How to Use the Disposition of Deposit as a Landlord [With Sample Form!]

How to Use the Disposition of Deposit as a Landlord [With Sample Form!]

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Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

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Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

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The Disposition of Deposit form is a one-page document that spells out in detail what happens to the vacating tenant’s security deposit, including an assessment of charges being held against their deposit. Preparing the Disposition of Deposit is one of the final tasks a landlord must do for their former tenant after they have vacated. Of course, our favorite Dispositions of Deposit to complete are the ones where the tenant gets an entire refund back minus the cost of mandatory carpet cleaning. Those are usually also the tenants who paid their rent on time, took care of their unit, didn’t cause unnecessary problems or hassles, and who will receive a great reference when a rental reference is requested.

Whether your tenant has any security deposit deductions or not, you as the landlord are required to send the tenant a statement itemizing the exact refund or balance owed, which is where the Disposition of Deposit comes in. The landlord is required to send the tenant the Disposition of Deposit and corresponding refund (if they get one) within a certain amount of time, which varies from state to state, so be sure to become familiar with the specific law in your jurisdiction. In Washington State, the penalty for the landlord who doesn’t send the Disposition of Deposit within 14 days after the tenant has vacated is harsh. The courts can order the landlord to repay double the amount what the original deposit was for, EVEN if the tenant owed a balance. Here’s a quick example.

Real Life Example

Linda purchased her first single-family rental house a couple of towns over last year. Her first tenants just moved out after only 12 months of occupancy. After they moved, she drove over to the property to take a look around and noticed the tenants didn’t clean anything, and there were some damages as well that she didn’t remember and that were also not listed on the Move-in Condition Report. Linda was disappointed the previous tenants were so negligent in caring for the home, and she was definitely not prepared for the $600 of her own money she had to put into the house to go towards the cleaning bill and damages, in addition to the tenants’ deposit of $750.

She got it done, though, and three weeks later found a new tenant and moved on. At one point about a month after the former tenants moved, they called her to find out where their deposit was. Linda informed them that she used it towards the damages they left behind. They denied responsibility and demanded she return their full deposit to them immediately, or she would see them in court. Linda wasn’t worried since she had her Move-in Condition Report and pictures of the damages they caused. She decided to call their bluff.

Some time later Linda finds herself in court because the former tenants claimed she stole their deposit. Linda explains to the judge that she didn’t “steal” it and had used the tenants’ deposit only towards the tenants’ damages and cleaning up their grime. The judge awards the former tenants $1,500 anyway because Linda didn’t realize she had to send the tenants a statement detailing the deductions within 14 days.

Ouch. Ignorance is not bliss, folks. It can hurt—a lot.

The Disposition of Deposit Form

The actual Disposition of Deposit doesn’t need to be anything fancy and can be as simple as a one-page form, like the one we use, shown below.

Screen Shot 2017 08 08 at 10.51.00 AM

If your tenant will not be receiving their whole deposit back, always include pictures, bids, receipts, and copies of their lease stating their responsibility for the charges. We always highlight the areas of their lease we want to draw their attention to as well. The point is to include as much information as possible to support the deductions to reduce the likelihood of a dispute that ends up in a time-consuming, stressful confrontation at best—and a visit to the courthouse at worst. Basically, you’re showing the tenant what you would be showing the judge, which, if you’ve covered all your bases, should be enough to silence any challenges that would have been forthcoming.

Your Disposition of Deposit should include the date, the tenant’s name, the address of the rental, the tenant’s current (forwarding) address, followed by an itemization of all credits and debits involving the rental and the security deposit.

As you can see on our Disposition of Deposit, we begin with the tenant’s credits, the total amount of money we have held in trust as their deposit. According to the tenant’s lease, we record how much the tenant paid in the following areas:

  • Security Deposit
  • Other Rent
  • Pet Deposit/Key Deposit
  • Other Deposits

After the credits, we break down the deductions in these categories, leaving extra space below for additional details, if needed. Remember, be as specific as possible in your details, and if you need more room, just include additional pages:

  • Non-Refundable Fees
  • Rent for Period___________ Through ___________
  • Unpaid Utilities
  • Lock Change
  • Late Fees, NSF, Legal Services
  • Carpet Cleaning
  • Cleaning
  • Damages
  • Other

Finally, total it all up, subtract out the debits from the credits, and you’ll arrive at your final number. At this point, either you owe your tenants or they owe you. Whichever it is, make it clear on the Disposition of Deposit and mail it within your state specific allotted timeframe to your tenant’s forwarding address or their last known address if you were unable to obtain their new address. If you really want to cover all your bases—and this next tip is required in some states—when you send the Disposition of Deposit, mail it via Certified Mail or for a slightly cheaper option, request a Certificate of Mailing.

Establishing Evidence of Mailing

The purpose of either Certified Mail or Certificate of Mailing for the landlord is simple: evidence of mailing. For Certified Mail, the envelope is affixed with a “Certified” label with a unique serial number, a duplicate of which the post office will postmark and give to the purchaser. The serial number is then tracked by the post office to provide proof of where, when, or even if the letter was delivered. This comes in handy for the landlord if their tenant denies receiving the mailing or claims the landlord didn’t meet their state requirements to issue a deposit statement and corresponding refund within the allotted timeframe.

With a Certificate of Mailing, you are only given a validated receipt of the time and date of the mailing—not proof of delivery. When we mail our deposit statements to our vacated tenants, we use the Certificate of Mailing. It gives the postmark evidence we want and shows we met the requirement in Washington State to mail the Disposition of Deposit to the tenant within 14 days after they have vacated. For the record, we have never needed the evidence of mailing, but as a landlord, it never hurts to be prepared.

At some point, you may find more deductions against the security deposit that you should have charged to the tenant after you have already sent back their Disposition of Deposit and refund. If you send your tenant a new bill for those additional items, they may argue that because they weren’t listed on their final Disposition of Deposit, they cannot be held accountable for the charges. To help combat this, you may want to add a small clause at the bottom of your Disposition of Deposit form that says, “The final credit or debit listed on this Disposition of Deposit does not waive the landlord’s right to pursue additional claims should they become apparent.”

[This article is an excerpt from The Book on Managing Rental Properties.]

What does your Disposition of Deposit for look like? Any questions or comments on this topic?

Leave them below!