The decision about whether to file a lawsuit against a tenant can be challenging. Ultimately, a Texas landlord attorney like me is not in the best position to make this decision. You are. So, this article is going to arm you with the information you will need to answer the question, “should I sue my tenant?”
It’s the Principal
Suing your tenant because you’re angry is a lousy basis to make this decision. I get that many reading this article will be angered by these words, and I get that this may come across as patronizing. But please understand, my job is to help landlords make the best decisions for their investment portfolios. This means I will sometimes need to tell my clients something they don’t want to hear…. I don’t need to tell you that suing your tenant for no other reason than obtaining a sense of justice will not necessarily improve your bottom line. It could, but it might not…. You’re a property investor because you want to make money, not settle scores with stupid, irresponsible people.
But don’t stop reading if I’ve just described you!! I just want you to analyze your situation from a different perspective. Who knows? The economics of this decision might just line up with your need to slam these fools with a judgment!!
The Big Question: Can I Collect on a Judgment if I Get One?
In many – arguably most – tenant lawsuits, the landlord is highly likely to obtain a judgment. The problem is collecting on that judgment. Judgments only declare one party to be the winner, and the other to be the loser. The winner must take additional steps to collect on the judgment.
Collecting on judgments in Texas can create a whole host of problems for landlords. The biggest problem is the fact that Texas is a VERY debtor-friendly state. And it always has been. You’ve probably heard of the “Homestead Statute.” Texas homestead laws naturally protect debtors’ homes from creditors. You probably knew that part. But did you know the Texas homestead laws also protect a substantial portion of a Texas debtor’s personal property? And any cash the debtor may have in a checking or savings account is likely to be a part of this protected personal property.
If you would like to learn more detail about how Texas homestead laws protect tenants, you can download a complimentary copy of my online homestead brochure here. It’s only 3 pages long and I wrote it for non-attorneys.
But the scope of the Texas homestead laws is not the worst part! The worst part is its reach! The majority of Texas tenants will have estates that are entirely protected by the Texas homestead laws. And when I say “the majority,” I don’t mean a 51% majority. It’s more like a 98% majority.
I know…. It seems hopeless. Keep reading. I promise this will get better!
Why Would I Sue My Tenant if He Is Entirely Protected by Texas Homestead?
It doesn’t make a lot of sense on it’s face, but it STILL might make sense to sue your tenant. The reasons? Ignorance and apathy.
The consumer law types are about to hate me for this next part….
Texas homestead protections are not automatic the way bankruptcy protections are. Debtors must step up to exert their homestead rights. They must take some kind of action. If a creditor takes possession of money that is otherwise part of a debtor’s homestead estate, it’s too late for the debtor. It’s VERY unlikely the creditor will be forced to return that money. And creditors in Texas successfully collect this way on debtors’ otherwise homestead-protected assets all the time. The debtors simply drop to ball or give up.
Let’s say, for example, we got a $7,500.00 judgment against your tenant. After we locate your tenant’s checking account, we file the paperwork to garnish that checking account (BTW – we can’t garnish paychecks in Texas). In the process, we immediately freeze $5000.00 of funds in your tenant’s account. Your tenant will then need to file specific motions within the correct amount of time (and he won’t have a lot of time) that tell the Judge, “Hey – this money is part of my homestead estate! Please release these funds.”
Not a lot of judgment debtors will take these steps. They are often too distracted trying to set up a new checking account and rerouting their direct deposits to those new accounts to mess with our garnishment. Not to mention they now have no means of hiring an attorney.
The Sit-And-Wait Approach
Garnishments are not the only means of collecting on judgments in Texas, though. There are several others.
One tactic is simply having my office abstract your judgment and waiting. This is particularly effective with younger tenants. With a younger tenant, there is an excellent chance their economic situation will improve at some point over their adult lives. If they ever want to purchase a house in the future, it is a near certainty their lender will pressure them to pay off your abstracted judgment.
Some down sides to this approach are that we must take steps to renew your abstracted judgment every 10 years. Also, it’s reading tea leaves for me to tell you when or if this method will pay off. It could happen in a few months or never at all.
This Decision is All About Probabilities
You are best suited to determine whether it is a good idea to sue your tenant. I am not. You know your tenant better than I. And your understanding of these facts should be the only thing that guides you in making this decision.
Does your tenant have a good job? Has he had a good job for a significant period of time? Do you have access to images (or copies) of checks that he wrote you while he was your tenant? Did your tenant move out recently?
Answering “yes” to any of these questions means you have a better chance of collecting on a judgment.
When is it a Bad Idea to Sue My Tenant
Here is a list of some circumstances where you should avoid proceeding on tenant litigation (at least for now):
- You had no written contract with your tenant
- You had a contract for deed or a lease-purchase agreement with your tenant
- You know your tenant lost his job or recently suffered some other financial calamity
- Your tenant has a history of filing multiple bankruptcies
- Your tenant recently went through a divorce
- Your tenant took a step down (i.e. went from a single-family home to a one-bedroom apartment)
- Your tenant is elderly
- Your tenant in now incarcerated or was recently deported
All of these are indicators that your tenant will not be ripe for a successful collection effort at all or for a number of years. It might be best to revisit this tenant in a couple of years or walk away entirely.
If you had a verbal agreement with your tenant, a contract for deed, or a lease-purchase agreement, you are almost certainly better off to walk away. In the case of the latter two, you merely open yourself up to some extremely painful counter litigation (i.e. your tenant sues you back). Under these circumstances, your tenant is likely to collect much more from you.
How Long do I Have to Sue My Tenant?
Written residential lease contracts have a 4-year statute of limitations. The four years begins when you discovered the debt. For example, if your tenant moved out of your property on June 1, and you entered the property on June 15 to discover a series of damages that far exceeded the security deposit, the four-year statute of limitations would begin on June 15.
Is it True You Handle These Cases Pro Bono, Marc!?!
Umm – No.
Nor do I handle these cases on a contingency. No attorney is his right mind does. There are just too many variables.
Every one of these cases is different. Tenant lawsuits for non-payment of rent involve less work than do property damage cases. The difference isn’t huge, but there is a near certainty that I will ask for a larger retainer on a property damage case.
My firm offers free initial consultations to landlords who would like to learn more about suing their tenants. Please give us a ring at 817 835-9410 to schedule your free consultation!