NARPM Discussion Board ‘Hot Topics’

January 7, 2019 • Residential Resource • January 2019 Issue | Volume 30 | Number 1

QUESTION:

Does anyone have experience or informed advice on dealing with a security deposit related to a tenant-caused house fire? The fire was early this month, but tenant paid this month’s rent before that. The house is uninhabitable and tenants will not be returning to it (or any other house we manage). The tenant has minimal renter’s insurance. The owner’s insurance claim has been triggered, a restoration company engaged, and pack-up and repairs are just now beginning. The total cost is yet to be determined, because it is based on what is discovered as they investigate it. It won’t be put back together for at least another month. I am expecting the owner’s insurance to eventually go after the tenant and their insurance in a subrogation claim and demand. The insurance allows for lost rents. My current concern is the security deposit disposition, which brings many questions. What to include? Future rents? What about insurance paying lost rents? Owner’s deductible? Current and anticipated utilities? Should I be guessing on the total cost of the damages and/or include a line item for costs yet to be determined?

ANSWERS:

  • I had the same experience, however, the tenant passed away from his injuries. He did not have insurance and we kept the security deposit to cover the cost of the deductible.
 
  • Most likely your client’s policy will cover all items, including lost rent. What I did in this situation was to utilize the tenant’s deposit to cover my client’s deductible.
 
  • In 2000, I had a tenant who caused a fire at my duplex. I was living on the other side. They had an accent light pointed at a fake plant that caused the fire. I deducted the insurance deductible from their deposit.
 
  • Seems pretty simple to me…What is a security deposit used for? To indemnify the owner against damage or loss to the property caused by the tenant. Did the tenant cause the damage? Yes. Then the deposit is used for that purpose. Done. All that mess about insurance and what might happen is a non-issue.
 
  • Well, that is my question. The tenant caused the damages, but the total costs are unknown. Most responses indicate that the withholding is limited to the owner’s deductible. In this case, the deductible is less than the deposit. Seems unfair to return funds to an under-insured tenant.
 
  • Why would the amount being withheld be limited to a deductible? The actual cost of the damage is the issue, not a deductible. The owner may not even have insurance or choose to file a claim; that’s his business.
 
  • I had a tenant that caused an explosion in the unit. I got an estimated cost of repair and charged the tenant the entire amount. The owner’s insurance kicked in, but I charged them for the damage they caused. What happens with the insurance and the tenant after that is up to the insurance company and the owner.
 
 

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