Drop Box Thefts: Whose Money Was Taken?
Thieves steal rent from rent drop boxes. When they do, clients call us with a host of questions. Did the resident pay their rent by depositing it into the drop box? Can I post the resident with a demand for rent or possession if the resident does not replace the stolen money order? Who bears the risk of loss for money orders stolen from the community’s drop box? Should I address this issue in my lease? If I can’t post the resident for non-payment of rent, do I have any other legal rights to recover the stolen rent?
When rent is stolen from a drop box, some managers argue that the resident hasn’t paid the rent because the manager never received it. Unfortunately, the law does not support this position. Residents pay rent with checks or money orders. Checks and money orders are negotiable instruments. A resident delivers the rent (check/money order) when they voluntarily transfer possession to you by placing it in your drop box. Simultaneously, you receive delivery of the check when it comes into your possession, i.e. when it is placed in your drop box. The commentary to the law specifically states that a negotiable instrument is delivered “when it is put into the payee’s mailbox.” In our experience, almost every judge will hold that a resident has delivered and paid the rent when they place the payment in the drop box.
Accordingly, the property bears the risk for any losses sustained due to theft of payments from an onsite rental drop box. However, you might be able to contractually shift the risk of loss back onto the resident with appropriate lease language. At least one court has held that lease language governed when a resident’s rent payment was delivered. Based on this case, your lease could provide that payments put in the drop box are not delivered (received) unless the payments are in the box at the time it is opened. For example, “for resident’s convenience only a rent drop box is available at the leasing office. Resident acknowledges that placement of payments into the drop box does not constitute payment delivery to Landlord unless Resident’s payment is in the drop box when opened by Landlord. Until delivery, the resident bears the risk of loss or theft of any payments put in the drop box.”
If your lease doesn’t have this language, you cannot evict a resident for non-payment of rent. Without the language, the law and every judge we know will hold that the rent has been paid. This doesn’t mean you are without rights or options. Some residents will falsely claim they put their rent in the drop box. Payment is a defense to an eviction action. The resident has the burden to prove this. You don’t have to simply take their word. You still can evict and would win an eviction case if the resident cannot prove payment. If the resident claims to have paid with a money order, the resident would have to produce the money order receipt. The receipt can then be traced with the company issuing the money order. If paid by check, the resident would be obligated to determine whether the check had been cashed, and if not, to issue a new one.
While you can’t evict the resident for non-payment of rent, you still have considerable leverage to get the resident’s cooperation to replace the money order or to get the resident to pay the rent. Specifically, delivery of a money order (placing it in the drop box) discharges the underlying obligation (the resident’s rent payment); it does not discharge the resident’s contractual obligations on the negotiable instrument (the check or money order used to pay the rent). Thus, when a money order is stolen, you can inform the resident that they still need to make good on the check or negotiable instrument.
Article 3 of the Uniform Commercial Code (“UCC”) governs commercial paper (negotiable instruments such as checks and money orders). A money order is drawn on a bank. This bank is called the depository bank. Similar to checks, money orders are presented for payment (cashed) at banks. The bank where a money order is presented for payment (cashed) is called the payor bank. Typically, a money order is cashed at a payor bank, and then the payor bank presents the money order to the depository bank. There can be many banks in the chain between a payor bank and the depository bank. If a money order is stolen, altered, and cashed by a thief, the thief and each bank involved in the chain is liable to you as the payee of the money order under Article 3 because they have breached the Article 3 warranty of presentment. In short, you can sue the bank to recover the rent.
Most issuers of money orders will replace stolen money orders. Western Union issues a large number of money orders. Contrary to popular belief, Western Union does not have a thirty-day deadline for reissuing a stolen money order. However, whether it’s Western Union or any other money order issuer, replacement claims for stolen money orders should be made as soon as possible. In a recent drop box theft case, one resident cooperated with the community and Western Union promptly re-issued the stolen money order. However, another resident did not cooperate. This reemphasizes the need for appropriate lease language. With drop box language, the resident wouldn’t be able to take the position that it was the property’s problem. Along these lines, you should also consider adding lease language that the resident agrees to promptly cooperate with you in replacing stolen funds.
Thieves stealing money orders from a community’s rent drop box is becoming a more frequent problem. As a practical matter, make sure your community’s drop box is secure. A thief should not be able put a stick or coat hanger into the box, and fish out payments. Unless you have applicable lease language a court will likely find, the resident pays their rent when they deliver (place) their money order in your drop box, and you cannot evict them for non-payment of rent. You can request proof of delivery, and request that the resident cooperate in replacing the stolen money order by filing a claim with the issuing company or bank. Even though the resident’s underlying obligation to pay rent is discharged, you can still make a demand on the resident to make good on the money order, and sue if the resident does not. Finally, you can also seek payment from all banks involved in processing the altered money order.View Resource »