Take Five Tips to Protect Your Security Deposits

Some managers may not bother to collect security deposits from move-ins or the full amount due. Maybe that's because they don't fully understand HUD's rules on setting the amounts of security deposits, or they just simply forgot to do it. Whatever the reason, not collecting the full amount due is risky and can jeopardize your right to file special claims with HUD for reimbursement of unpaid rent or damages. Also, security deposits give you a financial cushion against household misconduct.

Here are some tips for collecting security deposits—at move-in and afterward:

Tip #1: Always collect full security deposit. HUD requires owners and managers to collect the appropriate security deposit from each household. If the household is required to pay a security deposit and you haven't collected the full amount by the time the household moves out, HUD won't pay any special claim you submit to it for unpaid rent or damages to the unit [HUD Handbook 4350.3, par. 9-14 (C)(2)(a)]. For the maximum amount you can collect under various HUD programs, see our table, Amount of Security Deposit to Collect from Resident.

Tip #2: Don't ask for new security deposit when rent changes. The security deposit for a particular unit is set when the household moves in, based in part on the rent charged for the unit. But later rent increases or decreases for the unit don't affect the household's security deposit obligations. For example, you can't later adjust the security deposit upward simply because the contract rent for the unit increases [HUD Handbook 4350.3, par. 6-15(D)].

Tip #3: Consider collecting new security deposit when household transfers to another unit. If you do change the security deposit upon unit transfer, you must close out the old security deposit on your books, deducting any unpaid rent or other charges and refunding any remainder, and then collect the new deposit appropriate to the unit [HUD Handbook 4350.3, par. 6-16(B)].

Tip #4: Set written policy for collecting security deposits for unit transfers. Don't allow site staff to decide whether to do it on a case-by-case basis, because this is an open invitation to discrimination charges. Also, spell out for site staff HUD's requirements on how to assess a new security deposit on a unit transfer.

Tip #5: Check local law before correcting security deposit undercharge. Sometimes owners and managers discover after the fact that households weren't charged enough in security deposits, leaving the site with inadequate protection against rental losses and resident damages. Before taking steps to correct the problem, be sure to check local law on changing security deposits after move-in. If local law doesn't prevent you from correcting the situation, present households at their next recertification with revised leases that specify the proper security deposit amounts, and arrange for them to pay any amount owed.

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Amount of Security Deposit to Collect from Resident