Baltimore Bans Security Deposits Requirements for 10+ Unit Owners

[Stephen Kehoe]

What was passed

Baltimore city council just passed a bill requiring owners of over 10 units to offer alternatives to security deposits. Alternatives include paying in installments and paying for insurance.

What now

Now whether or not you think this is an infringement of your property rights and common sense it's time to look at what has to be done. There are a lot of products out there that provide alternatives to security deposits and they have been in the multifamily space for years. My friend Peter Lohmann made this table which contrasts some of the options with a traditional security deposit.

So there are definitely some options out there. It is additional red tape and annoying for the landlord however there are some pros for the landlord:

1. The amount of rent and damage coverage is equal to the requested deposit. This means there is about to be a lot more landlords requesting two months security deposit instead of one.

2. You can avoid courts. Most of these companies just require before and after photos of the damage to payout the landlord. The tenants also normally waive their right to court proceedings before signing up.

3. Some of these options have revenue sharing with the landlord.

but let’s look at the cons for the tenant:

1, What you may notice in the last row is that the tenant is still responsible for damages and these companies can go after the tenant for expenses they pay out to the landlord. This is like paying for car insurance then getting in an accident where your insurer pays as normal and then after your insurer goes after you for payment.

2. No option refunds payment to the tenant like a security deposit. All of them cost the tenant more than a refunded security deposit.

An option not discussed here is paying the security deposit in installments. This option should be avoided like the plague if possible.

[Nathan Gesner]

Stephen, this is a good share.

Some states have throttled the Landlord's ability to collect a decent deposit and mitigate risk. In the end, that only hurts low-income renters that pose a higher risk. I recommend Landlords start looking into deposit alternatives because this will be a growing trend as elected officials with no risk and no experience start dictating what we do with our property.

I've used Obligo and it's a decent option but can be very slow. They require the applicant to have a credit card and a bank account, both with a certain amount of credit available, then they have to verify those accounts before approval. It sometimes happens in minutes and sometimes takes several days. Many of my lower-income tenants do not have both account types or the available credit limit, so it's a waste of time. I've been using them for a year and plan to switch to something else soon.

Leaselock is a great program, but they require you have at least 1,000 rentals.

The last two are more like bonds. If you require a $2,000 deposit, tenant pays a non-refundable $350 fee instead and the company guarantees up to $2,000. If the tenant leaves owing $800 unpaid, the Landlord gets paid and the company goes after the tenant to collect. I believe Rhino actually collects a monthly payment, so the longer the tenant stays, the more they collect. I like that model.

Making payments on a security deposit was a bad idea ten years ago and it's a bad idea now. You have to have protection in place the day they occupy the rental.