How to Increase Recovery with Average Unpaid Resident Receivables on the Rise

As you have noticed, there has been much noise recently around the US’s national debt, which continues to increase. Simultaneously the average balance that is left unpaid by a resident has been steadily increasing across the multifamily industry. The rise can be traced since early 2020 with some clearly defined inclining stair steps that occurred in 2022 as many of the restrictions on collection attempts for COVID-era accrued balances were lifted. The average unpaid balance for many years before these dates floated between $1200 - $1500, with correlating variations relating to property class and regional economic demographics. We could call this the “where we were” position in the paradigm shift taking place.??

“Where we are” analysis reveals unpaid average balances cresting $3500, again with the expected variations for the property class, economic demographics, and other such nuances. Lease agreement collections have always been one of the more challenging collection verticals when compared to other industries as documented by trade groups such as the ACA International, a collection dedicated trade group drawing on over 100 years of data, the National Apartment Association (NAA), as well as Transunion, and the Consumer Financial Protection Bureau (CFPB).?

According to the CFPB’s Market Snapshot 2023, rental and leasing collections constitute the smallest share of all tradelines, but they have the highest median dollar amount at $1,259. Rental tradelines fell by about 22% from Q1 2018 to Q1 2022 and are primarily furnished by contingency-fee-based recovery solutions. It’s important to note that a direct line between what is reported to a resident’s tradelines can’t be drawn to the average balance owed; one reason for this is the many restrictions that were placed on reporting COVID-era debt to the credit bureaus and what types of charges could be reported, and when those unpaid balances if ever were allowed to be reported. One important metric the CFPB notes is that lease recovery has the highest median reporting amount.?

Move-out Balances on The Rise

Pay Ready’s data has shown that from 2019 to 2023 the average balance from a resident has increased 125%. The average balance for a resident at move-out in 2019 was $1,625, whereas today, the average is $3,671.?

Input to income and increasing recovery in challenging times. Pay Ready represents over 2.8 million doors from Seattle to New York. The sheer amount of data divided among the common portfolio types allows our operations excellence team to analyze and project meaningful calibrations and identify the processes of the most successful owners/operators to reduce the average unpaid balances and produce meaningful liquidation numbers.

The state of the economy has created challenging recovery environments as we move through 2023; consider that former residents with post-move-out balances attempting to pay unpaid balances in 2023 will face steeper climbs. With household debt rising, 2022 ended with roughly $320 billion more in total debt than it started with – 59% more than the average annual increase over the past 18 years. This means that former residents will be facing higher balance debt obligations and have fewer financial resources to utilize.

The good news is that the successful recovery of aged resident receivables is still taking place. Attempting to mitigate high balances, predicating recovery strategies by age and balance, and reducing the amount of time between MOD and placement in recovery have provided some of the most apparent lifts in recovery. Keeping in mind the calibration points above and developing a plan for unpaid receivables can assist in developing a successful compass course for recovery as we all navigate these challenges.

Lastly, while the statistical average for multifamily liquidation has stayed reasonably consistent over the last five years (~ 8-10% recovery), the average balance and overall amount of total debt by portfolio have increased significantly. The traditional recovery practices will not answer the challenges of today. But there is light at the end of this tunnel; the high-end recovery numbers for PMC’s that have their unpaid resident receivables in a healthy state and are managed under increased scrutiny and tactically responsive recovery flows have some of the highest liquidation rates of all times.?

For additional information on resident recovery, recovery trends, and regulatory updates, please get in touch with a Pay Ready expert. Visit us at payready.com or call 855.857.8164.