A security deposit is usually collected at the beginning of the landlord-tenant relationship. It's usually one or two months rent and is refundable. While it is not legally required, landlords and property managers should consider this to be a prerequisite of renting a home to a tenant. It is not only beneficial for the landlord as it guarantees to cover any damages or unpaid rent; as for the tenant, if there are no outstanding dues or any repairs required, they can get a full refund.
However, in some cases, this security deposit is not enough to cover the losses for the landlord. This can happen if the tenant leaves without paying rent for more than a month. Sometimes, the damages to the property are extensive and outweigh the security deposit. [Read about how often to inspect the property and what to look for.] This can be a challenging situation for the landlord. Still, there are a few things that can be considered to recover the damages.
Hold a conversation with the tenant##
At the time of moving out, present the itemized deduction form that has all the details of the withheld security deposit. Our checklist makes it easy to capture the itemized estimates. It is better to have the cleaning fees separated from the damage cost. A written list detailing the cost of each repair would help you if and when the tenant takes this to court. You have to formally inform the tenant through a letter that the security deposit is being withheld. The state laws clearly notify the time period and the procedure. For example, California gives 21 days to give the actual or estimated repair costs to the tenant.
Next step: Demand Letter##
If the tenant owes you more than a months' rent or the cost of the damages is not covered by the security deposit amount, then you need to send a demand letter.
The demand letter should clearly state the due amount, repair costs for damages, and the cleaning fees. Also, state the amount that is due after deductions of the security deposit. Your tenant should have a clear understanding of what they owe and why you are withholding the security deposit amount. Include all the details in the letter and also give a deadline for the payment of the due amount. Here's a template for the letter.
From: Landlord/ Property manager name, address
To: Tenant address
I am writing to you about the security deposit and the expenses to repair the property. Here is the break down of the (estimated) costs to repair the property for the damages you caused.
The security deposit of $X is applied to these damages. The remaining damages cost $Y. Please send me a check for $Y to my address by date.
Sign & date
Small claims court##
If the tenant does not respond positively to the verbal communication and later to the demand letter - then, consider taking this case to the small claims court. However, there are a few essential things to keep in mind before you go for any such legal proceedings.
Time & effort##
As much as a lawsuit may help you with the recovery of your amount, it takes a considerable amount of time and effort, nonetheless. You have to pay the filing fees in order to file a case. Preparing for the case and getting together all the evidence and all the related paperwork is a tedious task. Another thing is that you have to attend the proceedings of your case where your property is located. If you live far from the property, this may be a challenge. Thorough know-how of the procedures will also be beneficial during this process:
- Make sure you have all the evidence needed to present in front of the court. It includes the lease documents, the rent receipts, and the expenses to restore the property. In addition to that, you also have to produce the letters sent to the renter at the time of moving out, stating the withholding of security deposits for cleaning and damage cost. Keep in mind that different states allow different times for this. For example, while Hawaii gives you 14 days to return or communicate with the tenant about the expenses, and a few other states give up to 60 days.
- Winning the case might not recover your due amount if your tenant is bankrupt. Make sure your renter has a job or any other source of income. Otherwise, you might have to wait until the funds can be collected.
- Beware of the fact that your tenant can exploit the situation and file a countersuit. This can go against you if you have not followed all the rules. Though, if you have all the pieces of evidence and the documents required, there is a fair chance of you winning the case. We recommend using HomeKasa to communicate with your tenants, collect rents, etc., so that you have all documents in one place.
- Consider the fact that small claims court is going to proceed according to set rules and schedules. If you think you are going to suffer loss at your work or job, when you have to attend the court hearing, or the chances of getting any funds from the renter are meager, then you better settle with the loss and let it go.
- Once you file a case in the court, the tenant may be more willing to settle before the court date. While you may or may not recover the full amount, this could reduce further hassle.
Here are a few steps to keep in mind to avoid any such situation in the first place.
Proper screening of the tenants is helpful in many ways, though it doesn't guarantee 100% safety. This should include a background check of their rental history and proof of employment or source of income. You should also check the credit score and ask for reliable references.
In case your state laws allow, you can even collect a security deposit that is more than a month's rent. This shall allow you to cover any losses at the time of moving out. The tenants can still walk away with a full refund if they have been abiding by the lease contract.
Regular inspection visits##
Always mention regular inspection visits of the property in your lease document. Give prior notice (as per law) to maintain their privacy and make quick, vigilant visits to avoid any mishaps. You can have a handy checklist to go through and follow any hints like any visible wall damage, foul smells, or appliance damage.
Visit before move out##
Some states require the landlord to conduct a pre-move out inspection if the tenant asks for it when they give the notice. This allows you to have a word with your tenant about any damages you have noticed and see if they would like to make the repairs themselves to claim the full security deposit. Be careful and clear about what damages you want the tenant to address and how. For example, the tenant may not do a good job filling a large hole in the wall.
At the time of the move-out, we recommend that you do a walk-through with the tenants after they have removed their belongings. When the house is empty, you can notice things more clearly. Take photos during the walk-through and write down estimated itemized repair costs in the checklist. This helps you to have clear documents on the property before and after the tenants rented the place. We highly recommend that you use a move-in and move-out checklist to document the condition of the property. HomeKasa makes this easy with a free online tool. This clearly shows the condition of the property at move-in and the damages caused by the tenant.
Putting it all together##
By following the right screening process, you can reduce your chances of getting a bad tenant. That said, some tenants know how to game the system and still make it to your house. Others change their behavior for various reasons after they move in. In any case, conducting proper inspections, documenting your interactions, and taking quick actions can help to reduce your losses.