Most landlords require tenants to pay a security deposit as part of the initial move-in costs. This is important to ensure that the landlord has some sort of insurance against possible negligent actions during the tenancy.

Be that as it may, the amount of security deposit you ask may not be able to cover all the expenses. For example, the rent due under the lease if the tenant breaks their lease unjustifiably.

In such a case, what would your options be? Fortunately for you, this guide helps answer just that. The following are a few things you can do. Keep reading to learn more!

Give the Tenant a Detailed Breakdown of Deductions

If you need to withhold part or all of the tenant's deposit, kindly let them know in advance.

Your notice should include a clear explanation of the issue, the cost of the repair or replacement, and any supporting documents, like receipts or photos. Don’t forget to mention any remaining deposit as well.

If the deductions are more than the deposit, it’s a good idea to send the tenant a friendly demand letter explaining why they still owe money.

Just be sure to follow your state’s notice requirements. For example, in Michigan, you have 30 days to return the deposit along with an itemized list of deductions.

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Send the Tenant a Demand Letter

For you to get the remaining amount of money owed by the tenant, send them a demand letter. Be detailed and as specific as possible. The following are some of the details that the letter should include.

  • Your name and contact information.
  • The tenant’s name and contact details.
  • The property’s address.

After the basics, ensure that you let the tenant know exactly what the demand letter is for. Specify the following:

  • The exact amount that the tenant owes you, including any late fees or interest accrued.
  • Reason for the debt. For example, unpaid rent, cost of damage exceeding normal wear and tear, or unpaid utility bills.

Also, be sure to include any supporting documents, like a copy of the lease agreement, rent statements, and invoices.

While you’re at it, gently remind the tenant of what could happen if the payment isn’t made on time. Clearly explain that legal action may be taken to recover the amount owed.

Lastly, emphasize your hope to resolve the matter in a friendly and peaceful way.

Consider Taking Legal Action against the Tenant

If the tenant ignores the demand letter, consider taking legal action against them.

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Specifically, consider lodging the case with a small claims court for quick and cost-effective resolution. Be that as it may, small claims courts have their list of cons.

  • They can be time-consuming. Just like you would with any other court, you’ll need to prepare for the case. Including, organizing the relevant evidence, researching the court process, and attending a hearing.
  • You’ll need to pay a filing fee. Although small claims courts are relatively inexpensive, you’ll still need to pay a filing fee. And this is regardless of whether or not you win the case.
  • Collecting the funds after the ruling may still be a challenge. This is especially true if the tenant has their financial challenges. In such a case, even after a favorable ruling, you’ll still have to wait until the tenant has the funds to pay the claims.
  • Your case may suffer without proper documentation. The court process in a small claims court isn’t any different from others. You’ll still have to present evidence to the court when required to. And if you don’t, your case will most likely suffer.
  • The tenant may lodge a countersuit against you. This is something that you should always come prepared for. Even if you had done everything by the book, it’s still a possibility to keep in mind.

Inspect Your Rental Property Regularly

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This is something that most successful landlords share in common. They regularly inspect their rental properties to monitor the condition.

During these inspections, make sure to keep certain things in mind:

  • Document the property’s condition using photographs and notes, noting any issues you find.
  • Use the inspection as an opportunity to identify and address any maintenance issues.

Also, importantly, make sure to abide by any state and local laws. For example, ensure you abide by the privacy laws.

Conduct a Walk-Through of the Property

Before a tenant moves out, make sure to conduct a walk-through inspection of the premises. Why? This is to ensure proper documentation of the property vis-à-vis the move-in condition.

Use the opportunity to take note of any damages the tenant may have caused during the tenancy. Of course, only note damages exceeding normal wear and tear. The following are some examples:

  • Large holes or tears in walls.
  • Burn marks or deep scratches on the flooring.
  • Excessive stains or odors from smoke, spills, or pets.
  • Unauthorized property alterations, such as unauthorized painting on walls.
  • Structural damage to the property, such as foundation cracks or sagging ceilings.
  • Broken windows or doors.

If the tenant has caused any of these damages, let them know that they must do the fixes before moving out. However, if they choose to move out without making the fixes, then withhold the appropriate amount from the security deposit.

Conclusion

Now you know what you must do if the deposit doesn’t cover unpaid rent or any other financial obligations liable to the tenant.

Be that as it may, the best way to avoid such problems is by renting to the best tenants. After all, prevention is better than cure! Always screen all prospective tenants meticulously to ensure you only rent to the most qualified applicant.

Nelson PM can help you do just that! We provide rental property owners in Metro Detroit with quality property management services for reduced stress and maximum return on investment. Get in touch to learn more!