Late fees

[SumDay]

Five years ago my dad passed and left me with eight Promissory Notes for houses he flipped and owner financed. In some of my other posts, I've stated "If you love your children, you won't leave them real estate."

I probably sound like an ingrate, but he died at the beginning of the housing/mortgage collapse, and believe me, I didn't get a bailout from Uncle Sam. Three houses have been abandoned or foreclosed on, and I sold them outright to other investors at about a 50% loss, but they're off my back now.

The remaining five are the cream of the crop, relatively speaking. Two are almost never late, the other 3 have chronic timely payment issues. I'll be honest: I have never charged a late fee because I feel sorry for these people. They will never, ever know how to manage their money. I've offered to take $99 off their house payment if they show me the Dave Ramsey Financial Peace University completion certificate. Taking this class would conflict with drinking beer and getting tattoos and piercings, so of course none of them have taken me up on it.

Let me assure you, none of their house payments are very much, all are well less than $1K a month, so it's not like my dad gouged them. The interest rate is 8%, which I think is high, but then I have a great credit score.

They always have an excuse why they can't pay on time. Most times their account is overdrawn because they have so many overdraft fees, which causes a chain of more bouncing and fees. They don't keep track of their own checking account info, they just look on line to see how much money they have in the bank.

By charging them late fees on their house payments, my goal would be to "teach" them that paying on time saves them money. I'm not sure they can be taught. One of them told me that he had over $300 in bank fees last month.

For example, they never pay their county property taxes on time, and consequently they pay 30 - 40% more before the very last deadline, due to more fees and interest.

Would you charge them late fees? I feel like I'm trying to get blood out of a very depleted turnip.

P.S. And yes, I have explored selling the promissory notes. After their credit scores were checked, none of the 10+ companies I approached were even remotely interested. I tell ya, my dad could sure pick 'em..... Really, I think it was as much a ministry for him, as it was a retirement plan.

 

[Texas Proud]

I think you have to ask yourself a few questions before you do anything....

Do I need the money?

Is getting the money worth the trouble?

Do I want to force the issue with them?



As you already have stated, these people are paying late fees on everything... so you charging them late fees will NOT change their behavior.... it will just mean they owe you more money.... just like the banks, these late fees will pile on top of each other because they will probably not pay them so you will be charging them forever....


Now, about forcing the issue.... if you have a note on the house, why not foreclose on them Sure, it is a lot of trouble, but it fixes this problem. You can then sell the houses outright to whomever you wish... pocket the cash and move on....

 

[REWahoo]

For reference, I've never been a landlord so the following isn't based on any real world experience...

It seems everyone else they deal with charges penalties and fees for late payments. Since you don't, you end up being last in line when they get paid. Charging a late fee might move you up in the pecking order.

 

[calmloki]

And this is why we have an escrow company collect payments and assess late fees. which just get tacked onto the total due. I don't WANT to hear about why the payment is late and figure out how much or if to charge late fees - get enough of that with the rentals. The property sales or loans are supposed to be hands off easy money. If the payment is skipped for a number of months then we try real hard to be calm and just dump a fat wallet load of bucks on a lawyer's desk and let him do a foreclosure. Then you get to sell the property again! (after you do all the repairs...)

 

[savory]

From my most liberal perspective, I expect your tenants live on the edge of financial failure, not necessarily their doing. And unfortunately, failure happens every month because some financial event occurs that pushes them over the edge. As we think about the holiday season, you are actually in an enviable position. How many people can say they are responsible for allowing people to live in their own house. A place where people have some dignity and self respect. From your brief description of the situation, I think you should have much pride and many of us should envy you. I hope you continue to be the person in your 'tenants' life that provides the dignity they likely deserve, even while others are digging deeper into their pockets.

 

[Keim]

Have you looked into turning your places into subsidized housing? (I am half kidding and half serious-lots of hoops, but might be worth it...)

 

[jayc]

From my most liberal perspective, I expect your tenants live on the edge of financial failure, not necessarily their doing. And unfortunately, failure happens every month because some financial event occurs that pushes them over the edge.

Please explain whose "doing" it is if not theirs. Tattoos need brightened?

 

[jerome len]

YOu have to decide if you want to be in the real estate rental business. And, if you do you have to handle the business professionally or get some one to do it for you.

With 5 houses you have a bunch......but is it worth the hassle? If so, charge what should be charged including late fees, if it isn't worth it.....collecting rent, charging fees, having lawyers look at your rental agreements...cleaning up after filthy rentals leave.....then sell the houses. Your choice.

 

[LandlordInvestor]

You needed to charge late fees from the beginning and really set the tone. It will be tough to change them now since it sounds like they are chronic late payers. Ideally when you owner finance a place you should put clauses in there that deal with late pays. If you are not able to collect the late payments then it should go on the end of the note somehow. Since this is probably not in the original contract you probably wont be able to collect that.

My bigger concern would now start to be what condition are they keeping the property in? Is there a lot of deferred maintenance? Given their history, you might very well own it again.

If you don't want to own it again or mess with trying to resell, etc. Then you might want to sit them down and renegotiate the terms. Maybe even lower the interest rate slightly or even take some principal of the loan in exchange for autopayments, more cash down, or better terms regarding late payments and the ability to extend the loan if they dont pay late fees.

I think owner financing is a great way to sell properties, but you must pick your new owners carefully and really set the tone at the outset on the expectations of paying their mortgage. Good luck.

 

[rbmrtn]

Sounds like something I'd for sure want to get out of. Have you looked into selling the promissory note. I don't anything about it, just googled it.

Nationwide Secured Capital - Sell your note, fast

 

[pb4uski]

I don't see where charging late fees is going to accomplish anything because they have proven that they just don't give a care.

I wonder if it is possible to arrange for a direct payment to you from their paychecks for those who have steady employment but are just bad at managing their money or have them set up an auto-pay to you from their bank (on the same times that they get their paychecks).

Or you could tell them that you can no longer tolerate the late payments and if there are x number of late payments from here on that you're sorry but you will just initiate foreclosure proceedings.

 

[Bestwifeever]

Something about this thread makes me think of the emotional connection to money. The tenants are not children, the OP is not the rescuer. Treat the rentals as business and charge the late fee. Donate it to a homeless shelter if it makes you uncomfortable to charge it and keep it.

 

[calmloki]

Five years ago my dad passed and left me with eight Promissory Notes for houses he flipped and owner financed. ........ Really, I think it was as much a ministry for him, as it was a retirement plan.

Ahh, the old doing business with those no one else will do business with deal. It is a good thing to provide housing for people who would otherwise be homeless; it's a good thing to treat people with respect and foster their dignity, but at some point you have to decide if your deadbeats are the charities you wish to support. If the little old lady or WW2 vet or single mom in a nursing program is someone whose life you wish to make easier then do so and feel good. That's the great thing about carrying your own paper. OTOH, there are some who just want to take advantage. For them, lawyers have been created.

 

[Major Tom]

Unless you have a personal reason for wanting to give a break to these people, I would treat it strictly like a business (or have someone else do that for you.) Charge late fees, send reminder notices when payments are severely overdue, and begin foreclosure proceedings as soon as the tardiness allows you to. If you decide to continue doing this yourself, make it clear that you're not interested in the reasons they are late. If I had a tenant in good standing who was late once or twice for good reasons that would be different, but like you, I have no interest in listening to the excuses every month.

REWahoo's point about late fees possibly moving you up in the pecking order is a good one.

This is the way that I would play it. I do sympathize with those who cannot or will not organize their finances but I don't feel a personal responsibility to protect them from the consequences of their actions.

 

[foxfirev5]

I don't want to be a jerk but that's why I'm sticking to REITS. My upbringing on the East Coast streets taught me not to be a chump, but it's not always pretty.

 

[Amethyst]

I would be a little concerned that the residents might get a sympathy vote from a judge, if they plead that "all along, he let us do X, and now all of a sudden he's turned mean and trying to make us do Y."

I live in MD, an extremely tenant-friendly state, and there is definitely a sense that if you have been letting the tenants pay late/pay a little here and there/etc., for quite a while, then you have created a climate of expectation that such liberality will continue. (Sort of like letting those darn kids tromp across your lawn for years, then suddenly accusing them of tresspassing). Granted, the OP seems to be talking about mortgagors, not tenants.

Anyway, just a cautionary thought. I detect the sound of oncoming lawyers, either way.

Amethyst

Unless you have a personal reason for wanting to give a break to these people, I would treat it strictly like a business (or have someone else do that for you.) Charge late fees, send reminder notices when payments are severely overdue, and begin foreclosure proceedings as soon as the tardiness allows you to. If you decide to continue doing this yourself, make it clear that you're not interested in the reasons they are late. If I had a tenant in good standing who was late once or twice for good reasons that would be different, but like you, I have no interest in listening to the excuses every month.

REWahoo's point about late fees possibly moving you up in the pecking order is a good one.

This is the way that I would play it. I do sympathize with those who cannot or will not organize their finances but I don't feel a personal responsibility to protect them from the consequences of their actions.

 

[Nords]

By charging them late fees on their house payments, my goal would be to "teach" them that paying on time saves them money. I'm not sure they can be taught. One of them told me that he had over $300 in bank fees last month.

If they have bank fees then they must have bank accounts. Perhaps they could sign up for electronic fund transfers of the payment to you on the day it's due. That won't solve the late fee issue, but it might avoid it.

Ahh, the old doing business with those no one else will do business with deal. It is a good thing to provide housing for people who would otherwise be homeless; it's a good thing to treat people with respect and foster their dignity, but at some point you have to decide if your deadbeats are the charities you wish to support. If the little old lady or WW2 vet or single mom in a nursing program is someone whose life you wish to make easier then do so and feel good. That's the great thing about carrying your own paper. OTOH, there are some who just want to take advantage. For them, lawyers have been created.

Oboy, does that let us choose between deducting it as a rental expense or a charitable donation?

 

[Letj]

Five years ago my dad passed and left me with eight Promissory Notes for houses he flipped and owner financed. In some of my other posts, I've stated "If you love your children, you won't leave them real estate."

I probably sound like an ingrate, but he died at the beginning of the housing/mortgage collapse, and believe me, I didn't get a bailout from Uncle Sam. Three houses have been abandoned or foreclosed on, and I sold them outright to other investors at about a 50% loss, but they're off my back now.

The remaining five are the cream of the crop, relatively speaking. Two are almost never late, the other 3 have chronic timely payment issues. I'll be honest: I have never charged a late fee because I feel sorry for these people. They will never, ever know how to manage their money. I've offered to take $99 off their house payment if they show me the Dave Ramsey Financial Peace University completion certificate. Taking this class would conflict with drinking beer and getting tattoos and piercings, so of course none of them have taken me up on it.

Let me assure you, none of their house payments are very much, all are well less than $1K a month, so it's not like my dad gouged them. The interest rate is 8%, which I think is high, but then I have a great credit score.

They always have an excuse why they can't pay on time. Most times their account is overdrawn because they have so many overdraft fees, which causes a chain of more bouncing and fees. They don't keep track of their own checking account info, they just look on line to see how much money they have in the bank.

By charging them late fees on their house payments, my goal would be to "teach" them that paying on time saves them money. I'm not sure they can be taught. One of them told me that he had over $300 in bank fees last month.

For example, they never pay their county property taxes on time, and consequently they pay 30 - 40% more before the very last deadline, due to more fees and interest.

Would you charge them late fees? I feel like I'm trying to get blood out of a very depleted turnip.

P.S. And yes, I have explored selling the promissory notes. After their credit scores were checked, none of the 10+ companies I approached were even remotely interested. I tell ya, my dad could sure pick 'em..... Really, I think it was as much a ministry for him, as it was a retirement plan.

Sounds very much like my low income tenants. I can't even find someone that would remotely qualify under conventional terms.

 

[Major Tom]

I would be a little concerned that the residents might get a sympathy vote from a judge, if they plead that "all along, he let us do X, and now all of a sudden he's turned mean and trying to make us do Y."

Good point Amethyst. Perhaps any changes should be preceded by a series of warning letters to tenants? I'm thinking one letter every month for 3 months before the changes go into effect? Then tenants can't say they weren't warned.

 

[Sue J]

It's interesting that this situation is mortgage loan payments and not rental payments from tenants. But the behavior is the same and the result to you is the same.

I have no advice but I do like your offering to reimburse the cost of them completing a course that could help them learn how to do better at this.

It's sad that their disorganization and lack of integrity impacts you in such an irritating way. Your father did this with all good intentions, helping some folks buy homes and securing a steady flow of income, while leaving you an inheritance.

 

[LOL!]

Forget about late fees, just kill your tenants: BBC News - Maine shootings: Tenants killed in snow-shovelling row

 

[pb4uski]

I would be a little concerned that the residents might get a sympathy vote from a judge, if they plead that "all along, he let us do X, and now all of a sudden he's turned mean and trying to make us do Y."

I live in MD, an extremely tenant-friendly state, and there is definitely a sense that if you have been letting the tenants pay late/pay a little here and there/etc., for quite a while, then you have created a climate of expectation that such liberality will continue. (Sort of like letting those darn kids tromp across your lawn for years, then suddenly accusing them of tresspassing). Granted, the OP seems to be talking about mortgagors, not tenants.

Anyway, just a cautionary thought. I detect the sound of oncoming lawyers, either way.

Amethyst

I don't think there is much risk if the loan documents provide for late fees. Many legal documents include a clause indicating that waiver of a right does not set precedent for future instances, so if the loan has a similar provision then the OP's past decisions to waive late fees provided for in the loan document should not affect his ability to demand them prospectively.