you must be strict, allowing any grace period is training tenants that paying late is OK.
Once you are ready begin filing for eviction and stick to it. If you back slide on your policy even for one tenant you will undue all your training.
Paying rent on time is very simple for tenants once they learn the no pay, no stay policy.
If you want to succeed and make the operation of your business easier you must accept the fact that your tenants money management short comings are not your problem. Working with tenants to make payment easier for them only makes more work for you.

8

Pretty sure nobody disagrees with anything you say above. I’m more concerned with making sure I’m always in compliance with the law.

9

One small thing that helps (a little) is having as much as possible, a corporate/bureaucratic looking front. If your forms and notices have a small operations/home made look to them, a lot of people will interpret this as there being slack in your operations. And it is not unusual for tenants to be talented experts at exploiting slack.

10

GJS,

If you closed on January 3rd, you should have received credit for 100% of rent collection for that month from the seller at closing. If the rent was due on the 1st, then the title company pro-rations should have reflected that all rent was received on the 1st and then you would receive pro-rata all rent from the 3rd to the end of the month. Collections of January rent should have been the responsibility of the seller. If that’s not what happened, make sure that the title company does this on your next deal, so you don’t have this issue in your first month.

11

I think you will learn a whole lot when the manager calls on those who have not paid to get their story. You’ll learn even more when you send the demand letters and file evictions. There’s not enough information to know exactly what’s going on until you gather the information from these two actions.

But whatever’s going on, you can fix it through a simple no pay/no stay system. Nothing else, however, will work.

That being said, don’t go too hardcore on the payment due date. I would maintain the 5 day grace period as you may make the judge mad. Almost all bills have a grace period to the 5th. You need the image of the fair and reasonable landlord (which hopefully you are) and elimination of all grace period may make the judge have a negative opinion of you. I’d call the other mobile home parks and apartments in your area and see if they have a grace period and, if so, I’d go with the flow, as that’s what the judge is used to seeing.