How Does a Security Deposit Work?

Paying the Security Deposit

Security deposits are required by landlords at the time the lease is signed, or sometimes beforehand. Once it leaves the renter's hands, many people forget about the security deposit until it is time to move. Tenants are then often baffled about retrieving the deposit. However, the process is quite simple and ,fortunately, can work in the tenant's favour.

When a tenant pays a deposit, the landlord records it and deposits it into an account to save until the tenant moves out. Some landlords do not practice this. Holding a security deposit in savings is not required by law, but in some states, the landlord must return to the tenant the deposit plus interest earned upon moving out---if the inspection reveals no damage. Otherwise the deposit sits during the time that the tenant occupies the property.

Moving In

Before the tenant moves anything into the property, an inspection is conducted. Many people take photos of their own to supplement the landlord's report. The tenant receives a copy of that inspection and is charged with maintaining the property at that state.

Maintaining the Property

In states where the interest is returnable upon moving, any late rent payments can result in forfeiture of the interest in any month that they are late on the rent more than 5 to 7 days, depending on state statutes. The exception is a lease that clearly outlines a late fee for late rent.

Moving Out

When the tenant is ready to move, he must first review the lease to ensure that moving will not void the terms of the lease; this will cause the tenant to legally lose the security deposit. Evictions and significant property damage are also ways to lose a deposit. If everything is in order, the tenant must then notify the landlord of the move and the intent to retrieve the security deposit. The landlord will then schedule an inspection to commence after the tenant has vacated the property.

During this inspection, the photos taken and inspection forms signed when the tenant moved in are now retrieved. The tenant and landlord walk through the home comparing the initial report and photos to the state of the property. If no repairs are needed then the landlord will return the security deposit at that time or mail it to the tenant's new address. If repairs are needed, then they are made. In theory, the remaining deposit is forwarded to the tenant. Sometimes landlords keep the remaining deposit. Tenants can sue for that remainder, but most move on without it.