One of the most frustrating situations that a landlord can encounter is when a tenant simply refuses to pay the rent. While the landlord may be skilled in other landlord duties, such as maintenance, he may have little or no expertise in compelling a tenant to fork over the money owed to him. So, often, landlords will farm out this debt to collection companies. Using a collection agency to collect rent is perfectly legal within certain parameters, though it may not always be the best choice.
Rent Contracts
When a person moves into an apartment, he will typically sign a lease that lays out how much rent the person is required to pay over a given period of time. In addition, the contract may also spell out penalties that the tenant will face if he fails to do so. All debts that are rooted in legal contracts -- and a lease is a legal contract -- are legally enforceable. These debts can also be transferred to other parties.
Collection Agencies
A collection agency can act as either a proxy for the landlord himself -- meaning that he is hired for a flat fee or on commission -- or it can purchase the debt from the landlord directly. In either case, the collection agency has the same legal rights to collect on the debt as the landlord does. The process of selling overdue rent to a collection agency is actually relatively common.
Cost
While selling a debt to a collection agency is his legal right, whether a landlord will choose to do is another question. The biggest downside to transferring a debt to another party is that it is expensive. When a landlord sells a debt to a collection agency, he generally will receive only a fraction of the sum of the debt. In addition, hiring a collection agency will cut into his bottom line. Many landlords, therefore, choose to collect rent themselves.
Considerations
Some states have laws that regulate both the use of collection agencies and the collection of rent. Often, a landlord must provide legal notice to a tenant that rent is due before attempting to collect the rent forcibly. Therefore, while in most cases a landlord can use a collection agency to collect rent, he may wish to check with his local state attorney general's office or an attorney about relevant local laws before doing so.
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