How to Create and Use a Security Deposit Deposition Form

Every landlord understands the importance of collecting a security deposit to protect their investment property. In many cases, tenants are respectful of the property, so you won’t have to worry about withholding the deposits. However, what happens when you have a tenant who has caused damage to the property? How do you handle withholding some – or all – of the deposit?

While you have a legal right to withhold money from for repairs, it’s essential to provide the tenant with proper documentation stating how much of the deposit you’re keeping and why. Giving your tenant an itemized security deposit deposition will help you avoid miscommunications that could potentially land you in court.

What is a Security Deposit Deposition, and When Should You Use It?

A security deposit deposition is a form that explains:

  • How much of the tenant’s security deposit is being withheld
  • What the withheld amount will be used for
  • When the tenant can expect to receive any of the remaining deposit
  • Where the tenant’s remaining security deposit money will be sent

This form not only clearly lays out what your tenant is being penalized for and why, but it also serves as a chance for discussion in case they disagree with your assessment.

After your tenant moves out, you should immediately conduct a thorough move-out walkthrough. It’s best to do this with the tenant present, but if they aren’t available, you can also have a third-party there as a witness. During your walkthrough, you should take detailed notes about which repairs are needed.

Once you’ve determined which repairs are needed, get an official estimate for the total cost. You’ll need to keep this information on file in case the tenant disputes the charges. You can then begin writing up your security deposit statement.

Keep in mind that you do have a limited amount of time to return the remaining security deposit to the tenant. Most states give you a timeframe of a month or so to finalize the cost of repairs and return the remaining amount to the tenant. It’s recommended that you check with your state’s laws to make sure you’re in compliance. If you end up keeping the deposit for longer than the legal timeframe, you could be setting yourself up for legal issues.

What is Considered an Allowable Deduction?

As you’re probably aware, deposit money cannot be withheld to upgrade the property or for normal wear and tear. Normal wear and tear would include things like chipped paint, scuffed walls, or a worn carpet. Security deposits can only be used for actual damages that were caused by the tenants or their guests, including:

  • Carpet Stains
  • Broken windows or doors
  • Broken locks
  • Pet damage
  • Clogged drains
  • Broken appliances
  • Holes in the walls
  • Clean up fees to make the property move-in ready

Many states provide a clear list of what can or cannot be withheld from security deposits. If you’re unsure whether the damage would be considered an allowable deduction, it’s recommended you refer to your state’s list. Most states also allow security deposits to cover unpaid rent or taxes that were the tenant’s responsibility. Again, it’s best to refer to your specific state’s rules on the matter.

Contents of the Security Deposit Deposition

Once you have a list of the needed repairs and the costs, you can begin to draft your security deposit deposition. You can view a sample deposition form here. Start your form with the following:

  • The date the form is being completed
  • The tenant’s name
  • The address of the property in question

This step may seem unnecessary, but for your records, it will clearly show who the form is for, what it’s regarding, and when it was drafted.

Next, you’ll want to include a simple checklist that includes the different types of rental agreements (ex: month-to-month, year-to-year, etc.). Check off the type that’s applicable to your property.

You can then start getting into the specifics of what’s being withheld. You’ll want to be very careful when filling out this section, as it’s essential to be as accurate as possible.

First, record the amount that was received as the security deposit. This amount will be in the lease agreement as well, but adding it here makes the disposition form clear and easy to understand.

Then, you’ll list each of the deductions that are being withheld for the cost of repairs. You may want to divide the deductions into the following categories:

  • Repair Damages
  • Necessary Cleaning
  • Replacement or Repair of Furnishings
  • Other Deductions

Once you have these sections filled out, you can total up the cost. If the security deposit completely covers the cost of repairs, you’ll need to include a “Balance Due Tenant” section. If the security deposit isn’t enough to cover the repairs, you’ll need to include a “Balance Due Landlord” section.

Balance Due Tenant

Include this section only if the security deposit covers the entire cost of repairs. You should list the following information in this section:

  • How much of the security deposit remains after the repair costs
  • Whether any interest has accrued on the security deposit (this will depend on your state’s laws)
  • Which check number will be used to return the remaining deposit to the tenant

Make sure to be very clear when listing all this information and to send your check to the tenant within your state’s timeframe to avoid any late penalties.

Balance Due Landlord

This section should only be included if the security deposit isn’t enough to completely cover the cost of repairs. If this is the case, you’ll need to collect additional funds from the tenant.  The amount the tenant owes after the security deposit should be listed here.

If the tenant won’t pay the additional amount, you’ll most likely need to file a civil court suit to collect what you’re owed. If the court rules in your favor, the judge will award you with documents to work with a collection agency or to garnish the former tenant’s wages until you receive the full amount you’re owed. If you don’t want to bring it to court, you’ll most likely have to write the lost amount off as a loss.

Using the Form Correctly and Preventing Future Damages

The security disposition form is crucial to use any time you’re planning to withhold part or all of a tenant’s security deposit. Although they’re moving out of the property, it’s still important to inform them of how their security deposit is being used. Providing them with this form will ensure that both parties are on the same page and will reduce the chances of a lawsuit.

Of course, it’s always best to try to prevent damages in the first place. Thorough screening of all applicants allows you to find tenants with responsible rental histories and reduce the chance of incurring damage to your property. Tenant screening will alert you to potential red flags such as previous property damage, prior evictions, and history of late payments. You can then make a fully informed decision when selecting your future tenant.

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