Being sued over security deposit by tenant who never moved in.

[Robert Wood]

Hello Bigger Pockets!

My wife and I are looking for a bit of legal advice. We recently moved to the Seattle area from Texas with our 2 month old daughter, leaving behind three rental properties, two long-term and one Airbnb. During the move in Nov./Dec. we started showing our primary residence to a lady whose story kept changing. In the beginning it was just her and daughter moving in. Then it was her and ex-husband (interesting situation). Then her + more children + pitbull. We wanted everyone moving in to be documented, as well as a standard deposit fee for the animal but she kept asking we change the contract in different ways and would not sign it after having agreed verbally and via email to move in and pay security deposit. This is after we told her we could take the house off of the market and hold the house for her an extra month (she couldn't move in right away). Normally, we wouldn't have dealt with such a sketchy situation except for it was the dead of winter and we weren't getting many showings or applications. We are a young couple (early 30s), have mortgages on every property, and don't have the capital to let houses sit empty for months and her initial pitch as a single mom with one child was preferable to us.

Eventually, even though we use a standard lease agreement, the lady didn't want to sign the contract and we mutually decided to go our separate ways a couple days before the move in date. This is after weeks of having it off the market and a month letting it sit empty waiting for her. We felt totally jerked around from November of last year (2018) to March of this year and got screwed in the end but were fine to be done with her as more and more unsavory things were uncovered. Of course, she immediately wanted her security deposit back even after we informed her that it was to hold the property for her and she sent the money in understanding of this. After reminding her of this, she said she hadn't signed anything agreeing to have the security deposit with held if she didn't move in and that after 30 days she would file suit. We were certain she was bluffing and wouldn't get a lawyer involved for $1500 especially after she had agreed to pay the security deposit and sent the money of her own accord. We did not feel it fair to give her the money back as it cost us the monthly mortgage payment and having it off of the market, unable to get another prospective tenant.

Today, we received a letter from attornerys at law in Texas telling us to immediately pay three times the amount according to Sec. 92.109. in the next ten days or be subject to higher costs and penalties as we are deemed "bad faith" landlords. It also states that if it were to go to court, we would have to pay HER attorney fees of $10,000+ lien on the house etc. A fellow RE investor/friend still doesn't believe she has a case and reminded me that these letters are free to people to send and that folks can sue anything and anyone, it doesn't necessarily mean they have a case. We still have all of our correspondences but don't know the law well enough to know if she has a case or not. Any advice from someone who knows the law (especially TX RE law) or who has been sued in like kind would be very happily welcomed! This has already been an expensive lesson learned from us, just don't want it to get more expensive. SO GLAD we have a community like this one to get advice from other seasoned investors! 

Robert Wood

[Jerel Ehlert]

Wow.  A bunch of not-Texas, non-lawyer talk. YMMV.

As a lawyer licensed in Texas.... meh.  

More specifically, the demand letter is reasonably accurate as to that statute.  Any attorney would take the case, because the statute allows for recovery of attorney's fees (meaning, you would pay).  Their case has lots of hair to shave before they can win.  The letter presumes a landlord-tenant relationship.  Contract formation is a problem.  They never signed, according to your post.  They never took possession.  No offer was accepted.  A counter offer is considered a rejection of the initial offer and cannot be accepted.  The deposit might be termed "consideration".  A better characterization would be "option fee".  They bought an option to lease on terms, yet to be settled.  No lease, then that statute doesn't apply, and this becomes a breach of contract case, not a landlord-tenant case.

That's the law.  From a business POV, you stopped running these properties like a business the minute you allowed your personal situation to deviate your business practices from normal operations.  Either prepare to fund a full civil litigation defense or cut check as final settlement (hire a lawyer for either).  If you roll over and just cut a check, they can still come at you unless you get a final, global settlement.