As a landlord, you’re probably going to encounter a time when a resident’s security deposit isn’t sufficient to cover the unpaid rent and the damage caused by the resident. Unless legally prohibited, allocate the deposit to first cover the damage and then cover the unpaid rent because it makes sense to apply the deposit to items that are more difficult to prove in court.
Say you’re holding a $500 security deposit from a resident when he vacates, owing $350 in delinquent rent. When you inspect his unit, however, you find $400 in damage beyond ordinary wear and tear. The total of the rent owed and the damages done is $750, but the deposit is only $500. What should you do?
First, apply $400 of the $500 deposit to cover the damage, and then allocate the remaining $100 toward the unpaid rent. You can then pursue the $250 delinquent rent balance with your rent collection ledgers and records as evidence to clearly prove this amount is owed. Unless prohibited by state law, you can apply rent payments toward the most recently accrued outstanding rent.
Thus, if you have done an eviction and have a money judgment for rent up to the time of judgment, you can apply the rent payment to rent that accrued between the judgment and the time of move-out, which might not be part of your money judgment, depending on the court’s rules.
Be sure to always record the actual costs for damages, even if you don’t intend to pursue the resident for the balance owed. This way, you can prove your expenses in court if necessary.
In most states, even if your lawful deductions exceed the departing resident’s security deposit charges, you must provide the resident with a full accounting of the damages. You must do so even if you file a small claims lawsuit for the balance due. So be sure to always follow the required procedures for the accounting of the deposit.