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How to Handle a Security Deposit Dispute

What to Do When a Tenant Challenges a Security Deposit Withholding

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Woman Filling Out a Deposit Slip
Keith Brofsky/ Photodisc/ Getty Images

Money is the source of much conflict in the landlord tenant relationship. One common monetary dispute between landlords and tenants involves the return of the tenant’s security deposit. The dispute arises when each party believes they are rightfully owed the funds. As a landlord, here are some things to consider when a tenant contests your right to keep their security deposit.

1. Show You Have Legitimate Reason for Keeping the Security Deposit

A tenant’s first defense is to question your legal right to keep their security deposit. If your tenant has abided by all terms of their lease, paid their rent on time and left the apartment clean with no damage, you most likely have no right to keep a portion of their security deposit.

You must have a legitimate reason as defined by your state, county or city laws to keep a portion of their deposit. Damage caused to the apartment or breaking the terms of their lease are two common reasons you may be able to keep your tenant’s security deposit. Keeping a tenant’s security deposit to get back at them for their annoying habit of calling you at all hours for mundane tasks is not a legitimate reason for keeping a deposit and it will not hold up in court.

If you have determined your reason for withholding a portion or all of the tenant’s security deposit is a legal reason in your area, then you should inform the tenant you are legally allowed to keep their deposit under your state’s law for the reason you have stated. A tenant will often back down once they realize it is your lawful right to retain a portion of their security deposit.

See Also: 5 Reasons You Can Keep a Tenant's Security Deposit

2. Show You Have Followed Your State, County and City Laws

Not only do you have to have a legitimate reason as defined by your local laws to withhold a tenant’s security deposit, you must also make sure you have followed all security deposit procedures correctly. If a tenant is not satisfied with your legal right to retain their security deposit, their next step is to look for a mistake on your part. They will question all laws related to the security deposit, from properly storing it to properly notifying them in writing that you are retaining a portion of their security deposit.

See Also: The Basics of the Security Deposit

Even if you have a legitimate reason for keeping a security deposit, if you have not followed local ordinances exactly, you may be forced to return the deposit to the tenant. For example, in some states, if you did not notify your tenant in writing of the bank and interest rate their security deposit was being stored at, you may be obligated to return the full amount of the security deposit to the tenant, even if you would otherwise have been entitled to keep that money. If you have followed all these laws correctly, inform your tenant of such. The tenant may give up trying to recover the security deposit.

See Also: How to Protect Your Right to the Security Deposit

3. Do You Have Evidence to Back Up Your Claim?

If you are claiming the tenant damaged your apartment, do you have pictures to back up your claim? Do you have pictures documenting the apartment before the tenant moved in and then after they moved out? Do you have estimates for the cost of a repair or for a replacement part? If the tenant owes you back rent, do you have certified letter sent to the tenant requesting this money, a notice to pay rent or quit or evidence of eviction proceedings filed?

If the tenant has breached their lease in another way such as harassing neighbors or excessive noise, do you also have evidence of such? If you have sufficient evidence to back up your claim, then you can provide your tenant with this evidence. Again, the tenant may give up, or they may make one last effort to recover the money and try to sue you in small claims court.

4. Are You Willing to Go to Court?

Even if you have legal reason to withhold a tenant’s security deposit, have followed all state and local laws exactly and have evidence to support your claim, your tenant may still try to sue you in small claims court to recover this money. Deciding if you want to deal with the hassle of small claims court or if you would rather just settle with the tenant for a sum of money is up to you.

Determining if small claims court is worth it will often depend on how much the tenant owes. If the tenant is fighting you over $200, wasting an entire day in court may not be worth your time and money. It may be worthwhile to just give the tenant that $200 to get them out of your hair. If you have done everything correctly and know you deserve to keep that deposit, then you may be willing to fight the tenant in court for as little as $10. You will have to weigh the cost versus the benefit of going to court for your particular situation.

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