Episode Transcript

Welcome to Episode Seven of Season Four of the Growing Empires show. Today I’m back with my special guest attorney, Zachary Zawarski and we’re going to resume our conversation on best practices for your rental properties. So stay tuned.

00:17

Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

00:35

So besides screening a tenant properly and having a solid lease, what other precautions should a landlord take to protect themselves? Probably one of the most common questions that I get from clients is if they should have the property in the name of an LLC in order to protect themselves. It’s never a bad idea to have a property in the name of the LLC just so the owner has a layer of liability protection. However, an investment property needs to be purchased in the name of the LLC to avoid 2% transfer tax. If somebody already owns a property that they then want to transfer into an LLC, that person will have to pay 2% transfer tax on the value of the property, which just isn’t worth it in my opinion. That means that if you’re paying $5,000 on a $250,000 property that you want to put into the name of an LLC. So if you want to own real estate in an LLC, you should have an existing LLC that purchases the property at the beginning of the transaction when the property is acquired. I would also recommend that a landlord simply have a good insurance policy to protect themselves and know the details of what the policy does and does not cover. If a landlord feels that their policy doesn’t have enough coverage, then they could get an umbrella policy. There’s only a few areas where a landlord could be liable. And one example that comes to mind is if a tenant or a guest is injured from a known dangerous condition. Slip & falls are also very common during winter. So a lease indicate that a tenant is responsible for clearing the driveway and walkways from snow and ice. Okay, that sounds like great advice.

02:08

So what would be your advice on evicting a tenant should that need arise? I would recommend that a landlord quickly evict a tenant for non payment of rent. I’ve come across tons of clients that just wait too long to file evictions. I’ve had clients where they waited five or six months of not receiving any rent before filing the eviction process. And what landlords really need to realize is that the eviction process takes a very long time, it could take one and a half months assuming that the tenant doesn’t file an appeal after the landlord gets a judgment at the magistrate court. So you don’t want to wait too long to file an eviction action, as soon as a tenant is two months behind, I’d immediately file for eviction action. So many times I’ve come across landlords that have just been, you know, caught holding the bag where they’re owed six, seven months of rent, and in really no way to collect that and just suffer huge losses from that. So you definitely want to act quickly in filing eviction actions, you don’t want to let it go on too long, where a tenant is not paying rent. And I would imagine that’s also not accounting for, you know, the loss of rent, right? Because if they’re not paying, they’re not paying through the entire eviction process. Plus, if you’ve got to clean out the property, do work on it, then re-rent it, it goes from bad to worse really quickly, you can imagine it could turn into a nightmare, particularly if the property is extremely damaged by a tenant that’s lived there. And not only are you out several months of rent, but you’re also getting back a property that’s in terrible condition that you ultimately need to spend $1,000s of dollars to repair to get it ready for the next tenant so it could turn south pretty quickly. Have you ever worked out like payment arrangements or encouraged any of your clients to work out payment arrangements with tenants and has that worked? I usually recommend particularly if they know where the tenant is employed to just immediately begin wage attachment proceedings. In Pennsylvania, a landlord is able to garnish a tenant’s wages, which is one of the few exceptions and Pennsylvania as for creditors. So typically most creditors such as credit card companies or any type of civil lawsuit, they have no ability to garnish wages of somebody that owes them money. Landlord/tenant judgments are one of the few exceptions. And the way that it works is after a judgment is obtained against a tenant that would then have to be entered at the higher court which is a court of Common Pleas and then notice has to be served upon the tenant stating that the landlord intends to garnish 10% of their net wages in order to apply that towards judgment out and once service is made, there’s an objection period of 30 days where a tenant has a right to object if the wage attachment would cause their wages to fall below Federal poverty limits and if no objections are filed within 30 days an order could be obtained from the court, which then directs their employer to withhold 10% of their net wages until the judgment is satisfied. And I’ve been successful with a number of wage attachment proceedings against tenants. The tricky part is first verifying employment, and then making service but provided that you both are able to get good service and you know where the tenant is employed, you’ll be successful with a wage attachment proceeding and you’ll be able to recover 10% of their net earnings until that judgment is paid. So that’s how I typically recommend landlords try to collect judgments. But of course, before it gets that process, you could certainly try to see if a tenant is willing to make payment arrangements. The biggest problem that landlords have is that once a tenant is evicted or vacate the property, they just have no idea where the tenant moved to, and it’s very difficult to locate them. Often you’d have to use the services of a private investigator to find out where a tenant has moved to after they vacate their property. So the biggest problem and obstacle for landlords is just being able to locate where the tenant moved to after they were evicted or moved out. So would it be a good practice to once you have the judgment make the decision? Because usually, once you have the judgment, the tenants still occupying your property? So does it make sense to then start the wage attachment at that moment versus waiting until maybe you have possession of the property? You could definitely act quickly. But you wouldn’t be able to proceed right away due to the 30 day appeal period for money judgments. So once you get a judgment against a tenant at the magistrate court, the tenant still has 30 days to appeal that to the higher courts. So you can’t take any action on the judgment till the thirty days is up. And you do have the ability to file for possession until after 10 days is up. So the tenant could be evicted before the time period to appeal is up, since it’s 20 days longer. So because of that, you’d have to wait out that 30 days and then immediately move forward with that. But you may find that the tenant is already out of the property by the time that you have to try to serve that notice. Okay, and tell me a little bit more about what you mean about serving notice. So that means you have to know where they live or can you serve them at their job? Either or, the sheriff has to make personal service so the person that you are looking to attach their wages must be hand delivered the paperwork from the sheriff, so that can either be at their new residence or at their place of employment as long as they’re personally served.

07:19

The episode will continue in just a moment.

07:23

To keep your real estate investments working hard at growing passive income, you need to have the right resources to help reduce risk and exposure to over taxation. Having the right attorney, tax advisor and insurance protection is critical to ensuring your investments are safeguarded and set up for success. Knowing tax laws and legal regulations while securing experts who care and understand your goals will allow you to prosper. If you need help finding the right resources to mitigate risk and maximize your tax advantages, let’s talk. I can help you know what to look for and how to scrutinize new or existing resources so that you have the right fit and get the best protection. Schedule a call with me today and I’ll listen to your goals and make recommendations. To get even more information that will make you a smarter real estate investor, be sure to sign up for the Growing Empires Advisor Guide at GrowingEmpires.com, that’s GrowingEmpires.com, and I’ll help you get the right resources to protect your investments and your future.

08:16

Okay, let’s move on to my next question. So how important is it to have legal representation when owning investment real estate? It’s definitely important to have an attorney when you own a rental property. I’ve seen too many clients try to file eviction actions on their own, and get hurt from mistakes that they’ve made – for example, errors made regarding the notice to quit could lead to a case being dismissed and landlord would then be required to start the whole process over again at square one. Another example would include not including all the tenants that are on the lease agreement on the eviction complaint. So you may have a lease agreement where four tenants are listed, but when the landlord files the eviction action, they they only name the husband and wife that they’re familiar with and not the two other tenants. The problem with that is that when you go to file for eviction, the constable would say that they only have authority to evict the two people that were named on the complaint rather than all four tenants in the property. So that’s just another error that I’ve come across when landlords have tried to file the eviction action on their own. And another common issue that comes up where I typically have to advise clients and landlords is what should be done with all the tenants property after they’ve been evicted. So just a couple years ago, Pennsylvania passed some laws with respect to what should be done with a tenants property after they’d been evicted. So it’s a fairly new law just passed within maybe the last eight or 10 years, which basically gives the tenant the right to come back and retrieve any personal property that they left behind at a property that they’d been evicted from. And essentially what the law states is that the tenant has 10 days from the date of the eviction to contact the landlord to notify the landlord of their intent to retrieve the personal property that they left behind. And if they do that, they will then have up to 30 days to retrieve that personal property. The law doesn’t state or mention anything with respect to how a landlord and tenant should accomplish that, I always recommend that it just be done by mutual agreement, just try to work it out in good faith. But a tenant does have that right. And a landlord cannot immediately begin disposing of a tenant’s property that’s that’s left behind what that’s what they need to know. So you have to give them the 10 day period. The good thing is that landlords don’t have to provide a specific notice to the tenant of their rights, since that’s, if an action is filed at the magistrate court to evict them because now, that language with respect to the rights is printed on the eviction paperwork that the tenant receives, notifying them of the rights to retrieve their personal property. So those are types of questions that I have to answer for clients a lot, just what they should do with respect to the tenant’s property after the eviction. But if you go through the court to evict the tenant, that’s all spelled out on on the paperwork that the tenant receives. But essentially, you do have to work with the tenant good faith to get them their property back. And then collections very important. So I come across a lot of clients that are able to evict tenants get them out of the property, and they just consider the judgment that they got to be bad debt that they’re never ever going to get. Whereas I think landlords need to be more aware of their rights to collect the judgment and more vigilant in collecting judgments and not just automatically think that it’s that it’s bad debt, because fortunately, Pennsylvania does allow wage attachment. And there’s other methods to collect judgments as well, such as attaching their bank account. If you know where the tenant maintains their checking account, you can place a freeze on their account and ask that the bank turnover any funds that the tenant may have on deposit, as well as even sell items of tenant’s personal property, such as their electronic equipment, furniture, automobiles, things like that. So definitely pursue legal recourse to collect judgments that are obtained.

12:04

Okay, great advice. I had no idea that you can actually at garnish their bank accounts, I had no idea. So I just want to go back to what you were just mentioning about the tenants belonging so does a landlord have an obligation to leave the belongings in the unit that they were occupying or can a landlord move it to say a storage facility or another location until it’s retrieved? The requirement is that the property simply be safeguarded. So the easiest thing to do would just to leave that property secured inside the home, however, if another tenant is going to be moving in, then that property should be moved into storage. Basically, just don’t leave it outside of the building where somebody could come and steal it, it just has to be safeguarded somewhere, and it can be moved into storage. And just with respect to the cost of that, if a tenant says that they want to come back and retrieve the property, they have the ability to do that within 10 days without incurring any type of expenses. If a tenant does not retrieve their property within 10 days, then the cost of the storage and removal could be built to the tenant. So if the tenant waits 20 days, in order to try to get their property back, whatever the cost is to store and remove that property that could ultimately be billed to the tenant. Okay, and just to make sure I have this correct – so they have 10 days to notify you that they’re going to come back to retrieve their belongings, but they have up to 30 days to actually get the belongings before you can dispose of them. Correct. And then the other time period that will come into play is just the time period that they have to get their property without worrying about being charged for the removal and storage, which is 10 days from the date that notice is given. Okay. So on the 10th day, they could contact their landlord and say, hey, I want to come back and get my stuff. And then from the date that they provide notice they have another 10 days to get it without incurring any costs. But if they want more than 10 days, then they could be charged for it. Okay, I see.

13:56

And what tips and tricks or tools do you suggest landlords use other than maybe ones that we’ve already discussed? Well, I’m just gonna go and quickly highlight just some of the the main bullet points for what I’ve discussed previously, which is to screen tenants, use a rental application, gather recent pay stubs, and bank statement, run a credit report, get a tenant’s social security number, copy their driver’s license and information on their automobile, make sure you review your lease agreement, make sure that your lease waives the notice to quit requirement, make sure your lease allows you to recover your attorneys fees, make sure that the tenant is responsible for paying the utilities and property maintenance such as snow removal. And if you intend to acquire lots of rental properties, I would recommend putting them in the name of an LLC and make sure that you have adequate insurance coverage. And then also be sure to act quickly when a tenant falls behind on their lease and use an attorney for the eviction so you don’t make timely and costly mistakes. And lastly, just don’t assume that judgments for unpaid rent are uncollectible you can take steps to recover judgment, particularly if a tenant is employed. Fantastic. I will make sure that all of your information is in our show notes page so that anybody that would like to reach out to you and seek legal counsel for their tenant related business, I will make sure that your information is available to them. I can’t thank you enough for participating today and sharing your wealth of knowledge. I’m sure you’ve given people a lot of very helpful tips and also help them to potentially not make mistakes and get the legal counsel that they need prior to dealing with anything like evictions or even setting up a proper lease. So, thank you so much for your time, Zachary. I really appreciate it. My pleasure. Thanks for having me on, Jen. Alright. Take care you have a great day. Alright, you too.

15:42

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit GrowingEmpires.com.

Contact for Zachary Zawarski:

Phone: 610-417-6345

Email: zzawarski@zawarskilaw.com