BAD CHECK PROCEDURES

The problem of checks returned on insufficient funds (NSF checks) is often compounded by the manager’s subsequent actions. What starts out as a frustrating nonpayment event can become an eviction case lost with liability for the resident’s attorney fees. Every NSF check forces the manager to spend additional administrative time with such tasks as reversing the payment on the resident’s ledger and collecting the balance owed. It seems reasonable that the manager should be compensated for this additional time and work in the form of appropriate service charges. Yet not all managers are properly set up to pursue such charges.

Dealing with a NSF check will depend on whether the resident remains in possession or has vacated.

Resident Vacated – Collection

If the resident has vacated, then the NSF check is simply a collection issue. The manager adjusts the resident’s ledger to reflect the returned payment. The manager can address NSF checks just as she addresses any other amounts owed. She can pursue collection on her own (send balance due letters and sue) or send the account to a collection agency. The resident is liable for the face amount of the check, any bank fees incurred by the manager and court costs, and attorney’s fees, if suit is filed. The manager may also pursue other civil and criminal penalties, as detailed later in this article.

Resident Vacated – Notice of claim

If a Notice of Intent to Impose Claim on Security Deposit has been sent, and the manager is still in possession of the security deposit, and the 30 day period after vacating has not expired, the manager can make an additional claim against the security deposit. She sends an amended notice of claim by certified mail. If a notice of claim has been sent and it already claimed the entire security deposit, then there is no point in sending an amended notice. A balance due letter adding the NSF amount to the outstanding balance is all that’s needed.

Resident in Possession – 3-Day Notice

If the resident is still occupying the rental premises, the manager can serve a 3-Day Notice if the amount still owed is rent or additional rent. In calculating the amount for the 3-Day Notice, the manager should confirm that all amounts on the Notice, including any additional NSF service charges, are designated as rent or additional rent in the lease. The manager should serve a 7-Day Cure Notice for any amount owed that is not rent or additional rent. If the NSF check was tendered for payment of an outstanding 3-Day Notice or 7-Day Cure Notice, then the prior Notice is still viable. A NSF payment is not a valid payment and will not count as “payment” toward the Notice.

Resident in Possession - The Demand Letter.

A common mistake made by managers is to send a demand letter for payment of the NSF check. Almost universally, the demand letter gives the resident so many days to pay. The manager also serves a 3-Day Notice or a 7-Day Notice at or around the same time. If the demand letter and the Notice have different response dates or time periods, the manager has arguably voided her Notice. Of course, the manager’s attorney doesn’t discover this legal flaw until the eviction hearing, and may not be able to extricate the manager from the strong defense competing notices can provide. If the manager loses the eviction case, he will likely be responsible for the resident’s attorney fees, if the resident is formally represented. NEVER SEND A DEMAND LETTER FOR AN NSF CHECK. IF IT IS RENT, SERVE A 3-DAY NOTICE. IF IT ISN’T RENT, SERVE A 7-DAY CURE NOTICE.

Resident in Possession - The NSF Statutory Notice

Many managers are aware that Florida provides for civil penalties under a NSF civil statute. The best advice is to forego this statute and its penalties while the resident is in possession. To invoke the statute, you must send a statutory form and give the person writing the bad check (usually the resident) 30 days to pay. While the 30-day period is running, any 3-Day Notice or 7-Day Cure Notice given may be invalidated, as the payment dates or time periods of such a Notice conflict with the statutory notice.

Criminal Penalties

Florida statutes provide for criminal penalties for intentionally writing an NSF check. If a manager is thinking of pursuing criminal penalties for NSF checks, he should first call the state attorney’s office for the county, in which the rental is located. Some offices have established procedures and particular forms for their county. A review of the appropriate websites may also provide the needed information and forms. Just as with informal demand letters or statutory demand letters attempting to pursue civil remedies, the pursuit of criminal prosecution involves sending a formal demand letter to the person writing the bad check (again, usually the resident), which demand will likely conflict with a 3-Day Notice or 7-Day Cure Notice, so we strongly recommend foregoing the criminal prosecution route while the resident is in possession of the rental premises.

NSF Service Charges

If the lease provides for NSF service charges, then those charges will be applicable. Florida law frowns upon imposing penalties upon residents. Managers are cautioned that service charges should approximate recovery of the economic loss caused by the NSF check for additional administration, loss of the use of the funds, etc. Many leases follow the NSF statutory service charges, on the premise that these charges are a legislative indication of reasonable service charges. As of July 2012 the statutory service charges are: $25 if the check is $50 or less, $30 if the check exceeds $50 but no greater than $300, $40 if the check exceeds $300, or 5% of the check amount, whatever is greater. Absent lease authorization or following cumbersome statutory procedures, the statutory service charges cannot be imposed.

Bank Fees

Almost all banks impose a fee on the manager/depositor if a check bounces. If the lease permits, than these fees are chargeable to the resident. If the lease is silent or there is no lease, the manager may still seek reimbursement of the fees from the resident, but may have to resort to litigation to establish his right to reimbursement.

The Manager’s Checks Bounce

What about the fees charged by the bank for the checks that the manager wrote in reliance on the NSF check? Because the resident’s check bounced, now the manager’s checks may be bouncing. It is unlikely that these bank fees are chargeable to the resident. Absent some extraordinary circumstances, the manager is responsible for giving a deposited check sufficient time to clear before relying on it.

Keep the Lease Up to Date

As a final point, managers should check their leases to insure that NSF charges are assessed, and that these charges approximate current statutory service charges. Leases should provide for reimbursement of bank service charges, and should include clauses providing for recovery of any collection fees or charges, including attorney fees and court costs.