Landlords, Security Deposit or Security Bond? Print E-mail
Written by Kerry S. Doolittle   
Monday, 25 March 2013

Georgia's Security Deposit Law is a minefield waiting to trap the unwary landlord.  There are many specific steps and timing issues which must be done exactly correct, or dire consequences follow.  Unless exempt (ten or fewer rental units), a Management Company or Landlord must comply with the security deposits law.

See how many of these steps your routine procedures get through before tripping up.  Briefly stated, this requires the following:

    1.    The security deposit must be placed in a separate escrow account established for that sole purpose in any bank or lending institution regulated by the State of Georgia or federal agencies.

    2.    The security deposit must be held in trust for the Resident.

    3.    The Resident must be informed in writing of the location of the escrow account, i.e. the name of the bank, but not necessarily the account number.

That is the easy part.  Now,

    Before move in:

    4.    Prior to receiving a security deposit, the Management must present the Resident with a list of existing damage to the Apartment.  (How many did not make it pass this first step?)

    5.    The Resident must be given an opportunity to inspect the Apartment to ascertain the accuracy of the list of existing damages prior to occupancy.  (How many times does the leasing agent hand a form to the new tenant and say fill this out and return it if you see any damage?  How many times does the tenant actually bring it back?)

    6.    Both the Management and the Resident must sign and date the list before accepting the security deposit.   If the Resident refuses to sign, he must state specifically in writing the items to which he dissents.  (I bet this step takes out the most.)

    After move out:

    7.    Within 3 days after termination of occupancy, the Management must inspect and compile a comprehensive list of any damage done to the Apartment which is the basis for any charge against the security deposit and the estimated dollar value of such damage.  (When large turn overs occur, how often is there just not enough time to get all of the units inspected?)

    8.    The Resident has the right to inspect the Apartment within 5 days after termination of occupancy to ascertain the accuracy of the list. 

    9.    Both the Management and the Resident should sign and date the list.   If the Resident refuses to sign, he must state specifically in writing the items to which he dissents.

    Now the really bad news, Result of failure to comply:

    10.    If the Resident fails to sign the lists of damages, or to provide a written dissent, he forfeits his right to recover the security deposit or any other damages allowed by the security deposits law.

    11.    If the Management fails to provide the lists in a timely manner, the Management forfeits all rights to withhold any portion of the security deposit or to bring an action against the Resident for damages to the Apartment.  In one case, the tenant burned down the apartment building.  Because of a misstep by the landlord, his insurance company  was not able to recover money paid out on the claim from the tenant.

   12.    If the Management fails to return any part of a security deposit which is required to be returned, the Resident may recover that portion of the security deposit plus three times that amount plus reasonable attorney fees, unless the Management can show that the withholding was not intentional and resulted from a bona fide error which occurred in spite of the existence of procedures reasonably designed to avoid such errors.

The Georgia Security Deposit Law creates tremendous problems for landlords.  It is full of traps, and the slightest mistake can result in not only losing the security deposit, but being unable to collect for any damages and being liable to the tenant for three times the amount of the deposit.  For that reason and for marketing reasons (i.e. potential tenants cannot come up with the full deposit) I've seen several landlords simply stop taking a security deposit.

Now that you have some idea of how difficult it can be to comply with the Georgia Security Deposits Law, and of the terrible consequences which might befall the unwary, I want to mention an issue which I am beginning to recommend to my landlord clients. Whether you are collecting security deposits or have already decided they are too much trouble, consider this. 

Rather than choosing between risking the Georgia Security Deposit Law or going bare with no security for damages, I suggest an alternative.  Its called a Surety Bond.

There are at least two companies which offer these surety bonds through the internet.  One is called SureDeposit.com, and the other is SuretyBonds.com.  There may be others, and I mention these only to enable you to do your own research.  No endorsement is intended.

The idea is that instead of collecting a refundable security deposit, you collect a much smaller non-refundable security bond fee, which is used to pay the premium on a Surety Bond.  I've read the premium is about 10-20% of the bond amount, but I've not gotten that far into my investigation.  I have at least one client who uses the surety bond instead of security deposits. 

The idea is that if the tenant leaves damages, you make a claim against the Surety Bonding Company, and then they go after the tenant for reimbursement.  If the damages exceeded the bond amount, you could pursue the tenant for the excess. 

Since you are not taking a security deposit, the Security Deposits Law does not apply.  I still recommend following the move-in and move-out inspection procedures to help minimize disputes, but you will no longer have so much at risk in the event of a procedural error.  With the bond, you are still protected in the same manner without the risk. 

The bond does not cost you anything since you make the tenant pay it in lieu of a large security deposit.

The tenant only has to come up with $100 to $200 for the bond instead of $800 or more for a deposit.

All around it seems like a good idea as long as the lease says it is a non-refundable fee.

A local judge known to be very detailed and particular  was good with it on the one occasion I saw this.  The tenant was asking about getting his “security deposit” back, and the judge said sorry it says right here non-refundable fee.

I just though your company might want to look into it, especially if you are not taking security deposits.

Good Luck,

Kerry.

 
< Prev   Next >
Article Contents © 2017 Kerry S. Doolittle, unless noted. All logos and trademarks are property of their respective owner. Comments are property of their posters.
TerraVision internet services, hosting & management.