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What to Do if a Security Deposit Doesn’t Cover Property Damage 

May 17, 2021 / by Hignell Property Management Team

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It’s customary for a property owner renting out an investment property to require residents to put down a security deposit that is equal to one month’s rent before moving in to cover any potential damages. But, if the resident has done serious damage to the unit while living there, it’s possible that one month does not cover all the costs to repair the unit. Here's a look at what you should do if you find yourself in this situation.

Conduct a Walkthrough After the Resident Moves Out

The first thing to do is get into the unit and assess the damage. The normal wear and tear that the property goes through over time is typically the responsibility of the property owner to cover — this includes costs associated with repairing minor scuffs and scratches, giving the unit a new paint job, upgrading appliances, doorknobs, plumbing fixtures, and so on. 

Anything outside the regular upkeep of a property caused by the actions of the resident can be deducted from the security deposit if it costs money to repair. This includes costs associated with repairing significant damage to walls, doors, windows, electrical equipment, plumbing, appliances, or any other major feature of the unit.

It’s also important to take stock of what caused the damage. If a window broke because of a hurricane, that’s your responsibility to replace and can likely be paid for with an insurance claim. But if a window was smashed while the resident was having a party, it’s their responsibility to pay for the damages.

When you're conducting the move-out walkthrough, you should make an itemized list of everything that's damaged and try to estimate the cost of repairs as best you can. If the damages exceed the amount of the deposit, you’ll have to take further action.

Contact the Resident 

If you're planning to keep the security deposit, you have to send the resident a letter stating how much of the deposit you are withholding and the reasoning behind it. You should also include the itemized list of damages to show how you arrived at the figure you are deducting. You may choose to call them first to let them know it’s coming, but it’s also important to send them a physical document stating that you’re keeping their money, otherwise you could get sued. 

If you are seeking additional damages, you have to send them another demand letter, letting them know that not only are you keeping their deposit, but they also owe you an outstanding balance. If you want to make the process and smooth as possible, it’s important to be firm but not threatening. You should try to call them or provide your phone number on the letter, so you can communicate more efficiently. There's a better chance that you'll get your money if you can work things out amicably because if they refuse to pay, you’ll have to take them to court.

Take Them to Court

If the resident refuses to pay for the damages, you do have the option to sue. You can file a motion in small claims court and request reimbursement for the damage to your property and the legal fees associated with the lawsuit. But before you do that it’s important to take stock of whether it’s worth the trouble. There is always the chance that you could lose the case and be on the hook to pay for legal fees on top of the damages to your rental unit. 

If the resident only owes you a few hundred dollars, it may be smarter to cut your losses and move on. But if the damage to your property is substantial, it may be the only option.

If you decide to sue, you will have to build a case against the resident. You should always take pictures of your unit before and after a resident moves out, so you can prove that the damage was caused during the time the defendant was living in it. The more evidence you have to build your case, the more likely it is you will come out victorious.

It’s also wise to study the small claims process and perhaps even attend a similar hearing in your area. The more prepared you are for your court date, the more likely it is that the judge will rule in your favor. 

No matter how well you screen your residents, there's always the possibility that a bad apple will slip through and cause you major headaches. The more you familiarize yourself with the eviction and litigation processes in your area, the better equipped you’ll be to deal with problems like this when they occur. 

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Topics: Residential Property Management, Investment Property