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When the Deposit Doesn’t Cover the Damage or Unpaid Rent

One of your renters just skipped out on last month’s rent or did damage to your unit that the security deposit won’t cover. What now?

The good news is there is a procedure for this as well as things you can do to minimize the chance it will happen again. As you’re likely reading this article because you’re currently in this situation, let’s discuss what you can do to remedy the problem first.

Taking Money from the Security Deposit

In most states, if you intend to hold more than stipulated in the contract, you must send the tenant a letter explaining how much and why.

Be consistent and unrelenting in letting them know about the situation. Confirm that the tenant got the message so they can’t claim ignorance.

When the Deposit isn’t Enough

If the deposit is insufficient to cover the repairs or missed rent, send a demand letter. There are many templates you can find for such a message on the internet.

Be specific and clear about how much you need and for what reasons. Look up prices and get estimates so you can write an itemized and well-researched invoice.

If you do not receive a reply, then send another demand letter with the first one attached. Be sure to mention the possibility of legal action in the second demand letter if this is a step you are willing to take.

Legal Action

Still no reply? By now, you have an empty unit you can’t even show, a tenant who won’t reply to your legitimate requests, and you’re probably at your wit’s end. It may be time for court.

The first thing you want to do is consider if legal action is worth it. Do you have the evidence? Consider the tenant, their financial position, and their situation. Consider the lost time and money, fees, and procedures.

Would it be better for both parties to cut your losses? Be aware they could counter-sue. This should not be about pride but business.

If you decide to move forward legally, then you need to start looking into how cases like this work in your state.

Prevention

You’ve finally gotten to the end of that chapter, and you don’t want to have to deal with it again. Here are some preventative steps to make your life easier.

  1. Find Trustworthy Tenants. You should be picky! Find the right person to sign the lease. Things like rental applications, credit checks, background checks, and a substantial lease agreement can weed out people you don’t want. You can find the legal forms you’re looking for with a simple google search. Be sure you understand the things you can and cannot deny potential renter’s for by thoroughly following the Fair Housing Act.
  2. Conduct Regular Inspections. You can prevent a lot of headaches by conducting a regular inspection two to four times a year. If you find something isn’t right, you can repair it and work payment out with the tenant while they are still renting from you.
  3. Inspect the Unit Before Move-in & Move-out. Before a new tenant moves in, do a thorough inspection of the unit, including photos or videos. You’ll also want to inspect the property about a month before move-out. Compare the current conditions to the photos/video you’ve taken. Doing an inspection one month before move-out will allow you time to talk to and work out a plan with your tenant while you still have reliable contact with them.
  4. Renter’s Insurance. Inform your potential renter that you will expect to see proof of renter’s insurance when you give them the keys and with the renewal of the lease. Renter’s insurance will cover the cost of any damage a troublesome tenant does to your property as well as cover their belongings—a bonus for them.

Bottom Line

No matter what you do, repairs are inevitable, and so are lost profits. These are risks that come with the business, but knowing how to navigate them and prevent them can negate the losses and stress.

Learn more about property management. Real Property Management Valley Wide can take the stress out of renting by helping you with difficult renters, repairs, and more.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.