Hired a Prop Mgmt Company, failed to collect correct deposit amt

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Hired a Prop Mgmt Company, failed to collect correct deposit amt

Ryan Esposto
Chico, CA · Member since 2016 · 4 posts · 2 votes

- Hired a property management company in May 2011 to manage my rental property

- Typical management agreement between me and the company, included clauses saying that 1) they would collect a deposit equal to one month's rent, and 2) repairs over $150 needed my approval

- They found a tenant (someone who worked at the company, in hindsight this was a red flag)

- Settled on a rent of $1300 with a deposit of $1300, this is reflected in a copy of a signed/executed lease agreement that I have in my possession

- Tenant took possession July 1, 2011

Over the next 5 years, there were a few bumps, but nothing completely egregious, e.g. they tried to make me pay for a carpet cleaning in the middle of the tenancy and I pushed back, they refunded. All communication was done over email, including me raising the rent when the tenants renewed after the second year. The prop mgmt company weren't the best communicators, but they were serviceable.

Now the problem:

- In May 2016, I decide I want to sell the house and have the prop mgmt company give a notice of non-renewal to the tenants (lease was up June 30, 2016)

- Tenants move out at end of June. House sells and closes in late July.

- Prop mgmt company informs me there is approx $1100 in cleaning and repairs that they did after the tenants moved out, but that there was only a $400 deposit on file. Prop mgmt company wants a check for me for the difference, $700. (Note that I did not approve any of the repairs and I wasn't notified they were happening nor how much they would cost.)

- I dig in and tell the prop mgmt company that: a) first year lease clearly states that the deposit was $1300, what happened to that money?. b) the management agreement between the company and me clearly states they would collect a deposit of one month's rent unless I approve otherwise (which I never did). c) at no time was I notified that they didn't collect the complete deposit nor that the deposit amount was changed.

- Turns out that on the first two leases the deposit amount is $1300 and $1400, and I have copies of those. But they didn't send me copies of leases after that, and either the 4th or 5th year renewal the lease agreement changed the deposit to $400.

- But again, I was never informed of the deposit amount change nor was my approval requested.

The company is chasing after the former tenants for the money, but they sound like deadbeats, so I assume the company will come after me when the former tenants don't pay.

Anything I can do right now to prevent this from happening? I've already emphatically stated my case via email to the company -- I asked them why the tenants were allowed to take possession in 2011 if they hadn't paid the deposit, and why I was never asked about changing the deposit amount. 

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Robert GilstrapPro Member
Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
10y

Ryan,

I am a professional property manager in Atlanta and from what you describe they are at fault. Never heard of security deposits being reduced over time so is that what you are saying they did? 

ALso on the repairs after move out they didn't get your authorization and the terms of your agreement call for it then they hhave breached their agreement. If the house is sold then I would forget about it and ignore them unless / until it went to court in which case you will win it sounds like. Was this PM company a NARPM member?

[email protected]770-480-7301
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    If you want them to go away pay what they want otherwise tell the in no uncertain terms if they want their money they can take you to court. Fairly simple.

    2Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y

    Agree.  Small claims court.  Take your documents and let them explain it to the judge.

    1Reply
  • Robert GilstrapPro Member
    Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
    10y

    Ryan,

    I am a professional property manager in Atlanta and from what you describe they are at fault. Never heard of security deposits being reduced over time so is that what you are saying they did? 

    ALso on the repairs after move out they didn't get your authorization and the terms of your agreement call for it then they hhave breached their agreement. If the house is sold then I would forget about it and ignore them unless / until it went to court in which case you will win it sounds like. Was this PM company a NARPM member?

    [email protected]770-480-7301
    4Reply
  • Ryan Esposto
    OP
    Chico, CA · Member since 2016 · 4 posts · 2 votes
    10y

    @Account Closed They do not appear to be a NARPM member based on the search I just did on NARPM's web site, but they are licenses by the California BRE. And yes, apparently they changed the deposit amount on the leases starting with the 3rd lease to match what they had collected, but at no time discussed with me what was happening or sought my permission. 

    At this point I'm just going to sit and wait to see what they do. I have not yet suffered a monetary loss, so I can't sue them, unless there is some mechanism that I can use to pre-empt them from suing me?

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    10y

    I would do nothing and let them attempt to take action. They have realized they are screwed and are hoping to strong-arm you into paying for their error and let you deal with going after the tenant for damages. If you wanted to do that, why would you have needed a PM company in the first place?

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    1Reply
  • Robert GilstrapPro Member
    Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
    10y

    Yeah I would just sit tight. The house is sold, you're not out any $$ and they certainly realize by now they are screwed because of their mistake.

    [email protected]770-480-7301
    1Reply
  • Ryan Esposto
    OP
    Chico, CA · Member since 2016 · 4 posts · 2 votes
    10y

    Thank you everyone!

    0Reply
  • Bryan Blankenship
    Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
    10y

    Wow that's Crazy.  

    0Reply
  • Jason Franklin
    Real Estate Agent · West Hills, CA · Member since 2016 · 43 posts · 26 votes
    10y

    Weird situation, thank you for sharing!

    0Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y
    Originally posted by @Ryan Esposto:

    @Account Closed, @Thomas S. They do not appear to be a NARPM member based on the search I just did on NARPM's web site, but they are licenses by the California BRE. And yes, apparently they changed the deposit amount on the leases starting with the 3rd lease to match what they had collected, but at no time discussed with me what was happening or sought my permission. 

    At this point I'm just going to sit and wait to see what they do. I have not yet suffered a monetary loss, so I can't sue them, unless there is some mechanism that I can use to pre-empt them from suing me?

     How can you say you haven't suffered a monetary loss?  Didn't they bill you for more money to fix the place up than there was deposit money for?  Saying there wasn't the same amount of deposit money available to use that they initially said there was?

    I don't remember the exact numbers and I'm too lazy to go back and read everything.  But, if they told you they collected say $1300 in deposit money, and that's how much they say there was in damages - then they say they only actually collected $300 in deposit money, so you owe them $1,000 - heck yes you are out money!  To the tune of $1,000.

    Let them prove how much they collected in court.  I smell a rat, and I can't imagine any CA judge believing a PM only collected $300 for a deposit.  Especially in Chico.

    What you can do if you decide to take them to small claims court, is just add up as much as you can think of as far as damages - say $1,000 in the above scenario.  Then, in the form for small claims court, you put "Plus court fees and any punitive damages the court will allow."  You don't have to be correct.  There is no penalty for not having the correct amount or for not understanding the laws.  You just put down the max amount you can think of, and sue them for that amount, plus court costs and any punitive damages allowed.

    Then, when you go to court, you just tell the judge that you don't know exactly what's correct, but you didn't want to short change yourself, and you will trust him/her to come to a fair decision, but here's the story.....

    The judge will look at everything and make a decision.  So, you don't want to ask for too little.  It doesn't matter if you ask for too much.  The judge will decide what's fair, but if you ask for less than you should get, the judge probably won't give you more than you asked for.

    I hope that made sense.  But the beauty of small claims court is that you don't have to know what you are doing at all, and you don't have to be correct in how much you ask for.  

    It does help if you can bring any relevant laws with you, but most small court judges should be familiar with landlord-tenant law or will hopefully look it up.  They're just lawyers who act as small claims court judges part-time normally, and they may not normally practice landlord-tenant law, so if you can print out or at least refer to the correct statutes, it's helpful.

    But, if you are expected to reimburse the PM money that should have come out of a security deposit they told you they collected - that is money you can sue them for.  In my opinion.

    0Reply
  • Christopher Colburn
    Real Estate Broker · Franklin, TN · Member since 2015 · 18 posts · 13 votes
    10y

    Hey @Ryan Esposto,

    I am pretty sure (but not 100% certain) that in CA you have to have a real estate license in order to become a property manager. If this property management company keeps pushing you for payment another avenue you could take is reporting to them to the California Real Estate Commission. No one wants to put their Brokers License in jeopardy and that will probably be an easier first step before going to court (if it ever gets that far). If you look at your management agreement it should have their license number on the contract.

    I hear about these horror stories from other clients of ours and it is extremely frustrating since it can easily make it sound like property management companies are like used car sales men. Hope if you get another management company for any of your other property they treat you much better. 

    2Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y
    Originally posted by @Christopher Colburn:

    Hey @Ryan Esposto,

    I am pretty sure (but not 100% certain) that in CA you have to have a real estate license in order to become a property manager. If this property management company keeps pushing you for payment another avenue you could take is reporting to them to the California Real Estate Commission. No one wants to put their Brokers License in jeopardy and that will probably be an easier first step before going to court (if it ever gets that far). If you look at your management agreement it should have their license number on the contract.

    I hear about these horror stories from other clients of ours and it is extremely frustrating since it can easily make it sound like property management companies are like used car sales men. Hope if you get another management company for any of your other property they treat you much better. 

     Good point.  You are absolutely correct. To manage property in CA, you have to be a broker or work as a licensed real estate sales person for a broker who is contracted to manage the property (unless you own the property or are the onsite manager of that property).

    0Reply
  • Ryan Esposto
    OP
    Chico, CA · Member since 2016 · 4 posts · 2 votes
    10y

    @Account Closed they do have a BRE license number and 5 of their agents are licensed through the BRE. I have considered reporting them or filing a complaint, but for now I am waiting to hear from them on the next steps. The last I heard was that they were still "researching" the issue and attempting to collect from the tenants. They have not repeated their demand that I pay them right away since I dug in and presented my side of the story to them via email.

    0Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y
    Originally posted by @Ryan Esposto:

    @Account Closed I haven't suffered a monetary loss (yet) because I have not paid them for the repairs/cleaning that exceeded the $400 deposit amount. So, as of right now, I am not out any money and have suffered no monetary damage. So there's nothing to sue for.

    Now, if you are saying I can sue them for damages due to time and hassle, that makes sense, but I don't think that comes into play here? I guess I could sue them for the money they say I owe them (plus filing, etc expenses), but I would rather wait to see if they end up owning up to their responsibility. 

    I honestly do think they only collected $400. To me, the rat is this: what would make the agent who was my rep at the time sign a lease with the deposit stated at $1300, but then let the tenants move in even though only $400 was collected? To me that is either incompetence or fraud, but I don't care -- all I care about is that it was the agency's responsibility regardless of how or why it happened, they failed in that responsibility, and now they need to own up to it.

    @Christopher Colburn they do have a BRE license number and 5 of their agents are licensed through the BRE. I have considered reporting them or filing a complaint, but for now I am waiting to hear from them on the next steps. The last I heard was that they were still "researching" the issue and attempting to collect from the tenants. They have not repeated their demand that I pay them right away since I dug in and presented my side of the story to them via email.

     Unless they give you a written agreement that you do not owe them that money, I'd sue them over the bill.  Small claims court judges can also issue orders regarding these types of issues, where you ask a judge to make a determination regarding whether or not you owe someone the money they say you owe them.  This prevents them from trying to send it to collections.

    Small claims court can make other court decisions, too.  You don't have to be out of pocket in order to use the small claims court.

    1Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    10y
    Ryan Esposto Sue Kelly Let us know what happens Ryan. Sue, I disagree with you that he can, much less should, try to sue a company that says he owes them money. Setting aside that it is premature at this point, ultimately if it came down to it, it may make sense to pay the debt to avoid any adverse credit consequences and then at that point sue to get it back. I really don't think you can sue someone because they say you owe them money but aren't attempting to collect. But again, all very premature while they are "researching" it. I'd guess they ultimately fall on their sword, the paper trail is bad for them.
    0Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y
    Originally posted by @Marco G.:

    Ryan Esposto Sue Kelly Let us know what happens Ryan. Sue, I disagree with you that he can, much less should, try to sue a company that says he owes them money. Setting aside that it is premature at this point, ultimately if it came down to it, it may make sense to pay the debt to avoid any adverse credit consequences and then at that point sue to get it back. I really don't think you can sue someone because they say you owe them money but aren't attempting to collect. But again, all very premature while they are "researching" it. I'd guess they ultimately fall on their sword, the paper trail is bad for them.

     Disagreeing with me doesn't make me wrong :-)

    Small claims court can be used to settle disputes.  There does not have to be a monetary loss.  I don't know about you, but I would rather avoid getting a collection on my report, then have to deal with that collection getting removed or put a disclaimer on my report - then sue over the problem.  I'd prefer to nip it in the bud.

    The situation is that the PM told Ryan they need a check from him.  Rather than tell him never mind when he says no way, the paperwork says you collected that money from the tenant, they are supposedly chasing down a tenant to get the money.  I believe in being proactive.  I don't want some bill showing up in collections down the road.

    Here is one simple article that explains that disputes can be dealt with in small claims court:

    http://www.nolo.com/legal-encyclopedia/small-claim...

    The dispute can be over a bill that someone says is owed, and the other side says is not owed.  They don't have to pay first, then sue to get the money back.

    Obviously, Ryan can do what he wants.  But, you're wrong about the court not being a proper venue to resolve this dispute.  You would choose to wait and let them dink you around.  I would not.

    It's amazing how quickly disputes get resolved when the person dinking you around gets a notice to appear in small claims court.  And when I resolve things in this manner, I get them to also pay my court filing fees.  

    Just sayin', it works for me.  It is an option.  And one that gets quick results.

    0Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    10y

    @Account Closed - you are correct, disagreeing doesn't mean you are wrong :)  I will admit I had never thought of using small claims court in this manner, but especially if you've had success with it, it is definitely a valid option.  I do agree, court involvement does tend to deflate most hot air balloons...

    1Reply
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