Open/Close Menu
Your Rental Housing Solution
Home · Property Management · Latest News : Why Tenant Deposit Rules Can Cost You

Failure to comply with tenant deposit notifications can be costly

by Bill Gray

Imagine being forced to write a check to a previous tenant who still owes you money.

This is a very real possibility if you fail to comply with the law after the tenant moves out. With the amounts and occurrences of tenant debt rising, having to pay a previous tenant who still owes you money only adds insult to injury.

In most states, landlords and property managers are required to notify their tenant if they do not intend to refund the tenant’ deposit after they move out. States vary in the required timeframe and method of notification, but most do require it.

This notification is referred to in various terms such as SODA (Statement of Deposit Account), Deposit Disposition, Final Account Statement, etc. Some states require the notice be sent via certified mail, while others accept First Class mail notification. I advise landlords to mail this notice via Certified Mail, whether the state requires it or not. Sending it Certified Mail provides you with a receipt proving you mailed it and complied with the law.Failing to notify your previous tenant of how you intend to apply the deposit he paid you may end up costing yourself even more money! Regardless of the unpaid rent, damages, eviction legal fees, etc., if you fail to notify the tenant as required by law in most states, the tenant can demand his deposit back.

Lets say the tenant paid a $1,000 deposit on a twelve-month lease. Six months into the lease, the tenant skipped, leaving your rental trashed and owing you a months rent. Once you calculate your losses, you determine that the tenant owes you $3,000. After subtracting the $1,000 deposit, you are in the red $2,000.

If in this scenario you do not notify the tenant of how you intend to apply the $1,000 deposit toward the $3,000 loss, the tenant in many cases could demand his $1,000 back, regardless of what he owes you. Yes, he may have to sue you to get the deposit back, but if you have violated the law, he most likely will win.

So, take a look at what your failure to comply with the law may cost you in addition to a big headache. Immediately, you have cost yourself the $1,000 deposit plus any legal fees you paid to defend yourself in court. A quick Google search will give you further proof, revealing a number of class action suits against landlords and property management companies who failed to notify past tenants of how the deposit was applied.

In many cases, you might not have a forwarding address to mail the notice to. Your only option is to mail the notice to the last known address, which is the address of your rental. Half or more of these notices will be returned to you as undeliverable or having a wrong address. File the returned mail with the tenants file and save it. You may need the returned mail as proof that you did attempt to send the notification.

Comply with your states deposit notification law. Doing so may save you money.

The information contained in this article is provided for informational purposes only, and should not be construed to be legal advice. Consult a local landlord-tenant attorney to discuss your specific situation.Copyright 2010 Bill Gray

Bill Gray is a tenant debt collection specialist, which makes him a tenant screening specialist. For tenant debt concerns, email him at [email protected]. Visit Bill Grays blog at TheLandlordDoctor.com.

See our seven part series, Vital Tips to Increase Your Debt Collection.

See Bill Grays feature, Tenant Screening Tips: Beyond the Basics.

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.

  • It never ceases to amaze me that those in the wrong i.e. cutting out on a contract, damaging property, etc. seem to have the most power. Here we are trying to help people out by renting or selling properties to them for a “reasonable” and “affordable” amount and they don’t appreciate the effort we put out to do this. Do they realize that what they pay us is our “income”. Monies we live on, etc.

    Yes, we have to be on our toes and make sure we complete, file, mail, etc. ALL forms necessary to remain within the law.

  • Although the State of Ohio does not require certified mail, I do a compromise by sending it with a certificate of mailing, which is 1/2 the price of certified. It does prove that I did mail it a letter via regular mail.

    Another critical part of security deposit is if you take more than the rent amount, in Ohio it requires that you pay the tenant an annual interest payment calculated on deposits over the monthly rent amount. ~ so be aware that a tenant can also get you on that.

  • Frank C

    I hail from Illinois.
    Is it less of a hassle to take a nonrefundabel move in fee instead of a deposit?

  • Good information that I don’t think many people are aware of. Maybe check all the laws in your state and have new contracts made up by a local attorney who is familiar with any of these laws to help cover yourself. You really have to protect yourself, the laws are not going to help unless you go above and beyond.

  • Steve

    I love these notification laws. As someone who has been starved out by landlords in the past, these rules enable me to apply pressure to a landlord to articulate a reason to keep my deposit so we can settle up.

Copyright © 2004 - 2016 AAOA.com. All Rights Reserved.