Landlords limited in ability to pull tenants' credit reports
Hiring a collector may be a better path toward repayment
Ask a question.
Dear Speaking of Credit,
My tenant skipped out, leaving unpaid rent, unpaid late fees, unpaid water and sewer charges (which can be a lien against the property in Virginia), $10,000 in property damage and no forwarding address. I need to find her address to serve her notice of suit. The tenant and I signed a lease contract that says, "If Tenant does not pay any money owed to Landlord for damages, nonpayment of water and sewer charges, nonpayment of rent or late fees or any other charges, Tenant grants the right to Landlord to obtain Tenant's credit report files from any credit bureau until Tenant pays Landlord in full." Can I obtain the tenant's credit reports without violating any law? If so, who did I need to contact to obtain the credit reports? Do you have other suggestions? Thank you for your time and advice. -- Dan
The amount of property damage exceeds the $5,000 limit on small claims court filings in Virginia. So unless you decide to seek only half of the $10,000 in damages by your former tenant through small claims court, I'm going to suggest you get the ball rolling on this lawsuit by hiring an attorney specializing in landlord-tenant law. Among other things, an attorney can advise you as to how the summons and complaint are to be served to your ex-tenant, since she left no forwarding address. Other landlords in your area and your local bar association should be able to refer you to a lawyer who's qualified and trustworthy.
The question of whether it's legal to obtain a credit report for the purpose of locating your ex-tenant is an interesting and complex one. The operative federal law is Section 604 of the Fair Credit Reporting Act (FCRA). It forbids pulling credit reports unless there is a "permissible purpose" to do so, and then lists those circumstances creating permission.
There is no doubt that a landlord with proper written authorization has the right to pull a credit report to help decide whether to rent to a prospective tenant. But your situation adds a twist: This isn't a prospective tenant, this is one who skipped. And that's where it gets fuzzy.
Even though you have additional written permission in the lease to pull a credit report, I would recommend caution, and suggest you obtain legal advice before attempting to do so. That's because the Federal Trade Commission (FTC), the government agency empowered to interpret and enforce the FCRA, said in a published advisory opinion that a landlord does not have "permissible purpose under Section 604 to obtain a consumer report in connection with legal action after the tenant has vacated the apartment."
In addition to the legal question, I'd also throw water on the idea of pulling a credit report for a practical reason: They're not a very good tool for tracking down skipping tenants.
From my experience, addresses (and employment) tend to be among the least reliable pieces of information on a credit report. So, once again, an attorney should be able to inform you of other ways to obtain this person's current address and, if necessary, how to meet Virginia's summons and complaint service requirements should her current residence remain a mystery.
After filing suit, serving the summons and complaint, and going to court -- assuming you are not able to reach agreement beforehand -- the court will likely award a civil judgment in your favor. It will then go onto the public record in your county and soon thereafter will be added to the public record section of her credit reports at the three national credit bureaus -- Equifax, Experian and TransUnion. It will remain on her credit reports for seven years, whether satisfied (paid) or not.
This judgment can be expected to seriously suppress her credit score, with the greatest damage occurring over the first couple of years and then diminishing over time. The effect of the judgment on her score will be similar to other types of debt that go into default, such as charged-off credit card accounts, foreclosures, auto repossessions and collection accounts, with an initial loss of more than 100 points not being unheard of.
And speaking of collection accounts, you may wonder just what her incentive is to pay this large debt when her credit score will remain low whether she satisfies the judgment or not. There's an old saying that "you can't get blood out of a turnip," yet, there are at least a couple ways in which she may get motivated to pay you, despite the bleak outlook for her credit no matter what she does from this point on:
- One is, if she finds a prospective landlord willing to rent to her with bad credit, she may be required to satisfy the judgment as a condition of being approved.
- Another is, if you enlist the services of a collection agency -- and I strongly suggest you consider doing so (more to follow) -- they will use the various tools in their "skip tracing" arsenal to locate and then contact her personally to arrange for payment.
One of the most effective powers of persuasion a collection agency employs, and one you can't do yourself, is to report the debt as a collection account to the three national bureaus. The collection will remain on her report for seven years -- paid or not -- and, along with the judgment, could provide you with some added leverage and a greater likelihood of payment.
Another good reason to assign the debt to a collection agency is that they typically work on commission. The good thing about that is, if they don't collect it shouldn't cost you. The bad thing is, they do collect you'll have to share the proceeds. Collection agency commission rates vary by agency, so you'll want to shop around. But, if you agree with the theory that a percentage of something is better than nothing, you'll want to seriously consider going the collection agency route. Just be sure to use your best due diligence to find a reputable company, as you could be sued along with them for any illegal misdeeds they undertake attempting to collect on your behalf.
That said, by seeking assistance from a knowledgeable attorney and reputable collection agency, you'll be giving yourself the best chance of recovering at least something from your former tenant. I wish you luck!
Meet CreditCards.com's reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.
- How quickly can my score recover from a late payment? – You can recoup some of the points lost on your score due a late payment as soon as you mend the error, but undoing the whole damage takes time, discipline and patience ...
- Pay for delete: When it helps credit score, and when it doesn't – If you think 'pay-for-delete' practices are a surefire way to boost your score, think again. They only solve one piece of the scoring puzzle ...
- Is bankruptcy discharge a credit scoring factor? – Expect no change on your credit score when bankruptcy's discharged. For scoring purposes, it's the date it was filed what counts ...