As a property manager, ensuring timely and accurate rent payments is critical. Occasionally, tenants may pay with a money order, only for the landlord’s bank to reject it, leaving rent unpaid. Many times, tenants believe that by delivering the money order, their obligation of rent payment is satisfied, and the landlord believes that the tenant remains obligated to make a valid rent payment when the bank rejects the money order or check. Responding properly and timely in this situation is essential to maintaining clear communication and ensuring the tenant fulfills their rental obligations.
This article outlines “best practices” for managing rejected money orders, the reasons they may be denied, the process of resolving the issue, and a sample lease provision for the situation.
Why Banks Reject Money Orders
A bank may refuse a money order for several reasons, including but not limited to:
- Incorrect Information: Errors in the payee’s name, amount, or date can render the money order invalid.
- Damaged or Altered: Any evidence of tampering, such as altered amounts, will likely lead to rejection.
- Expired Money Order: Most money orders have a validity period, and expired orders are not honored.
- Missing Endorsement: Payees must sign the back of the money order correctly for it to be valid.
- Suspected Fraud: If the bank suspects the money order is fraudulent, it will reject it.
- Unfamiliar Issuer: Some banks accept only specific money order issuers.
- Mobile Deposit Restrictions: Many banks prohibit mobile deposits of money orders, requiring an in-person visit.
Best Practices for Property Managers
When a tenant’s money order is rejected, follow these steps to address the issue effectively:
1. Notify the Tenant Immediately
Promptly inform the tenant that their rent payment was not honored and explain the reason provided by the bank. Clearly communicate that the issue must be resolved quickly to avoid late payment penalties or potential eviction proceedings. If the lease agreement provides for the procedures in this situation, cite the lease provision to communicate with clarity the tenant’s obligation.
2. Require the Tenant to Cancel and Reissue the Money Order
Direct the tenant to cancel the rejected money order and issue a new one. Share a link to a reliable, instructional article for detailed guidance on canceling a money order (e.g. How to Cancel a Money Order). Key steps for cancellation include:
- Contacting the issuer of the money order (e.g., Western Union, MoneyGram).
- Providing proof of purchase (e.g., receipt) to the issuer.
- Completing a cancellation form and paying any applicable fees.
- Waiting for confirmation that the original money order has been canceled and obtaining a replacement.
3. Set a Deadline for Payment Resolution
If the rejected money order was apparently not the fault of the tenant, or there was an apparent good faith effort to make timely and proper payment to landlord, consider providing a reasonable deadline for the tenant to complete the cancellation and issue a replacement payment without late fees. But if the evidence demonstrates that the tenant’s efforts were not made in good faith, consider being stricter with enforcement of the rent payment. Consider the payment deadline in relation to any grace periods specified in the lease agreement.
4. Document All Correspondence
Maintain thorough records of your communication with the tenant. This includes notifications of the rejected payment, deadlines, applicable late fees and penalties, and any agreements made. Clear documentation protects you in case of a legal dispute.
5. Address Future Payment Methods
If the issue arose from an unfamiliar issuer or errors on the tenant’s part, consider recommending or requiring a more reliable payment method going forward. For instance, direct bank transfers or electronic payment platforms reduce the risk of rejection.
Preventing Money Order Problems
To minimize problems with money orders, consider these proactive measures:
- Educate Tenants: Provide tenants with guidelines for filling out money orders correctly.
- Specify Acceptable Issuers: List reputable and reliable money order issuers in a publication to tenants or in an online blog to share with tenants.
- Verify Payments Quickly: Promptly deposit money orders to identify issues early.
- Identify the Problem: when the bank rejects a money order, get the reasons for the rejection and relay that to the tenant so that the problem can be more timely resolved.
- Offer Alternative Payment Options: Encourage tenants to use more secure and convenient methods, such as online rent payment systems.
Lease Provision
Having a lease provision that addresses the problem with a rejected money order or check is prudent—and even critical—to ensure that the tenant remains obligated to handle that situation and to pay rent timely. The following is a sample lease provision regarding a money order being rejected by the landlord’s bank.
Sample Lease Provision
Bad or Lost Check, Late Payments, and Rejection of Checks or Money Orders.
- Tenant Obligation: Landlord is not responsible for rejected money orders, checks or other negotiable instruments or for lost or stolen checks during transit or upon arrival in a mailbox or depository box, and Tenant remains obligated for rent payment even if a money order or check is rejected, lost or stolen.
- Lost Check – Landlord Fault: If Landlord loses a check that Landlord has taken possession of, Landlord may request Tenant to reissue a check to replace the lost check, and Tenant shall comply; and Landlord will reimburse or credit Tenant for the check cancellation fee if any is charged by the financial institution, and Tenant shall provide Landlord an official document from the institution showing proof of the charge. Tenant is not responsible for late fees due to the Landlord’s losing a check or money order delivered by Tenant to Landlord when Tenant delivers the check or money pursuant to Landlord’s instructions or this lease agreement, but Tenant is responsible for late fees if Landlord has notified Tenant that the tenant must deliver a new check and Tenant fails to deliver a new check (or otherwise make valid payment) within 7 days of Landlord’s request.
- Tenant Responsibility for Rejected Payments: If any check, money order, or other payment instrument tendered by the Tenant for rent or other charges is rejected, dishonored, or otherwise not honored by the Landlord’s bank for any reason, including but not limited to errors, omissions, suspected fraud, damage, expiration, or other defects, Tenant acknowledges and agrees that: (a) Landlord is not responsible for resolving the issue with the issuer or the bank, and (b) it is the sole responsibility of Tenant to contact the issuer of the rejected payment instrument, take all necessary actions to resolve the issue, and, if applicable, cancel the rejected payment instrument and issue a replacement payment promptly.
- Obligation to Pay Rent in Full: Tenant’s delivery of a payment that is rejected by Landlord’s bank does not satisfy Tenant’s obligation to pay rent under this agreement. Tenant remains obligated to pay the rent or charges in full and on time regardless of the rejection or dishonor of the original payment instrument. Failure to resolve the issue and provide valid payment may result in late fees, additional charges, or other remedies as specified in this lease agreement.
- No Waiver of Remedies: The rejection or dishonor of a payment instrument does not constitute a waiver of the Landlord’s rights to enforce the terms of this lease or to collect rent and other charges due, including late fees and penalties.
- Prohibited Payment Methods: Landlord reserves the right to refuse payment by certain methods after a rejection, dishonor, or repeated issues with a particular form of payment. Tenant may be required to use alternative methods, such as cashier’s checks, certified funds, or electronic payments, at the Landlord’s discretion.
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