Sick of Dealing with Security Deposits?
Surety bonds are the little-known option that could helpBy Judy Malmon | Last updated on January 27, 2023
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Risks and Benefits
- Not having to come up with as much cash at the time of move in.
- For renters who regularly pay rent, give proper notice before moving, and cause no damage to the property, they will likely owe no additional money at the end of the lease.
- For those who are money-savvy, the investment return on money otherwise tied up in a security deposit potentially can outpace the cost of the surety bond.
- This could be a tool to rein in landlords who retain tenant security deposits in bad faith as a matter of practice. A landlord would have to document damages and collect for them, rather than simply keep money already in their possession.
For a Renter, negatives include:
- Paying a nonrefundable fee that covers no part of what may end up being charged at the end of a lease.
- Fees, while less than a full security deposit, can nonetheless amount to several hundreds of dollars.
- If the surety bond company is not able to receive payment due from a renter, the renter may be liable for collection costs and attorney’s fees.
- Surety bonds operate for a fixed period of time, usually five years, then expire, whereas a security deposit will last indefinitely.
For a landlord, upsides include:
- Not having to manage and track security deposit funds, often in accordance with strict statutory requirements.
- Knowing that payment of any damages or rent due at the end of the lease will be assured, up to the deposit amount. Collection from the tenant is the surety bond company’s responsibility, not the landlord’s.
- Flexibility to work with a desired new tenant while also protecting investment.
- In some cases, there may be a percentage of the tenant’s fee shared with the landlord for using the surety bond company’s services, which carries no obligations.
For a landlord, negatives include:
- Knowing a tenant can come up with a security deposit can serve as assurance that they will also be able to pay their rent; evidence of their inability to do so might raise concerns.
- To the extent that a tenant is incentivized by return of their deposit, they may feel less motivated to care for the property.
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