What to Do When Vacating Tenants Owe More Money Than Their Deposit Will Cover

by | BiggerPockets.com

(The following is an excerpt from the new book from BiggerPockets, The Book on Managing Rental Properties. If you are looking to earn more and have less stress with your rentals, pick up a copy today!)


My first thought was: there is a dead body in this refrigerator.

Of course, upon closer inspection there was no dead body, just rotting food, garbage, and other unknown objects. The smell was unlike anything I had ever experienced before.

I don’t make it a habit to inspect rental properties myself anymore, as I have built systems to handle that, but I happened to be in this part of town a few hours after a tenant packed up and left, so my wife and I thought we would swing by and see how the property looked.

I wish I hadn’t.

The unit was left with garbage covering nearly every square inch of the floor, holes in the walls, doors missing, crayon on nearly every surface and that smell that permeated every cubic foot of space. All in all, it took nearly $4,000 to get the unit fixed up and ready to re-rent, including the costs of lost rent.

Luckily, when the tenant moved in, we had collected a double security deposit due to a minor red flag when performing her tenant screening. But as any third-grader can tell you, having a deposit for $1,000 and a bill for $4,000 means one thing: we were in the hole $3,000.

So what now?

I wanted to write this post because this is not an uncommon occurrence, especially among low-income tenants.

Of course, making sure you don’t get screwed over from a tenant starts at the beginning: by only accepting the best tenants, collecting the right deposit amount up front and adequately training your tenant while they live there.

But even if you are like us and have incredibly strict screening standards and give the tenant detailed instructions on how they should clean their unit when vacating, a decent percentage of your tenants will likely end up owing you money. I would prefer this not be the case and actually look forward to giving back an entire deposit because it means the unit was left in perfect condition by the vacating tenant. But alas, when you are a landlord, getting screwed happens.

I want to explore some options with you today for collecting on this debt, but first, let’s talk about the initial step: the Disposition of Deposit.

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Send the Disposition of Deposit

Most states require that you give a Disposition of Deposit form to all vacating tenants, showing them a breakdown of what their security deposit was applied towards.

This document usually needs to be mailed within a certain timeframe, or you could lose your entire right to collect any money AND you may have to actually pay the tenant money depending on the state. In Washington State, if we don’t send the Disposition within fourteen days, we could be forced to pay the tenant up to three times the amount of the security deposit. Imagine that… the tenant owes us $3,000 and we are forced to pay her $1,500. Therefore, make sure you send that Disposition of Deposit within the timeframe required by your state.


This document will also serve as your first invoice to the tenant, demanding immediate payment. In our experience, most tenants do not pay this. Many tenants falsely believe two things:

a) It doesn’t cost very much to clean and repair their unit.
b) The Security Deposit is the most they could ever lose and you won’t pursue it.

I’m sure the tenant in the story at the beginning of this post thought that her $1,000 deposit would easily cover the turnover and probably even expected to get some money back. As a result, she refused to pay the $3,000 bill and simply ignored it. So what next?

Related: Landlords: Use These Tenant Deposit Policies & Reduce Lost Profit!

5 Options for Collecting Money Owed From Former Tenants

The next step in collecting what you are owed will depend slightly on the situation itself, the amount owed and the kind of tenant you are dealing with. But let me give you five possible choices you have for collecting that debt.

1. Ignore It

If the amount owed is very small, you may simply choose not to pursue it after sending the Disposition of Deposit, and just move on. If they owe you $50, it might not be worth the hassle to try and collect it, so simply send the invoice, and if it is never paid, mark that in your tenant’s file for future reference. Someday you’ll get a reference request for that tenant, and at that point, the tenant will wish they had paid that small bill.

Of course, you are not losing everything when you choose to accept that loss. The one thing you will gain is a valuable lesson, so take it gratefully! Learn from your mistakes and put systems in place so it doesn’t happen again, if possible. This might be far more valuable than the money owed to you.

2. Bill Repeatedly

If you don’t want to simply ignore it, but the sum is too small to take larger action, you can also set up a system that mails out a new invoice monthly as a constant reminder that they owe money.

Perhaps someday (like after they get their tax return) they will pay the bill. It might cost you $1.00 a month to do this, but someday it might pay off.

3. Negotiate With Them

Recently, another of our tenants left their apartment unit in a hurry and ended up owing about $200 to us from the cleaning and repairs needed above what his deposit would cover.

Of course, we sent the Disposition of Deposit form to the tenant in the mail, and upon receiving it, he immediately called to complain. (“Complain” is a nice way of describing the words he used on the phone. I believe we even had to hang up on him the first few conversations due to his rage.) This tenant expected to get his entire deposit back, but luckily we had photos and documentation to prove every one of our repairs (which, of course, is why a well-documented Move-in/Move-Out checklist is vital for any landlord).

My in-house manager spent nearly a week negotiating with the angry tenant, and in the end, we agreed to accept 50% of what was owed. Three days later we received $100 in the mail, which I gave entirely to my manager to thank her for her efforts in trying to collect.

4. Send It to Collections

Collection agencies are designed to pursue individuals for their past-due payments. They use a variety of techniques to get this money, including tracking down the tenant and calling them repeatedly until the debt has been paid. For their services, collection agencies typically charge a hefty fee, oftentimes 50% of the debt recovered. If you are fairly certain you won’t get the money from the tenant, you can send the invoice to collections and let them deal with it. Who knows, someday down the road you might get a check in the mail.

Related: How to Evict a Tenant: The Definitive Step by Step Guide

We will typically choose the collection agency route when the tenant owes between $1,000 and $4,000 and I don’t think they have the money right now. In fact, this is what we did for the tenant in the beginning of this story. I know you were probably hoping for a happy ending to the story that I started this post with, but let’s be honest: getting screwed comes with the territory when you are a landlord. Perhaps someday I will walk out to my mailbox and find a check for several thousand dollars. Unlikely, but a guy can hope!


5. Take Them to Small Claims Court

If the money owed to you is substantial and you think you can get the money from the tenant if a court makes them, you could pursue a lawsuit in small claims court. This court is designed to help people sue others without the need of lawyers and a lot of money. Usually, for less than a few hundred dollars in fees, you can sue someone, and if you win, you will receive a judgment against them. This judgment could be used to garnish wages or tax returns. Plus, this judgment can follow the tenant around for years, even showing up on background checks when they apply for a rental property in the future.


Hopefully this post has given you a few ideas on what to do when the tenant owes you more money than their security deposit can cover. It’s an unfortunate situation — and an expensive one at that — but it happens often to a landlord no matter how good you are at screening tenants. Of course, the risk can be reduced significantly.

Do you have any additional tips you would like to add?

Please share them below, as I’m sure I can learn from you as well!

About Author

Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather. A life-long adventurer, Brandon (along with his wife Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.


  1. Darren Sager

    Great information Brandon! Do you always make sure that the tenant knows before they move in you can send any monies due to you to a collection agency? Do you make them sign an acknowledgement that you can report the issues you have with them to a third party reporting agency? Thanks!

  2. Kimberly H.

    Our local NTN has a flat fee service, for $38 they will call the tenant and send bills to the tenant several times over several months. No court judgement needed. If unpaid after several months of this, they report the unpaid amount to the credit bureaus. Whatever you recover from the tenant is 100% yours. We just tried it this year, haven’t gotten payment from the tenant, but with it reported to the credit agencies I imagine I will be hearing from this tenant if they ever attempt to move or buy a new car. If you have more questions contact your local NTN.

    • Maggie Tasseron

      I did not know that so thanks for posting this. Here in CA, a judgment stays on your credit report for 7 years even if you pay it immediately; not a fair practice, in my opinion, as many cases are in a grey area where the court simply makes a compromise between parties. But it’s a great advantage when tenants are completely wrong and when I issue a 3-Day Notice for non-payment of rent, I usually include a letter warning them about the fact that it will impact their credit for those 7 years. So far, I haven’t seen it make a difference to response but as this becomes more common tenants will learn to take it more seriously.

  3. If worse comes to worse, I send them a notice that we will file a 1099-C (Cancellation of Debt) with the IRS. This sometimes is just enough to get them to make a payment plan. Of course, once you do file this form, you can no longer go after them. But, if i think they are noncollectable, just nice to know they have to show the amount due us as income to report to the Gov’t.

    • I really like the 1099-C idea!! For those tenants who refuse to pay up no matter what, at least you know the IRS will get theirs!

      I like the NTN idea too! I’m looking at their website now!

    • “I send them a notice that we will file a 1099-C (Cancellation of Debt) with the IRS.” Just as long as you know the tenant can dispute this with the IRS. I had to dispute a duplicate 1099 once. I had worked for the filing entity the year before. I have no idea why their bookkeeper prepared a second equivalent one the next year even though I had done no work for them.

  4. You skipped the most important thing to do when you get a majorly trashed unit with holey walls and obvious vandalism. File a claim with your insurance carrier, with our Farmers brand insurance, vandalism by an identifiable party is covered and they don’t rate you for making a claim. Usually the insurance adjuster is more than fair with the costs and with good insurance you collect the lost rent during rehab. You have to assign the collection to them but if they collect they will refund your deductible.

    I don’t sell insurance I’m just another investor.

    BTW we don’t collect a deposit, we train our tenants on move in and have found that we get units back in much better condition when they know they will be charged $50 per hole or $200 for anything missing or damaged on a ceiling fan (including the $10 globe). We still have vandalism from THOSE tenants but the good ones can’t say “let the landlord fix it & take it out of my deposit” Also we don’t get in cost arguments in front of the judge since the former tenant already agreed to the price.

    • Blair Anderson,CAM on

      I agree 100%-especially since I was an Insurance Agent & Agency Owner. Most Companies will work with you and also if the Owner has insurance-they can also file a claim. We have seen this in many cases.
      Sometimes you have to notify the Insurance Company’s Claim Dept.-as soon as you realize that there may be a Problem. They will work with you as much as possible, and collect the deposit from the insurance or from owner for lost rent. Otherwise they will have to rent/sell and collect larger deposit at that time.
      Try it – it works especially when you file a claim against Their Insurance. (They do not want to lose clients in these “financial unstable” times.

  5. Nate T.

    Are you able to legally collect on something that you don’t have a judgment for? If you have an eviction judgment then obviously you can collect. Or if you go to court and get a judgment for the damage, then you can collect. But if you just have a bill that you arbitrarily created (however valid it might be) I didn’t think you could collect on that. Of course you can collect if the tenant agrees to pay, but can you get a garnishment, etc., just based off of that bill?

    • Amy A.

      I was wondering the same thing! I have seen collections on potential tenants’ credit reports from large apartment complexes and always wondered how they managed to get it on the report. They saved me from renting to a bad tenant!

      • Kimberly H.

        Yes, that’s why I said “no court judgment needed” in my post. I was surprised as well, and when I asked NTN that specific question, they said no court judgment needed, but you better have the proof, documentation, pictures, receipts, etc. to back it up and the ability to provide it to the company NTN uses for this if needed, which is only if the tenant tries to contest the claim.

        This service isn’t actually provided by NTN, but unless you have 100 doors, you need to go through NTN to get to the company they contract with to provide this service; that company typically works with apartment complexes.

  6. I am all about small claims court. I\’ve gotten liens against people. Some tell me I can\’t get blood out of a turnip but I do it for the principal as well as the fact I will get the money if the person receives a judgement (injury, etc.) or wins the lottery (unlikely but it did happen to a family member – he had a judgement and they won around 20K – and it all went to people who had liens against them!).

    • Maggie Tasseron

      Hi Karl: I love hearing this! Last year I gave a 3-Day Notice for non-payment to a tenant, who responded in writing that they had the money and wanted to meet in order to pay it. Before that happened, they changed their minds and decided to move, which I preferred. Right afterward, they filed a completely bogus suit against me for $150,000. Even though I had everything in writing and photos showing how they had trashed the property, as is common these days my insurance company elected to settle with them for $10,000. I knew the guy owed back child support so called the Support Agency; turned out the $7500 he owed went to his daughter and the rest went to the lawyer who was crafty enough to take their case. Just wanted to share another feel-good story with you. Just too bad there are lawyers out there who take on these cases, but at least they didn’t get a dime!

  7. Maggie Tasseron

    You were very smart to collect a double deposit based on the red flag when she applied. I just had an experience with a tenant who did not send up any red flags for me and who rented a property from me for over 5 1/2 years. Rent was paid on time every month, problems with the house were reported to me whenever they occurred and the husband even helped me out whenever I did repairs; he seemed to enjoy it and so did I. Our relationship was great until I decided last November to sell the house and move away. I offered to let them have first rights to buy it, as they had requested at the start, and gave them 3 1/2 months to get qualified for a VA loan. That fell through and they went behind my back and tried to buy a less expensive property; then when that fell through, they repeated the process, again behind my back. They finally moved out 8 months after I had first spoken with them, leaving the house looking like a slum. So you can never tell; it makes me think double deposits should be the norm.

    PS: I did give them a 60-day Notice (required in CA) and then a 3-Day when they also stopped paying rent on time; I think the only reason they did pay me some of the rent was that their lender was asking me for confirmation.

    PPS: I got stuck in a position where it would have cost me more and taken longer to evict them than to wait until they finally were able to buy house #3. More importantly, I was reluctant to evict as I believe they would have turned around and sued me for whatever they could dredge up and they would have no doubt received a substantial settlement from my insurance company, as has unfortunately become the norm even in cases that are outright extortion/insurance fraud. Only thing worse than their nasty behavior would have been to see them being rewarded for it! I just hope that Karma thing is working.

    • Katie Rogers


      5 1/2 years is a long time for things to be great and no red flags all that time, so I think you should examine your own behavior more carefully. It is impossible for tenants to look for a house to buy “behind your back.” There is no back to be behind. Tenants are always free to be prospective homebuyers. There is absolutely nothing wrong for tenants seeking to buy a less expensive property than yours. It actually sounds like you are the one who got nasty.

      As a landlord, I never forget what it was like to be a tenant. Most tenants put up with a lot, especially in many parts of California where vacancy rates are so low (0.5-1%) and so many landlords take unfair advantage of that situation. Tenants keep their mouths shut, and work hard to maintain a cordial relationship because they are afraid to imperil their situation. They NEED a place to live. In most cases, they do not have to do much dredging to have a legitimate case.

      According to you, they were great tenants for 5 1/2 years. They earned the privilege of being allowed to take 8 months to find a house to buy in California where the inventory is so low that it can easily take that long or longer to find a HOME to buy. I feel there is definitely another side to this story.

      The time-tested Golden Rule always works.

      • Maggie Tasseron

        Katie: The “behind my back” issue was this: When they finally informed me that they could not buy my house (and lied about the reason, saying the VA had deemed it to uninhabitable, when the VA had not even seen it; I believe they simply did not qualify for that much of a loan), I immediately gave them a 30-day notice, as per their lease agreement. No word from them when that was up, so I called them and that was when they informed me they had made an offer on a different property. Then, when that fell through, they again did not inform me but went ahead and tried to buy yet another property. I was only kept somewhat in the loop by their lender, who requested several rental confirmations from me. They had taken it upon themselves to use their security deposit for rent, even though that clearly was in violation of their lease. They paid partial rent for one month and lied to the lender, saying I had authorized it.

        I gave these tenants an initial 3 1/2 months to find a loan for this house, which they desperately wanted to buy. As you yourself stated, there was no way they could buy a house within the 30-day notice and they led me to believe they were looking for a different rental. Yes of course, they were perfectly free to buy a less expensive home, but they were NOT free to deceive me and to lie to their lender about me. Just being good tenants for 5 1/2 years did NOT “earn them the privilege” to ignore the notice I had given them and take 8 months to buy a different property, leaving me stuck in between evicting or just waiting it out. They were NOT free to stop paying their rent. And they were absolutely NOT free to leave the property filthy and full of their garbage, a property in which, by the way, I had put a brand new kitchen and bathroom just before they moved in.

        And yes, I have certainly examined my behavior and the only mistake I made was giving them far too long right from the start instead of just issuing a 30 or 60 day notice.

        Since you say you think I was the one who got nasty, I would appreciate knowing how you came to that judgment. I’d also love to know how you would have handled this situation.

        • Amy A.

          Maggie, I recently gave a 30 day notice to tenants who were taking their time buying a house but leaving me in limbo with no lease. I had already given them several months to find a house, but with winter coming I needed a lease. Of course, they proceeded to try to use the deposit as last month’s rent, until I started the court eviction process. When you treat your rental like the business it is, people will inevitably call you “nasty”. You did the right thing and they did “go behind your back” if you had a contract with them to buy your house.

        • Maggie Tasseron

          Thanks for your support, Amy. It is sad that no matter how well we treat people, some will inevitably turn on us or call us names. I’m looking forward to hearing how Katie would have handled this situation, and I’m sure you are as well.

        • Katie Rogers

          So it seems what you are saying is that even though you know that it is impossible to buy a house within a 30-notice, (never mind the extra 30 days it usually takes escrow to close), you were okay with presenting them with the prospect of being homeless when they could not buy your house because it was too expensive. Perhaps they had been leisurely looking for a house for quite a while, feeling secure in their present rental situation, when you suddenly presented them with an emergency. Can you put yourself in their shoes? Their attempt to buy your house failed, and you “immediately gave them a 30-day notice.” First, California law says that notice should have been 60 days. It sounds you you made them feel at risk, and the problem that you suddenly gave them was completely on them.

          When an otherwise excellent tenant uses the security deposit as last months rent, it is often because the landlord has given them reason to think there might be a problem. For example, once when I was in a state that allowed non-refundable deposits, the property manager had find us another place within the same complex within a week or so after we moved in because a problem developed that rendered the first place uninhabitable. After we moved to the second place, she sent me a bill for a second nonrefundable deposit even though she had promised to transfer all monies paid to the second place. When I objected, she said she did not mean to include the nonrefundable deposit and she demanded payment. When I continued to object, she said pay or I will give you a 3-day notice. I paid, but you bet I used my security deposit for last month’s rent. I am pretty sure she told her friends how I was yet another one of THOSE tenants, and probably neglected to mention the fact that I left the apartment not only broom-clean, but move-in ready for the next tenant.

          If landlords think tenants generally do not care about the property, could it be because so many landlords offer properties that look like the landlord does not care much about his own property or the tenant? How many times do we read on BP where landlords advise each other not to perform a particular repair “because it is only a rental.”?

          You ask what would I have done? I might have given a 60-day notice but without any harsh “according to the lease” attitude. I would have let it be a somewhat flexible notice because I understand their situation. If I really needed to sell before the end of the eight months that it actually took them, I would have contacted some of my landlord friends to help me find some temporary housing for my 5 1/2 year excellent tenants. We could easily have parted in a friendly manner.

          Honestly, a lot of landlords bring tenant conflicts on themselves. I take classes in the adult continuing education program in my town. They cost money, and many of the classmates are landlords who think that tenants could not possibly be among them. They are not far wrong, and so in this environment they are pretty open when they chat about their tenants. It will surprise no one on BP what crummy attitudes they express all the while wondering why they get crummy attitudes back.

          As a landlord, I operate by the time-tested Golden Rule, never forgetting how I, every landlord’s dream tenant, was sometimes treated. At least in my little corner, I strive to promote a different, more positive landlord-tenant culture, ever cognizant that the power differential lies with me, the landlord. I never take undue advantage of that power differential.

        • Maggie Tasseron

          First off, Katie, I would hardly call 3 1/2 months plus the additional 30 days, by then 4 1/2 months’ notice, as presenting them with an emergency situation that was likely to leave them homeless. The 30 day notice was what they had agreed to, in writing, in their lease. I could just as easily have given them a 60 day notice right at the start and they would have had that time to vacate. Period. Or do you want to argue with that too? I’d love to hear how many landlords agree with your opinion that 8 months is a reasonable amount of time to wait for a tenant to move. I was their landlord, not their mother, yet I bent over backward to give them plenty of time to try to buy the property and was rewarded with lies and deceit. The problem was that they had the same attitude that you have displayed towards me, that of them being the poor, disadvantaged tenants who were being brutalized by the cruel slumlord. I could present you with a list of the damage they did and the garbage they left behind, complete with photos, but I’m sure that wouldn’t have any more impact on you than it did on them; you can probably even find a reasonable excuse as to why they failed to pay their rent, and not just the last month. I apparently gave them a sub-par property complete with new kitchen, bathroom, appliances, carpets, blinds etc. etc., so sub-par that they were dying to buy it, and that of course justified the way they left it as well as the way they treated me.

          You seem to only pick things out of my posts that you think support your lofty position. Your sanctimonious attitude makes me doubt that you are a landlord at all because if that is the case, you must be getting run over by tenants on a regular basis; maybe you just haven’t noticed the tire tracks running across your back.

        • Katie Rogers

          You said you immediately gave them a 30-day notice. That means you effectively told them they had to be gone within 30 days. That is the emergency. The fact that it happened to get stretched out to eight months did not change what happened at the start. In California, any part of a lease that does not conform to California law is null and void regardless of the tenant’s signature. You should have given them 60-days notice. The fact that your tenants apparently did not know that is irrelevant. I did not say that 8 months was reasonable, however I can easily see how it happened. It appears that once you gave notice they did not let the grass grow under their feet, and their best effort took eight month with the threat of homelessness hanging over them the whole time.

          At no point have I defended causing damage to someone’s property. However, I myself once offered to buy a sub-par property I was renting. I planned to do a full remodel. The landlord did not dispute the condition of the house, however he insisted on full ARV before repair, so of course, negotiations went nowhere. The fact that they were “dying” to buy what they called your sub-par property is not evidence that it was not sub-par.

          I do not get run over because the time-tested Golden Rule really works. I am determined to change the overly common landlord-tenant dynamic because I never forget what it was like to be a tenant. You would be surprised how many dividends real respect for tenants pays. Tenants can read in my local newspaper forum what local landlord think of them. Landlords often write that the fact that tenants are tenants is prima facie evidence that tenants lack financial responsibility, and drink or smoke what could be their down payments. No wonder even great tenants feel disrespected, and what about that motivates to care about properties that landlords frankly admit they would not live in themselves.

          It is perfectly possible that your property condition is an exception, However, I have been speaking mostly in general terms. I am not even a little concerned with whether landlords like the ones who post comments in my local newspaper or chatted in my art classes agree with me or not.

        • Katie Rogers

          Amy, Maggie says the loan for her house failed. I do not know if the tenants had a “contract” to buy the house, but it does not sound like it, or Maggie’s story would be more about getting them to perform the sales contract rather than getting them to leave. Even if there was a contract, there should have been a loan contingency. I suspect the agreement was way more informal a real contract, and good faith would suggest that if they cannot qualify for the loan, and if (we do not know this part) Maggie was unwilling to reduce her price to the amount they do qualify for which would certainly be well within Maggie’s rights, there is nothing behind her back about trying to buy a house they can successfully qualify for.

      • Your comment is great. Tenants are not always the bad people. I was billed over $3,000. for damages that were false. The charges were extremely high when in fact the actual cost was way less. Example $240,00 for window blinds that the actual cost were less than $4.00 each. $1600. for full interior painting. I did no damage to interior painting. There was no damage to the property period, yet no matter how it ends either in small claims court by me or on my credit report by them, I am the one it will reflect on for future rental.

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