Security deposits are important because they can help cover any damage to the property that is beyond normal wear and tear. Most of the time, security deposits are also used to cover any unpaid bills and rent.
Depending on the state where your rental property is located, the amount of the security deposit you can collect usually ranges from one to two months' worth of rent.
The security deposit laws are outlined in the North Carolina landlord-tenant law.
As a landlord, collecting security deposits will serve as a cushion in case something happens to the property or the tenants fail to pay what they owe.
However, there are times when the amount of the security deposit does not cover the total amount of unpaid rent or damages caused by the tenants. It is important to know what to do if you find yourself in this situation.
Here are a few things to do if the security deposit is not enough to cover what the tenant owes you:
1. Communicate with the Tenant Properly
When the tenancy ends and the tenant is moving out, it's essential to inform them if you are planning to withhold the security deposit. It's best to send a formal letter that indicates how much of the security deposit you will withhold and the reason why.
You should list the deductions that you will take from the security deposit, like cleaning fees, damages, and unpaid bills.
However, if the deductions are bigger than the amount of the security deposit, you should also demand the balance from the tenant.
Make sure to indicate the remaining balance, and provide options on how to settle the amount.
2. Send a Demand Letter when Necessary
As mentioned, if the deductions are larger than the security deposit, then sending a demand letter is necessary. You need to keep everything documented just in case this issue will escalate to the court.
The demand letter should include an itemized list of the damages and corresponding repair costs, as well as other fees and bills that are unpaid.
Make sure to indicate the total amount that the tenant still needs to pay. Also, indicate the due date for the remaining balance.
You have to be very specific in your demand letter and include your contact information so tenants can easily reach you in case they have questions.
3. Escalate the Issue to the Small Claims Court
If the tenants ignore the demand letter and they refuse to pay the amount that they owe, then it's time to escalate the problem to the small claims court.
Depending on where your rental property is located, the small claims court typically handles disputes about security deposits.
However, make sure to consider the amount of money owed to you because going to small claims court also has its disadvantages.
Keep in mind that the process of handling disputes in the small claims court can be time-consuming. If you decide to go to small claims court because a tenant owes you a certain amount, you need to prepare your case, organize evidence, and know the process. You may also be required to attend court hearings. Plus, you'll need to pay a filing fee regardless of whether you win the case or not.
In addition, you need to ensure that you have complete proof that the tenant owes you something. That is why organizing all your documents is necessary. You need to keep copies of the notices that you sent to tenants, as well as receipts of the repair expenses.
Moreover, you should keep an inspection report of the property before the beginning of the tenancy so that there is evidence that the property was damaged and needed repair.
Another risk of filing a case in small claims court is that the tenant might also file a countersuit. Even if you have done everything right and you maintained the documents related to the tenancy, the tenant can file a counter case and this will even make the process longer and more stressful.
4. Make Sure to Conduct Regular Inspections
Performing regular inspections is essential to maintain the condition of your property. You will also be able to identify problems early on so that you can provide resolution right away before they get bigger.
In addition, regular inspections can help you identify tenants who are not taking care of the property as they should.
That said, it's important that you and your tenants agree to a mutual inspection schedule. This way a tenant can't claim that you are violating their privacy.
If you find problems during the inspection that are beyond normal wear and tear, make sure to refer back to your rental agreement so you can charge tenants the cost of repair.
5. Send Notices for Late Payments
If the tenant misses a rent payment, make sure to send a notice reminding them of what they owe as soon as possible. You don't want to wait until the tenant moves out before you collect what they owe.
Make sure to exert all efforts to collect from the tenants, or process a legal eviction right away.
6. Perform Walk-Throughs before the Tenant Moves Out
Before a tenant moves out, it's best to perform a walk-through inspection of the property.
Take this opportunity to note the damages that are not part of normal wear and tear.
Provide the tenant with a list of damages and the possible costs of repair before their scheduled move-out. This will make sure that they are aware if their security deposit is not sufficient to cover the entire cost. This will also give them the chance to fix the damages on their own if they prefer.
Security deposits help cover property damages that are beyond normal wear and tear. But what happens if the cost to repair the damages exceeds the amount you've collected as a security deposit?
Well, as an overview, here is what to do:
- Communicate with the tenant
- Send a demand letter
- Go to the small claims court
- Conduct regular inspections
- Send notices for late payments
- Perform walk-through inspections
We hope this article was helpful.
If you have more questions about the security deposit, or are wondering about buying investment properties in Winston-Salem, contact TE Johnson & Sons today.