Selling off your former tenant arrears debt
09/03/2012 2:38 pm
Has anyone ever sold their former tenant arrears debt to a debt purchasing company?
I am interested in the cost and legal implications and also which debt companies specialise in working with social housing / local authorities
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01/05/2012 9:58 am
Some Councils and Housing Associations do use debt collection agencies to trace former tenants who are in arrears or even to recover the debt. Obviously where a debt collection agency purchases debt it does so at a significant discount. Social landlords may also wish to be assured that debt collection agencies would pursue debts in a way that is consistent with their own principles and policies. There are a number of debt collection agencies in the market whose details are available on the Internet.
01/05/2012 5:20 pm
I'm not aware of anyone having actually sold the debt, ie taking cash up front in return for number of debts. More usual I imagine- and we do this- is engaging a company to track down the whereabouts of former tenants in return for either a fixed fee or a percentage of the debt reclaimed, or a mix of both. Selling the debt up front would be more risky as you should probably try to ensure contractually that the debt purchasers were at all times acting within the law. More straightforward and less risky, might be employing a company to carry out straightforward checks on the whereabouts of your former tenants with the intention of securing agreements to pay off the debt, or getting an Attachment of Earnings Order for example.
10/05/2012 11:05 am
Not everyone pays their bills even after reminders. A local authority or social housing organisation has a duty to collect what it's owed but when you’re dealing with vulnerable people it is not straight forward.
I was working as a senior manager for a large local authority when it was severely criticised by the auditors for allowing a very large amount of debt to accumulate over a number of years due to non-payment by a small proportion of service users.
In response the council set up a specialist team to pursue individuals and secure payment. This was largely carried out by sending letters threatening legal action, telephone call follow-ups and occasional home visits.
Some people were genuinely unaware they owed the money having never been billed. Some agreed they owed money but disputed the amount. Others just hoped to get away with it. Most did pay up. However two years later there was still a hard core who were unwilling or unable.
The council felt they had three options, large scale expensive legal action against people who probably didn't have the means to pay, writing off the debt, or selling the debt.
The advantage of selling the debt was that we were guaranteed to get some money – even though it would only be a fraction of the amount owed but we would be able to close the books. The disadvantage was that once we had sold the debt we had no control over the situation.
We might sell to a reputable debt collection company but once they had collected all they could, there was nothing to stop them selling the debt on. It was not hard to imagine that the debts of the least able to pay would end up with the less reputable local debt collectors who were not squeamish about the methods they used to get their money.
In the end it was decided to write off the remaining debt having agreed with the auditors that every reasonable means had been used to collect the money owed and that the cost of pursuing this further was disproportionate.
Of course being a local council another consideration was the potential for some very bad publicity around being seen to send in the bailiffs or being heavy handed in pursuing elderly, disabled and vulnerable people for money they didn't have.
I am not sure the same decision would have been reached in the current harsh financial climate, but the debate would be the same.