Property manager stole security deposit

12 Replies

I'm an out of country landlord from Australia. I bought a property in Cleveland, Ohio on a turnkey basis, my offer was on the condition that the property was tenanted upon purchase.

The seller and his p/m placed a section 8 tenant in the house, I then signed the purchase docs and took title. I then signed an agency agreement with the property manager.

The property manager was holding the security deposit.

Fast forward several years and I received notification that the property management company was closing down. I immediately requested that the tenants security deposit be transferred to me. Despite numerous requests this was never done.

I have filed a complaint with the department of commerce against

1. The principal of the p/m company. The dept. advised that they will not be taking any further action against her, she never renewed her license.

2. The property manager that I had all my dealings with. The dept. advised that they are investigating him.

Since this happened I have been managing this property myself.

My question is , if and when this tenant moves out. What should happen regarding the refund of her security deposit ? Should I just accept it as part of the cost of doing business ?

Originally posted by @Laurence K. :

I'm an out of country landlord from Australia. I bought a property in Cleveland, Ohio on a turnkey basis, my offer was on the condition that the property was tenanted upon purchase.

The seller and his p/m placed a section 8 tenant in the house, I then signed the purchase docs and took title. I then signed an agency agreement with the property manager.

The property manager was holding the security deposit.

Fast forward several years and I received notification that the property management company was closing down. I immediately requested that the tenants security deposit be transferred to me. Despite numerous requests this was never done.

I have filed a complaint with the department of commerce against

1. The principal of the p/m company. The dept. advised that they will not be taking any further action against her, she never renewed her license.

2. The property manager that I had all my dealings with. The dept. advised that they are investigating him.

Since this happened I have been managing this property myself.

My question is , if and when this tenant moves out. What should happen regarding the refund of her security deposit ? Should I just accept it as part of the cost of doing business ?

Sorry to hear that, and it sounds like you have taken the appropriate steps to get it resolved.

Unfortunately you are probably going to have to return the deposit out of your own pocket unless you are able to collect on the judgement issued by the courts 

Brie Schmidt, Real Estate Agent in Illinois (#471.018287) and Wisconsin (#57846-90)

It is on you to return the deposit minus damages to the tenant. You can pursue the property managers for what was stolen through small claims court. Especially for someone long distance, it may not be worth your time.

Laurence,

I am so sorry to hear about your situation, always wise to conduct some due diligence on your part prior to hiring any third party for anything you do.

I m not sure what state your property is located, but may be a good idea to check with thats states Depart of Real Estate, Real estate Council or Depart of Business and Regulation to see if they have a Real estate Recovery fund, this is set up for situations such as yours

Good luck

Kim Meredith Hampton, Real Estate Agent in FL (#BK0601196)
407-253-9324

Hey @Laurence K. that is awful to hear and I am sorry to hear this. You will have to take the hit with the security deposit. Also be careful with how much you charge the tenant for the damages they leave behind. It is not worth trying to make it back up and over charge for holes in the walls or stains on the carpet. Cleveland courts will pick up on this in a heartbeat if the tenant files a complaint. I believe the find is double the cost back to the tenants. 

If you are now managing the property I would also make sure that the tenants sign a completely new lease and make CMHA (section 8) aware of what going on so they can update their system. If you added them to your insurance as an additional interests I would make sure they are removed from that as well.

Cleveland is my backyard PM me if you need any help

Kevin Hoag, Real Estate Agent in OH (#1090522) and OH (#2015002538)
216-505-4677
Originally posted by @Laurence K. :

I'm an out of country landlord from Australia. I bought a property in Cleveland, Ohio on a turnkey basis, my offer was on the condition that the property was tenanted upon purchase.

The seller and his p/m placed a section 8 tenant in the house, I then signed the purchase docs and took title. I then signed an agency agreement with the property manager.

The property manager was holding the security deposit.

Fast forward several years and I received notification that the property management company was closing down. I immediately requested that the tenants security deposit be transferred to me. Despite numerous requests this was never done.

I have filed a complaint with the department of commerce against

1. The principal of the p/m company. The dept. advised that they will not be taking any further action against her, she never renewed her license.

2. The property manager that I had all my dealings with. The dept. advised that they are investigating him.

Since this happened I have been managing this property myself.

My question is , if and when this tenant moves out. What should happen regarding the refund of her security deposit ? Should I just accept it as part of the cost of doing business ?

 Your gonna need to just eat this one. What's the deposit amount $500-$900? Costs to follow up with be much more & your likelihood of a payout seems incredibly small.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633

Sorry to slightly hijack the topic but does anyone here have any ideas on how to prevent something like this from happening? I have never used a property manager but is the practice always that they keep tenant deposits in their own accounts? Is there anyway to restrict the access PM's have from accessing the funds without your authorization?

@Igor Messano The best option is to use a reputable long term property management company.

Another option is to retain the security deposit(s) in your own security deposit account (or whatever is required by your local laws). The PM may have an issue with that as now they are relying on you to return a deposit to a tenant who deserves it. That's tough on a PM when the tenant is screaming at them for an overdue deposit and the owner for whatever reason refuses to release it.

As a PM I always preferred, and with smaller accounts mandated, that we hold the deposits. See what you can negotiate.

Hi Laurence, 

That is very unfortunate. Chances are when the tenants move, they will leave enough damage that it is not going to be refundable anyways. It is just the cost of doing business. Sounds like it is a pretty nice place though if they are section 8 tenants.  if you need any  help, I have a pretty big network here in Cleveland I can plug ya into.  Good luck!

I wonder if you can find some if their other clients and band together for a single lawsuit. Not sure it’s worth the time, money, or effort - but might be an interesting side project.

@Laurence K.   I am very sorry to hear this story, again.  I am all too familiar with the company and parties, having networked with them as peers in the industry.  I don't think anyone saw this coming.  I can tell you that Cleveland has a number of reputable management companies - don't be turned off to "professional" management by this one experience.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.