Reform Security Deposits on Tenants’ Behalf

Any tenant who has had a landlord illegally withhold their security deposit or whose landlord has refused to make required repairs can tell you there is a lot more to the legal system than what is written in the state statutes or city ordinances.

A law may say you have certain rights. But it’s another thing to take a day off work, travel downtown, wait in a courtroom and explain to a judge your side of the story, especially if you’re low income or don’t speak English, or your immigration status prevents you from pursuing your rights.

Having a lawyer helps, which is why programs to make sure everyone has an attorney in eviction cases is so important. Even that doesn’t remove the substantial barriers to enforcing tenant rights in court. Reducing those barriers to enforcing tenant rights is as important as providing new rights.

Reforming how we regulate security deposits is one way we can protect tenants at minimal cost to either landlords or cities.  

Landlords are required to return the security deposit to the tenant, with interest, within three weeks of the termination of the tenancy. Alternatively, if the landlord is going to keep any portion of the deposit, he or she has to give the tenant a written statement explaining why the money is being withheld.  

This system puts the burden of proof on the landlord, but the burden to bring the case to court is on the tenant. The base filing fee for conciliation court is $65, plus additional fees in certain counties. That $65 is on top of however much the landlord is withholding, at a time when the tenant has to pay a security deposit on a new place. And the tenant still has to take time off work, costing that person even more money.  

Unscrupulous landlords take advantage of these barriers, knowing many tenants won’t bring a complaint even if they have a great case.

Here’s how we can protect tenants:Streets Money In Hand

  1. Require the landlord to deposit the security deposit with either the city that licenses the rental or with the state. Under this system, both the landlord and tenant would have to submit a form with the deposit at the beginning of the tenancy and then again at the end of the tenancy before the deposit is paid out. (Alternatively, the deposit could automatically be paid out at the end of three weeks from when the tenant provides notice that the tenancy is over, subject to the landlord’s objection.) The landlord loses the ability to use the barriers of the legal system to legally withhold the tenant’s deposit, and tenants can exercise their rights by submitting a form online. New Zealand is one country that already uses a version of this system.
  2. Require the landlord to submit a signed copy of the lease for review. Landlords are required to provide a copy of the lease in breach-of-lease claims they bring to court (where a written lease exists). Providing copies before a dispute occurs can head off issues before court is necessary. If cities like Minneapolis adopt limits on security deposits, then the lease review can prevent the tenant from overpaying on the security deposit in the first place.
  3. Establish a fund for Interest On Landlord-Tenant Accounts. Attorneys who hold funds on behalf of their clients are required to hold them in a special kind of account called an Interest on Lawyers Trust Account (IOLTA), where the interest earned on the funds goes toward legal services for low-income people. Setting up a similar fund for security deposits can provide resources to low-income renters who have difficulty paying security deposits, hiring an attorney or making rent. Currently, the state requires landlords to pay interest on the security deposit when it is returned to the tenant at the end of the tenancy. Although some tenants may prefer having interest paid out to them individually, the small amount earned by any individual tenant is less useful than an emergency loan available to all.  

These reforms provide no additional rights to the tenant and require minimal additional compliance by the landlord — namely, the requirement that the landlord deposit the security deposit at a government agency instead of a bank and submit a less-than-one-page form and a copy of the lease. Making rights easier to enforce and enforceable outside of court makes our housing system fairer and can reduce housing insecurity.  

 

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6 Responses to Reform Security Deposits on Tenants’ Behalf

  1. Anon July 22, 2019 at 3:11 pm #

    As a landlord, I don’t have have a problem with #1; but if I was a tenant I’d be nervous. How many low-income tenants out there have some sort of debt to the city or some other government agency? Could the government really resist offsetting (alleged) debts with funds on deposit? Debt collection agencies would love this; a huge repository of funds owned by the poor just waiting for attachment. I’m sure the credit card /payday loan/
    autoloansharks would support this. My tenant’s security deposits are safer with me than they are in the hands of the governments or lawyer’s fund.

    Can you clarify #2? To whom is the lease submitted? When and for what purpose? Who is reviewing it and what criteria are used?

    Also, #3 seems like an involuntary wealth transfer from all tenants to poor tenants. Seems like the wrong people to tax to help the poor. IOLTA is sleazy and should not be emulated in other areas. It is an invisible tax on legal services (Like Pro Bono work) that allows the Legal profession to take a PR win. IOLTA and “Pro Bono” are cited by the legal the profession to deflect legitimate criticism of the cost and accessibility of the legal system.

    • Zachary Wefel
      Zachary Wefel July 22, 2019 at 5:33 pm #

      Since various governments pay for public housing, Section 8 housing, and finance or subsidize affordable housing, they have a strong interest in ensuring people will be able to find housing without accessing those programs. It makes more sense for the city to refrain from raiding the deposited funds and not have to invest in more housing assistance programs than it does to raid the funds. And having represented several tenants with respect to landlords on security deposit issues, I can say that the deposits are not safer in landlords’ hands than in the government’s hands.

      The lease would be submitted to the licensing agency at the beginning of the tenancy, along with the security deposit. It would be reviewed only for compliance with the statutes or city ordinances.

      I wouldn’t support an IOLTA system if I thought most tenants were receiving their full deposits and interest at the end of their tenancy. I disagree that IOLTA is a sleazy system, and none of my clients have objected when I’ve explained how trust accounts work. Most of them assumed the attorney would keep the interest anyway, if they thought about it at all, and were happy to hear it was going to provide legal services instead.

  2. Zachary Wefel
    Zachary Wefel July 22, 2019 at 5:36 pm #

    Immigration status is one barrier to enforcing rights in court. Setting aside how our immigration system “should” work or how it should be reformed, the fact is that right now people are taken advantage of and that is unacceptable.

  3. Andrew Evans July 23, 2019 at 12:08 pm #

    I’m wondering what #1 would really accomplish.

    The assumption, knee jerk, is that landlords are evil greedy people who spend all their time finding ways to get money from their renters. Going on that assumption, if they already game the current system, and have time to do so, what would make them not learn and game the new system? So the landlord that makes up bogus reasons and keeps the deposit, would still make bogus reasons with documentation, and drag out the process, only this time it would involve some city bureaucrat who happens to be the friend of a council person. I’m assuming there would need to be an appeals process, for both landlord and renter, and since landlords have all the time in the world, and are evil, they will appeal any outcome that’s not in their favor. More bureaucrats where hired due to being friends with the council people in favor of this idea are needed, and the same amount of time is wasted. The only real difference is city council members can now hire on a few more of their friends.

    That and I’m sure the city would eye interest or some of the unclaimed money for projects, not to mention as another commenter brought up, the money may be available for collection.

    I’m not saying this couldn’t work, other than it would compress whatever current process we have down to fit that given (3 week in this case) timeline. Although it could provide the need for landlords to document any damage or issues, but I’m sure the courts already do this anyway if it gets to that point.

    #2 would accomplish what? Landlords, iirc, are required to keep signed copies anyway, and renters are required (or at least it’s in their best interest) to read the lease and sign off if its’ acceptable. All this does is add a few bureaucrats, hired at the behest of some council member, to review all leases up front. I’m sure there will be time added to the lease process, unless the council members find more funds to hire more friends. Now, I’m guessing any real disagreements are doing in court later, and I’m sure the courts are somewhat more friendly to renters since they assume landlords are evil, greedy, or at least should know what they are doing when they draft leases.

    #3… This is more or less a renter tax that’s across the board, at around 1%-2% per year of the deposit. Also without #1 this would be somewhat of an accounting and auditing nightmare for landlords. Although I disagree on the importance of the “small” amount, it’s still pretty small to make an audit worthwhile, or to even keep track of and send in. Is the city really going to send in an auditor (i.e. a bureaucrat that was hired because they were a friend of a council member) because a landlord sent $15.07 in for this payment rather than $15.94. If #1 is implemented then it makes things a little easier, and I’d assume everything would go into one account and any interest wouldn’t be tracked down to an individual account but listed as an tax (expense) at whatever flat interest rate the account has. Needless to say right now the talk is only to tax at the interest rate, but there isn’t any reason why (like a sales tax) the city couldn’t designate a small percent of the deposit would be taxed and used for whatever they deem fit.

    I’m not saying there aren’t issues with the current process. I see posts on social media about going to housing court from my landlord friend whos business manages upwards of 100 properties in the area, as well as images of properties after renters move out. I also see some posts of landlords being slow or neglectful with issues on properties.

    The problem is by defending and treating all landlords as scum, new ones won’t want to take up the mantel and invest in their community. So what happens is the only landlords left are large corporations who may or may not be using properties as the real investment, and non-profits who can easily be just as unaccountable or slummy as private landlords. The city needs to make it easier and simpler for mom and pop’s to invest in properties, and also give them the resources (similar to renters) for legal support. Putting in even more red tape and driving them away is going to make things worse.

    • Zachary Wefel
      Zachary Wefel July 23, 2019 at 4:57 pm #

      I’m not making knee-jerk assumptions about landlords. Being a landlord myself, I don’t think we’re evil as a class. But in representing tenants in landlord-tenant disputes I have come across a number of bad landlords. A reform like this can address those landlords at minimal disruption to the good landlords out there.

      The gaming of the current system is based on the barriers to tenants to bring a case. If landlords want to manufacture reasons to withhold the deposit or there is a dispute about what should be withheld then we would move to mediation (a part of the current system) and, if that fails, court. But landlords could no longer withhold deposits without justifying the reason. (The law does require them to justify what they withhold, but the the barriers to tenants exercising their rights prevent them from forcing landlords to do so.

      We can prevent cities from raiding the funds for any reason by prohibiting it by statute.

      The lease review process is something I think beneficial because the most contentious cases I’ve handled have been where the landlord has drafted their own lease. Usually, neither side is happy when there is a dispute; the tenant thinks the lease is unfair to them, and the landlord finds out that their lease has illegal provisions they cannot enforce.

      Yes, the IOLTA system is essentially a tax on security deposits. The question is whether tenants receive a greater benefit from having access to an emergency fund or to a small amount of interest–if the landlord gives the interest back anyway.

      We don’t need an audit system, even if we don’t adopt any other reform. Banks are already set up to administer IOLTA, and the interest would be automatically be withdrawn without any action by the landlord. We could make this opt-in, with tenants required to opt-in for a certain period before being able to access emergency funds. I bet a lot of tenants would take advantage of that system.

      Again, I don’t think all landlords as slummy, and I’m writing from the perspective of someone who has been a landlord for several years, in addition to representing tenants and I’ve also advised landlords on compliance and best practices.

  4. Bill Lindeke
    Bill Lindeke July 23, 2019 at 10:52 pm #

    Is calling people illegal fostering positive conversation in our community? My sense is “no.” Please try to use more humane framing of the issue of asylum and immigration.

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