Take something of value to hold until security deposit paid?

Question

I know that most of you will say no way!

Someone brought over a motorcycle with signed title wanting me to keep it until they paid the Security deposit and the other part of last months

They do have the first month and most of last.(I rent to a relative of theirs now)

I am curious if anyone has done this?  If so was it a written agreement of some sort?

I know a guy who does it this way at times and has no written agreement

I have held items until they finished the down payment on a land purchase in the past .It was arranged as if they were renting storage space

What do you think?

Bill Gulley · Answer

I have used all kinds of other assets, from securities to vehicles, a boat, a camper to inventory, even jewelry.

You do not have assets signed over to you, such as titled person property, you become a lien holder and take a note.

If you take an asset as a down payment in trade, you must have the asset valued by a dealer of that type of asset or appraised. This is a loan requirement as well as a tax and settlement requirement.

You will need to use a UCC filing for non-titled assets, like jewelry, you'll need to accurately describe the property for the filing of the lien.

Securities can go to a lockbox with the dealer and assigned as collateral.

Small assets, like jewelry need to be secured, a safe deposit box can be used and held in escrow.

Taking assets in lieu of rents are accomplished by purchasing the asset and applying the sale proceeds to amounts owed. This sets the transaction outside the scope of landlord-tenant court most likely, if you were to lose in some matter you'd be ordered to pay the amounts, the court could say return the item but if you got a good deal you could argue to pay the cash amount agreed. If you win, there is not really an issue.

I have taken a note for past due mortgage payments with perfected liens on vehicles, it's another collection situation but your collateral needs to be sufficient to cover costs as well.

Simply have someone sign over an asset has several pitfalls, from valuation, to taxes, to wrongful collection practices. Don't do that is my advice. :)

Dawn Anastasi · Answer

If they have to put up their "stuff" instead of money, that means they likely have no money. No money = no rent.

Kimberly T. · Answer

Count me in the "no way!" category.  I'm not running a pawn shop, and I don't barter.  To me, it's a big red flag if they don't already have the cash saved up to move when they were already planning to move.  If they don't have the cash when they're planning to move, what are they going to do when they have an unexpected expense while they're a tenant?

Account Closed · Answer

If they have something to pawn send them to a pawn shop there is one on ever corner.

Joe Gore

Deborah Burian · Answer

My reflexive answer to this is "no"... However, I just worked out an oddball situation with a tenant. She was coming out of an abusive situation and living in a hotel, she had been approved at the shelter but was uncomfortable with her children there. She was very pro actively working with the homeless alliance and others to get assistance with rent and her deposit. At the same time she was working full-time job which we were able to verify.  This is the first time we had leased to a tenant without them paying the full deposit, however we did receive the whole deposit, with the balance being paid by a local assistance group.  We took the first month rent in increments, figuring she could pay us as well as the hotel. Time will tell if it was the right thing to do, but sometimes you just feel the need to lend a hand.

Bill Gulley · Answer

Actually, I agree with those who say they wouldn't go there, you really need to stick to your guns and just say no!

These are all unusual situations and factors must be weighed. None of my transactions were in connection with putting in a new residential tenant or leasing.

We did a commercial lease taking a lien on inventory, that turned out to be a good way to leverage a future business purchase, that was setting up a creatively financed transaction out of a lease. Not your usual transaction.

If you had a property that was difficult to rent, and/or you have someone you're trying to help any you see that cash will be there as in Rich's case you might work out something, but cash really needs to be coming from a reliable source, like tax returns or a retirement fund that can take time to withdraw.

It can be handy using other assets in bridge financing, short term, less than a year getting someone from point A to point B.

I never ended up with additional collateral or collateral from separate loans. the camper deal was shakey but it worked out. In selling property, I mentioned that I'd be receptive to trades for down payments which led to other pledges offered or trades.

Probably the most odd for me was with a lady who ended up with a ranch from a divorce. They were well off but she alone couldn't swing a loan large enough to swing a payoff required. he was going to lose the place. Took equipment (after a call to local dealers) and a champion quarter horse stud (after calling a relative who also had some champion qrt. horses who knew the horse and would buy it). She didn't want to sell off anything as it was needed to run the operation and an income source. Oddly too, one of my investors knew her personally and wanted to help her as well, so we partnered and took her problem out. While we had some bumps initially it worked out as planned for her. Problem solved!

I did do business with a car dealer, he was buying a property from me and I took a stroll on his lot picking out a Pathfinder on the deal, a win-win.

I also turned down all kinds of other offers, word got around that I could use other assets and make deals work so Realtors hit me up with all kinds of deals where they were trying to make a deal work. The problem with having such a reputation as being a problem solver is that you get the problems and not all can be solved! :)

Siye Baker · Answer

Like I said.......SAVVY!

Bill Gulley · Answer

In cases like this it's good to contact the social service provider, often a non-profit about the issue. They may provide deposits or they may provide a guarantee or agree to a security agreement for deposits.

That is great PR in your community, if you work with such agencies or NGOs good things will come back to you!  :)

Sara Cunningham · Answer

Kevin I totally agree with you it's always a judgement call and every circumstance is different.

Kevin Fletcher · Answer

@Sara Cunningham  On One hand I would avoid this person because them having to sign over the motorcycle means that they have no extra cash. And if they don't have extra money now, then it may be you who feels the burden when they have any future financial setbacks.

On the other hand, its a judgement call, by offering the title to the motorcycle they are showing a fair amount of good faith, and this may be enough to give them a chance.

That being said, I would try to find another tenant to rent to.

Take something of value to hold until security deposit paid?

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