Landlords Misusing Tenant’s Security Deposit Money
Security Deposits: An Overview
Most people are familiar with the concept of a security deposit. Landlords typically request these deposits as collateral against the risk that tenants will cause damage. This makes a lot of sense. If a tenant moves in and trashes the property, the landlord can lawfully withhold their security deposit to make repairs. What if the tenant skips town without paying their last month’s rent? The landlord can withhold the deposit for that as well.
But what if the landlord is withholding the entire deposit and charging more on top of that for no reason? What if, once the tenant gives the security deposit at the beginning of the lease, the landlord disappears with it?
This post will address those questions. Please note that this is not meant to be legal advice. It merely gives an overview of some general concerns surrounding security deposits in North Carolina. Each individual case is different and we highly suggest contacting a real estate attorney to answer your questions.
Security Deposit Disclosure
N.C. Gen. Stat. § 42-50 et. seq. governs security deposits in North Carolina. As far as statutes go, it’s actually pretty simple. Reading it is a great first step to understanding your rights as a tenant or landlord. But what does it actually say? What can and can’t landlords do with tenants’ money? Before the tenants even move in, there are some rules:
- Landlords must put security deposits in a trust account at a bank, or get a bond from an insurance company. Those are the only two options. They can’t get the money in cash and hide it in their mattress. They can’t mix it up with rent money. And they certainly can’t go and spend it before the lease is up!
- Landlords also must inform tenants of the name and address of the bank where the money is being held, or the name of the insurance company issuing the bond. They must inform tenants of this within 30 days of the lease starting.
- If it’s a year-long lease, the security deposit cannot exceed 2 months’ rent. If they try to charge a $10,000.00 security deposit, that’s a huge red flag (…unless you’re rich and your rent is $5,000.00 month).
Why is all this so important?
Well, North Carolina case law indicates that landlords could be liable for the entire security deposit amount if they don’t follow these rules. The 2014 case of Neil v. Kuester Real Estate Services, Inc. could be interpreted to mean that if a landlord failed to disclose where the security deposit is held, the tenants could be entitled to a return of the entire deposit. The statute also contains language indicating that.
This makes it extremely important for landlords to comply in order to avoid lawsuits (and losing out on retaining any security deposit money). A good model lease, such as this one, includes spaces for the security deposit info right on the front page.
It’s also important for tenants to keep this law in mind. The absence of disclosure is a huge red flag that the landlord is shady. It may also entitle the tenant to the return of their entire deposit plus punitive damages for fraud, and/or treble damages for unfair and deceptive trade practices.
Using the Deposit for Repairs
If the landlord has complied with the Tenant Security Deposit Act, there are legitimate reasons she can keep the money when the tenants move out. The landlord must give the tenants an itemized accounting of why she is withholding the security deposit within 30 days of their moving out, pursuant to the statute linked above. If that’s impossible, at the very least, the landlord must send an interim accounting within 30 days and a final accounting within 60 days.
If the landlord complies with those rules, the only thing she CAN’T withhold the money for is normal wear and tear. For instance, a landlord can’t lawfully withhold the entire security deposit for things like repainting the walls or re-carpeting the floor.
Here is a list of things for which the landlord may be able to lawfully withhold the security deposit.
These are all real issues that different landlords have called us to inquire about!
- A tenant intentionally clogging the toilet by using it many times before flushing (for real).
- Holes punched in the walls.
- A tenant driving through the garage door while it was closed.
- The entire apartment smelling like smoke, despite it being a nonsmoking apartment.
- Rooms filled with furniture, clothes, food, and other debris that the tenant failed to clean out before vacating.
Some other things might be broken windows, blinds pulled off the walls, or trashed appliances. The tenant may also be held liable for negligently failing to inform the landlord of problems. For instance, if the tenant allows a pipe to continually leak, causing mold and mildew to flourish, without telling the landlord.
At the Crews Law Firm, we represent both tenants and landlords in security deposit matters. We feel strongly that tenants should not be cheated out of their money. If a lawyer is being paid on retainer, as we sometimes are at Crews Law, that lawyer has a duty to hold the client’s money in trust and not use it until it is earned. Spending “trust money” is probably the biggest ethical violation a lawyer can make because it is tantamount to stealing. Lawyers can be disbarred for doing such. Similarly, we feel that landlords should be held to a duty to account for the security deposit money and use it responsibly for its intended purpose – not as a windfall when the tenants move out.
So, if you are a tenant and the landlord:
- Has failed to tell you where your security deposit is,
- Has waited more than 30 days after move out to tell you why he’s keeping it, or
- Just told you “hey, you owe me $5,000.00 on top of the security deposit because I want to put in granite countertops” –
We want to hear from you.
On the other hand, we don’t believe that tenants should be allowed to wreck a house or apartment and get away with it. We encourage landlords to vet tenants carefully and collect a large security deposit at the beginning of a lease. Many landlords have called us, distraught, because they just discovered that careless tenants trashed the house that they were once so proud to be able to rent out in pristine condition. If that describes you as a landlord, we want to hear from you as well.