Landlords: How do you prevent Security Deposit disputes?

[Nathan Gesner]

Fighting over the Security Deposit is one of the main issues between Landlords and Tenants. 

What steps do you take as a Landlord or Property Manager to ensure the deductions from a Security Deposit are not disputed? If the charges are disputed, how do you ensure you win your case in court?

[Nathan Gesner]

Originally posted by @Frank Procopio:

I got so tired of this that I only charge a $99 security deposit now. I build the cost of the rest of the deposit into the monthly rent spread out across the year 

Frank, that sounds like a good alternative but let me play Devil's advocate. Let's say the place rents for $1,000 a month so you charge $99 for the first month and $82 per month for month 2 - 12. On month four, you've collected a total of $345 towards the deposit. Tenant fails to pay rent so you start the eviction process and - one way or another - are able to get him out before the end of the month. Best case scenario: you turn the place around in a few days and find a new renter to move in on the first day of the month. You're out a minimum of $665 plus minor cleaning costs. Worst case scenario: Tenant didn't pay his utility bill and there are frozen pipes or a fridge full of spoiled food, some carpet is trashed, there are holes in walls and doors, and the place is full of pet hair, odor, and stains. You lose $676 in rent plus another $2,000 in repairs and cleaning. My point is, your plan benefits the Tenant by making it easier to move in but it puts you at a higher risk of losing money when something goes wrong.

I'm preparing to switch to a "no deposit" option with Obligo (there are other companies providing the same service and I fully expect it to become more common). I essentially offer tenants a choice: pay the standard deposit or use Obligo. If they choose Obligo, they have to register a credit card and bank account and then Obligo charges them a monthly fee based on the value of an ordinary deposit. For example, instead of a tenant paying a $1,500 deposit prior to occupancy, the tenant would register their credit card and checking account and then pay Obligo a $10 monthly fee. If the tenant leaves owing anything, I submit a claim with Obligo and they pay me up to $1,500 with no questions asked. They then pull that amount from the tenant's account or credit card. If the tenant manages to close their accounts without Obligo finding out, Obligo will still pay me and then go after the Tenant to get reimbursed.

It's sSimilar to what you are trying to do but the risk is with Obligo, not me.