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The HUD Required Security Deposit Amount

All affordable housing leases and rental agreements require a security deposit. This is a dollar amount, usually one month’s rent, that’s intended to cover damage to the premises beyond normal wear and tear, and to cushion the financial blow if a tenant skips out early on the lease without paying. However the security deposit rules change from state to state, city to city, town to town.  Finding the exact rules isn’t always easy but suffices to say where law’s conflict, O/As should follow the requirements that provide the greatest benefit to the tenant.  It is important to know the laws in those governing bodies to understand the laws that cover the use and return of security deposits.

It’s first important to know the amount of the security deposit amount which should be collected from the tenant.  In the HUD Occupancy Handbook, Chapter 6: Lease Requirements and Leasing Activities, Figure 6-6, there is a great table that gives you the correct required security deposit amount per the subsidy of your project. Typically the HUD required security deposit is the greater of one month’s total tenant payment (TTP), or $50…but it really depends on the subsidy type.

Once it is collected, where are you supposed to deposit the tenant’s security deposit?  The Security deposit is supposed to be deposited into an interest bearing account (if possible) with the interest earned going back to the tenant when they move out.  The interest rates are very low right now so the tenant shouldn’t expect too much as a return.

What about when a tenant moves out? What is the deadline for returning a security deposit? Under most laws, a landlord must return the tenant’s security deposit within 30 days (or shorter time if required by state and/or local laws) after the tenant has moved out.  But be sure to check your local (county, city, or town) laws to see if your municipality requires O/A’s to take additional steps when it comes to tenants’ security deposits.

Refunding and Use of the Security Deposit

In order to receive a refund of the security deposit, a tenant must provide the O/A with a forwarding address or arrange to pick up the refund. The regulations do not require the tenant to provide this type of notification to the O/As in RHS 515 properties with Section 8 and properties with Section 8 LMSA and Section 8 PDSA. However, state law typically requires O/As to attempt to refund a tenant’s security deposit.

Subject to state and local laws, an O/A may use the tenant’s security deposit as reimbursement for any unpaid rent or other amounts the tenant owes under the lease.

Within 30 days after the move-out date (or shorter time if required by state and/or local laws), the O/A must either:  Refund the full security deposit plus accrued interest to a tenant that does not owe any amounts under the lease; or provide the tenant with an itemized list of any unpaid rent, damages to the unit, and an estimated cost for repair, along with a statement of the tenant’s rights under state and local laws.

If the amount the O/A claims is less than the security deposit plus accrued interest, the O/A must refund the unused balance to the tenant.

If the O/A fails to provide the list to the tenant, the tenant is entitled to a full refund of the tenant’s security deposit plus accrued interest.  State laws may also have requirements regarding itemizing damages. When a specific federal housing program does not require an itemized list (as is the case for properties with Section 8 LMSA and Section 8 PDSA), O/As must be aware of any state or local law that obligates an O/A to provide the tenant with an itemized list of damages.

If a disagreement arises concerning the reimbursement of the security deposit to the tenant, the tenant has the right to present objections to the O/A in an informal meeting. The O/A must keep a record of any disagreements and meetings in the tenant file for a period of three years for inspection by the HUD Field Office or Contract Administrator. These procedures do not preclude the tenant from exercising any rights under state and local law.

If the security deposit is insufficient to reimburse the O/A for any unpaid rent or other amounts that the tenant owes under the lease, the O/A may be able to claim reimbursement from the HUD Field Office or Contract Administrator. (See paragraph 9-14 for information on special claims.)

Any reimbursement from HUD received by the O/A must be applied first toward any unpaid tenant rent due under the lease. Additionally, no reimbursement may be claimed for unpaid rent for the period after termination of the tenancy.

ALWAYS PHOTOCOPY THE SECURITY DEPOSIT CHECK before mailing any balance back to the tenant!!!

Security Deposit Forfeiture

As stipulated in the lease and in accordance with State law, a resident’s security deposit should be forfeited (not applied to charges) under the following circumstances (unless the failure to give notice is beyond the resident’s control, e.g., death or medical emergency):

  • A resident breaks a lease by moving out prior to its expiration,
  • A resident gives improper notice or skips, or
  • A resident is evicted for non-payment of rent.

If a resident pays through the end of the lease, but vacates the premises, this is not a forfeit-of-deposit situation.

Resident Charges

The resident will be charged only the actual costs to repair, clean, paint, etc. Deduct only those charges that are actual, reasonable, fair, and beyond normal wear and tear. Common sense and good judgment must be applied here.

  • Any damages beyond normal wear and tear, such as holes in doors and/or walls, broken windows, broken drawers, missing light fixtures, broken or missing switch plates, etc., will be charged to the resident at the actual or repair cost.
  • Painting expense is considered normal wear and tear after the resident has lived in the apartment for a minimum of three years. Painting expense on apartments occupied for less than three years will be assessed per the Agency’s list of charges. Painting charges are based on resident damage, not the availability of matching paint for touch-ups. If the apartment requires additional coats of paint due to heavy smoke in the apartment, additional coats will be charged the vacating resident.
  • If the apartment is left clean, there will be no cleaning charges assessed. Sometimes a resident would rather the cleaning charge be deducted from his/her deposit instead of cleaning the apartment him/herself. Cleaning charges are assessed in accordance with the schedule in the Letter of Responsibility, actual costs, or the schedule of approved Agency charges.
  • If repairs are made by the maintenance staff, the resident is charged for labor at a flat rate (determined at each site based on actual expenses) per hour, in addition to the applicable materials. Likewise, if a vendor is used to make the repairs, the resident will be responsible for the amount the property is charged.
  • Replacement of major items such as appliances, carpet, etc., is to be charged to the resident based on its current or depreciated value. The depreciation method is detailed in the Letter of Responsibility or Agency charges.
  • It is important to review the resident’s payment status before the resident leaves the office to be sure that there are no unpaid balances. Make sure all keys are collected; if not, charge the resident for every missing key. Failure to return apartment keys or mail box keys will result in lock replacement charges to the vacating resident.
  • Once a resident has returned the keys to the apartment, he/she is no longer in possession of the apartment and should not be allowed re-entry into the apartment for purpose of doing additional cleaning, painting, or repairs in an effort to avoid charges against the security deposit. Keys must be returned by midnight on the scheduled move-out date to avoid further rental charges. If the resident were permitted to re-enter after turning in the keys, the resident could sue for the time and material spent on such reconditioning because possession of the apartment was turned over to site personnel. Thus, the resident would technically be working for the property as a sub-contractor. All apartment door locks and mailbox locks are to be changed immediately upon obtaining the keys from the vacating resident, or upon discovering the apartment is abandoned so long as proper notice is posted for the abandonment.

Special Claims can be filed after the tenant moves out for various reasons…check our schedule for the next Special Claims class!  http://www.ahtcsonline.com/class_schedule.html