Wondering how I should proceed in my situation. I had a falling out with my former property manager when I asked them to do a kitchen remodel, when that remodel was partway done, the incompetence of the remodel showed, with glaring defects, illegal work, and skyrocketing cost. Shortly after terminating them from the kitchen remodel, our property management agreement ended (for the better as they didn't manage the property at all).
After the agreement ended, we signed a new property management agreement with a new company. The former company will not release our tenants' security deposits to the new company. How should I proceed in this situation? The property is located in Virginia.
They HAVE to turn the security deposits over. Anything less is illegal. They may need to be reminded of that by a stern letter from your attorney.
John is correct. If they say they dont have that money anymore, that is just as illegal. They will likely just bank on you not persuing it, since court time and costs wont be worth it.
Send a demand letter with a threat to go to the state if not promptly rectified. If they fail to resolve it follow through with the state regulators.
Is there more to this story? Did they explain why they haven't sent you the deposits, what the holdup is, etc - has there been any communication from their end?
The property manager had building utilities placed in their name and taken out of the monthly income. During the last statement, I paid out any deficiencies just prior to the end of our agreement. My wife dropped off the lockbox and picked up the keys and they refused to provide the security deposit(I would have resolved this in person, but I'm in clinical 16hrs/day). We wanted to terminate sooner, but they wanted to collect another month's rent, while in the meantime not doing anything for the property.
In the closing bills, they were also having me pay for their late fees in paying the utilities. I have no qualms, about paying for what is legally owed, though refusing to transfer the security deposit in the meantime is what I believe is illegal. My new property manager has been asking for the security deposit which I have none to provide him.
@Paul Kuhn as said they legally must return them to you. Most states take security deposits very seriously. i am sure if you report them they will get in serious trouble. I agree the best action for you is have an attorney send a strong demand letter.
So you didnt pay them for the kitchen remodel, and now they are sitting on your security deposits?
Kitchen remodel was paid for, have a paid in full signed letter.
The security deposits are the property of the tenants. They remain so until they are returned or "used" after their move out with documentation in accordance with state/local laws. Whatever gripe the management company has with the previous landlord client, they can't use the tenant's security deposits as a resolution to disputed finances.
If they're stupid enough to still be sitting on those security deposits, then the stupidity goes deep. So the bad news is that the money is probably gone. You're going to have to make good on the deposits. They're never going to admit it. You can go after them legally, and you should. But your strongly-worded letter will probably go unanswered, and you'll most likely gradually learn you've fallen prey to yet another crook in an often rapacious, largely unregulated industry.
Get a lawyer.
@Christine Kankowski it's just that simple, get a lawyer, however if you have the cash flow or funds available to recover that loss and compare the cost of litigation with the funds needed to recapture that loss it may just be cheeper to report it as a loss. I've never had this issue with my property managers and I've transitioned between 3 in the last 13 years. But has me thinking if I should confirm the securities are in an escrow account and possibly have a trust manage that account providing a POA to my PM which I could terminate before the turnover.
Sorry to hear that you're going through that, Paul. I'm no attorney, but in most states that is illegal (some of that may depend on the state, but I'm pretty sure that they are required by law to relinquish security deposit back to the LL in VA as well). May need to get legal counsel to take a look at the contract you had with your prior PM, but from the details that we have thus far, the PM withholding the deposit sounds illegal.
Also, just a good rule of thumb -- if you have a smaller business portfolio in REI (ie. only own anywhere from 1 to few units), it doesn't make as much sense to go the property management route, rather, manage it yourself with a bit of guidance. Generally, you're going to be paying 6% + out to a property manager -- not to mention that many property management companies ask for a portion of the first month's rent (or even a full month's rent). And then you still end up with potential situations like this. I do hope everything works out! @Paul Kuhn
Thank you all for your replies, I will give them to Friday before filing a complaint against their license and the board.
Updates to this unnecessary saga. My new property manager tried contacting them, in which they badmouthed me, lied about the property that it floods all the time (neighbors say the property hasn't flooded for as long as they can remember +15years (as we are the highest point of the street), and stated that I am unpleasable. Thankfully the former property manager's reputation proceeds them, with everything being said being taken with a heavy grain of salt. They also lied to them that they are still managing the property and therefore will hold onto the security deposit. Thankfully I sent him their termination letter a few days prior.
They finally provided proof of utility bills to me today and will pay by their due dates if they reimburse me for all the late fees they incurred and charged me for managing the utilities at the property. Today they decided to add a $250 early termination of management agreement(they initiated termination) charge to me for less than 6 months. Keep in mind agreement ended 10/21 (notification 9/21), and multiple emails stating the amount owed, included yesterday did not include the $250. Still refusing to release the security deposit, despite reminding them that it is neither their's or mine, but the tenants. They want me to pay the utility bill without reimbursing me the late fees and the $250 in cashier check to them now before releasing the security deposit.
These are some of the images of the poor kitchen remodel and illegal work. The whiteboards/support next to my washer and dryer were supposed to extend to the edge of the appliances, also there was supposed to be a solid piece of granite laid overtop (he mismeasured and wanted me to buy a new piece to replace the small one he bought that stopped where the whiteboards stopped) which could not be supported by those 1/4 inch whiteboards. He even told me at one point he was only going to place granite on top of the center cabinet when the initial quote/plan was to cover the whole thing.
Next, the gas line he placed didn't even reach the stove and he left it uncapped. The gas shut-off valve is behind the cabinet, which he planned on enclosing, which would leave me no access to it.
As you can see the granite backsplash, he planned on leaving it like that, that was the last straw at which I asked him to stop working on the kitchen. The contracting company which is owned by the husband wanted the full price + almost another $2000 for his work done. This resulted in the property management fallout owned by the wife.
Paul, as everyone has already mentioned, security deposits are a big deal and they belong to the resident. They need to remit these to you immediately or it's worth a demand letter from an attorney and filing a complaint to your local/state real estate board. Landlord expenses should be handled between the PM company and the landlord, not the resident's security deposit.
@Rob B. I see that you're on the self-manage side. I'm obviously on the PM side. I have to agree and would say that a good PM company can easily bring more value than the cost of their services, even when managing one property. For experienced investors, sure, but it can take a lot of their time.
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