How to Make Your Understanding of the Concept of “Judgment-Proof” Work for you as a Landlord or Property Manager

  1. If you find yourself negotiating with an unwanted tenant, try to settle your eviction case by trading some or all of the money owed for a specific move out date enforceable with an available writ of assistance (Writ = Order to the Sheriff to evict the person forcibly). While negotiating, keep in mind the following:
    • the likelihood that you will eventually obtain a significant judgment against the tenant and that the judgment will be absolutely worthless;
    • the likelihood that you will pay your attorney (hopefully me) large sums of money if you don’t settle the case;
    • do not draft these settlements without an attorney’s assistance. You should probably have me draft your settlement so they include a readily available writ.
    • Don’t ever trade a new promise for an old promise that has been broken. Any settlement must be drafted so it’s enforceable with a readily available writ.
  2. If the unwanted tenant abandons, immediately dismiss your lawsuit. If you don’t quickly dismiss your lawsuit, your ex-tenant might get frightened and file an answer and even a counterclaim. The brass ring in evictions is possession. If you already have possession, do you really want to pay me more money so that you can get a worthless judgement? If you immediately dismiss the case, your tenant will probably be relieved and not bother to file anything. (Keep in mind that you can still send the account for collection.)When you get possession you want to concentrate on quickly doing the following:
    • get as much temporal and psychological distance as possible from the ex-tenant to avoid the disaster of having to pay a lot more money to me (don’t forget to follow the security deposit act); and
    • repair your rental, clean your rental and then re-rent your rental hopefully to a good tenant.
  3. Require written applications with references from potential tenants. On your written applications, be careful not to refer to any potentially discriminatory terms. I don’t know why, but a lot of the extant application forms seem to contain terms that might encourage a discrimination case. Avoid terms like “family”, “spouse”, “children”, etc. Also, try to watch out for people fraudulently using names of friends who then pretend to be previous employers and landlords. I am getting more and more eviction cases involving fraudulent applications. Keep in mind that you may be able to use the above linked Montana Cadastral site to verify the identity of previous landlords.
  4. Get your front money up front. I get a lot of cases in which landlords got their first month’s rent up front and agreed to receive the security deposit in future payments. Sometimes these cases involved a landlord feeling sorry for someone down on his luck. Always keep in mind, your rental units are a business. They are tools for making money. On the other hand, your checkbook is an appropriate tool for donating money to charities. Use your apartments to make money. Then use your checkbook and charities to help the poor. Don’t confuse the two tools.
  5. Consistently enforce lease provisions. I’ve been nagging landlords and property managers about this for years, yet I still get landlords and managers coming in with evictions involving tenants who owe insane amounts of back rent. Obviously, if virtually all tenants are judgment-proof, you need to limit your exposure to unpaid rent. On the first day rent is overdue, send the legal notice to pay or get out via certified mail. When the notice expires, send the case to me and I’ll promptly sue for eviction. Don’t dither and listen to excuses while your losses mount. Missed rent is water under the bridge. You aren’t going to recoup it. Recover possession, lick your wounds and look forward.
  6. Build the occasional limited loss to a deadbeat tenant into your rents. If the property doesn’t pencil out after building these limited losses into your rents, then sell the property. Like most business predictions, these calculations require all sorts of absurd leaps of faith. Just do the best you can. If you run your property right you probably won’t have many evictions anyway.
  7. Minimize litigation with judgment-proof people. If a judgment-proof person sues you, consider immediately having your attorney offer a nuisance value settlement to get rid of the case. [A rule of thumb for nuisance value cases presently in Montana is $3,000. That said, nuisance value settlements come in all over the financial spectrum. This number, like most rules of thumb, just gives you somewhere to start your thinking.] A word of caution: don’t try to settle a nuisance case yourself. Use an attorney. Extended litigation against someone who is judgment-proof is a lose-lose situation. When you win, perhaps you’ll get a judgment large enough to cover attorney’s fees. If the person is judgment-proof, your attorney’s fee judgment is worthless.
  8. Use well-established and well-capitalized collection businesses to collect from ex-tenants. Don’t ever pay an attorney by the hour to collect money for you. Make sure your collection business has a good attorney as an employee, or on retainer or perhaps even as an owner. The nice thing about collection businesses is they take your account on a contingency. This way you aren’t getting a monthly bill to chase somebody who probably doesn’t have any money anyway