Small Claims Don’t Have To Be Big Issues
June 22nd, 2017 | By: Mircea Iosif, Esq.
A ‘small claims’ lawsuit is a type of action that is limited in the dollar amount in controversy and the parties generally cannot be represented by an attorney. The reasoning behind this is to presumably make the court system more accessible and allow for parties to represent themselves for disputes that are for a relatively small amount of money. Also, courts are typically far more lenient in terms of procedures and rules in light of the litigants representing themselves.
The two most common lawsuits involving landlords in small claims court are 1) tenants claiming they did not get their security deposit back and 2) claims for some type of physical damages that allegedly happened during the tenancy, such as condition issues or reimbursement for loss of personal possessions. Since these issues are fairly straightforward, many property owners opt to defend themselves. Although this an attractive, potentially low cost option, landlords should still be mindful of possible pitfalls. For example, some security deposit laws award additional damages if the funds are not handled properly. Also, some courts may be sympathetic to the tenant as they can be paternalistic in favor of the individual. Therefore, it is wise to do a cost analysis to see if the potential exposure warrants involving an attorney.
If that is the case, then contacting an attorney and notifying them of the lawsuit is the next thing the landlord should do. At Paletz Law, when our MI clients notify us of a small claims suit, after it is agreed that we are to proceed, we immediately take steps for removal to general civil court so we can take over representation. In OH, the procedure is slightly different and can actually vary from court to court. In any event, the last thing a property manager should do is sit on a small claims suit as that could subject them to even more monetary exposure. Also, there may be potential counter claims that could be filed against the tenant, but would be missed if not acted on timely.
Another decision landlords face from time to time is whether to use small claims court to bring their own post-tenancy collection claims against tenants. However, the biggest downside is once a judgment is obtained, the landlord cannot at that point hire an attorney to help collect the money. After all, a judgment does not guarantee money in your pocket, as it is merely a “license to hunt.” Therefore, it is usually better for an attorney to get involved with the collection case from the beginning. We routinely consult with our clients as to best practices for loss mitigation and collection procedures. Also, since most small claims issues in property management derive from the mishandling of a security deposit, we also counsel our clients as to the best way to ameliorate this type of exposure. For example, we always recommend that our clients have a policy and procedure at the corporate level to deal with security deposits, since uniformity limits exposure to mismanagement and even fair housing claims, which in and of themselves can be expensive to defend.
The Bottom Line: Property owners and managers should never neglect a small claims case. A cost benefit analysis should be done to see if an attorney should get involved sooner rather than later. Also, since most small claims suits derive from security deposit issues, having a policy at the corporate level to ensure uniformity is key. Remember it’s small claims for a reason – there’s no need to make it any bigger than it has to be.
 Michigan Landlord and Tenant Relationships Act, MCL 554.601, et seq. (http://legislature.mi.gov/doc.aspx?mcl-act-348-of-1972)
 Ohio Procedures for Security Deposits, ORC 5321.16 (http://codes.ohio.gov/orc/5321.16)