Security Deposits and Fair Housing Laws

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A few days ago, I participated in a discussion around security deposits. The issue at hand was whether a landlord (property manager) could increase a security deposit for a single tenant, and not run afoul of fair housing laws. I maintain that YES, in Nevada, you can charge different deposit amounts for different tenants.

First, let’s take a look at the applicable prohibitions under the Federal Fair Housing Act. The Act prohibits us from treating renters differently, which would include different security deposit terms, based on a renter’s membership in a protected class. For clarification, on a federal level, the protected classes we’re talking about are race, color, religion, national origin, gender, familial status, and disability. In Nevada, our state has added 3 more protections: ancestry, sexual orientation, and gender identity/gender expression. To reiterate, the law prohibits us from treating renters differently because of their membership in a protected class. In other words, I would be violating fair housing law if I were to increase a family’s security deposit because they have children.

 

There is nothing in federal or Nevada state law that precludes our taking reasonable measures to offset our risks in renting property. The key is in evaluating rental prospects in an objective (measurable) way.

 

Let’s look at some of the things we can objectively evaluate…

 

Credit is first to come to mind, especially if we utilize a FICO score for credit evaluation. It’s measurable; it’s objective; and it has absolutely nothing to do with someone’s membership in any protected class under federal or state fair housing law. The lower someone’s credit score, the higher the risk may be in renting to him. A low credit score, then, may justify a higher security deposit.

 

Income is another factor we can objectively evaluate. If the rent on a single family home is $1,500/month, someone who makes $3,000/month is going to be a higher risk than someone who makes $4,000/month, right? Rent-to-income ratio is something we can measure objectively, and something that may justify an increased security deposit.

 

What about pets?

 

This is an area in which most property managers have no problem increasing deposits. Pets (not “assistance animals”) are not protected under federal or state fair housing laws, and are widely perceived to increase a landlord’s risk in renting to a tenant. If a property manager allows pets in a rental property, it’s not uncommon for the manager to charge either a separate pet deposit, or an increased security deposit, because of the pet.

 

What else can we objectively measure? How about rent payment history, eviction history, criminal background, and employment history? These are all things that can be objectively evaluated, and used for the purpose of determining risk. And, the higher the risk in renting to someone, the greater the justification for a higher security deposit.

 

In Nevada, the maximum security deposit, including “last month’s rent,” cleaning charges, and other deposits collected at the beginning of tenancy is a sum of three times the periodic rent. In other words, if the rent is $1,500/month, the maximum security deposit you can collect is $4,500. This gives the property manager a good deal of leeway in determining appropriate deposits, on a case by case basis. As long as the manager is objectively evaluating risk to determine the amount of the security deposit, and the perception of risk is in no way related to a renter’s membership in a protected class under fair housing laws, it is perfectly justifiable to vary security deposit amounts between tenants.

 

Do you agree or disagree? Please share your thoughts and experiences by leaving a comment on this post. Thanks!

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13 Replies to “Security Deposits and Fair Housing Laws”

  1. We do objective scoring on our Tenant Scoring sheet ; if they score below a certain threshold, the deposit is increased; if they’re below the next threshold, we tell them to hit the road. Also, we don’t have a pet deposit– we just increase the regular deposit. That way they can’t say, “Hey, my pet didn’t do that damage so you have to return it to me” even though they owe more than the regular deposit, if that makes sense.

  2. Does anyone know if in the case where you collect an additional deposit for someone modifying a dwelling due to a disability if that portion also applies to the three months’ rent maximum deposit? The way I interpret it, it does apply, but in my licensing class, the instructor says otherwise.

    1. Hi Teri –

      Establishing an escrow account to restore a dwelling to its original condition in the case of modifications is addressed separately from the “security deposit,” under NRS 118A. The escrow monies need to be held in an entirely different account, in the tenant’s name, generally must accumulate interest, and only can be held in cases where the interior modifications greatly impact the value of the dwelling – things like removing base cabinets in the kitchen, or removing all carpet are the types of items for which you might want to establish an escrow account. You can find more information on this issue here: http://www.hud.gov/offices/fheo/disabilities/reasonable_modifications_mar08.pdf

      Thank you for reading and commenting, Teri.

      1. The part that confuses me is when reading 118.101, section 5 (sorry if I’m not referencing that correctly), it says that “as used in this section, ‘security’ has the meaning ascribed to it in NRS 118A.240”. Then, in 240, it says that security is governed by 118A.242 which places the limitation on value.

        1. It’s important to note that an escrow account, established for the purpose of restoring the dwelling after physical modifications have been made (due to disability) is not a “security deposit” under NRS 118A. It’s an escrow account, for the sole purpose of assuring the modified dwelling will be restored when the disabled resident vacates. The escrow account is not a common occurrence, even when there are modifications to accommodate a disability. Most of the time, what I have seen is modifications such as adding grab bars, or installing a ramp. In those cases, no escrow account was needed, as the physical changes to the dwelling did not negatively impact its value. Only if the tenant made significant changes (removing all base cabinets in the kitchen, removing expensive carpeting, for example) that negatively impacted the value of the dwelling to a future tenant, would I consider requesting an escrow account to restore the dwelling to its original condition. Regardless, that account does not come under the definition of “security” in Nevada landlord/tenant law. It is addressed under The Federal Fair Housing Act. Hope this helps!

          1. Thank you, that is very helpful. It makes sense to me now to know that it falls under a different part of the Law.

  3. I place a deposit, got approved but found a better house. Are there any exceptions in getting my deposit back?

  4. My 81 year old father lives with us, and he has trouble lifting his legs to get into the tub to shower, the tub in the bathroom is really high and he is a fall risk, I did not think about that when we placed the application, also the laundry room is down stairs and he can not take the stairs to get to it without possibly falling. The other house I found is better, it has a lower tub and laundry is easier to get to. We did not add him to the lease yet and we have not signed it yet.

    1. Hi Roselie,

      Thank you for reading and commenting. I’m not an attorney, so can’t advise you of your rights in this individual circumstance. If I were in your situation, I would first talk to the housing provider to whom you paid the deposit. They may be willing to return it, given your circumstances. If not, I would talk to an attorney to find out what your rights are. Much will depend upon the housing provider’s policies for holding units for prospective tenants, and what you may have agreed to when you tendered the deposit.

      Best wishes to you!
      -Judy

  5. I was approved and gave the management both the holding fee as well as paid 70$ for the credit checks, this was on the 18 of December. Initially they set the 24 of December as my move in date. At that time when I returned the documents they requested the persons that were able to approve were not going to be in until the following week. When I returned yet again they requested more documentation including a notarized income verification yet again, now having 2010 and 2011. I was unsuccessful with returned calls regarding the status and made it clear that if any more documentation was needed from us they could rreach me or the accountant. On January 4, 2013 I returned to the rental office making it clear the need of approval and urgency was at the up most of importance. I assisted with other tenants and was there for 4 hours finally resulting in the leasing agent completing and printing out the 27 pages needed for approval. This was at 4:30 on a Friday. The property manager finally looked at the documents and they now were sent in to corporate which he very nonchalantly contacted as well. I was there waiting anxiously due to the fact my four month old and I are facing homelessness. I also had a money order ready for the balance due for total move in. They said I am approved and just waiting for the stamp and could happen but most likely it would be for the next day, Saturday. He said the corporate manager was taking it home and he would call him that night and could see no reason to be denied. So they would call and let me know and they were leaving so regardless it would be tonight. Saturday morning I calked and the agent working said they were not in and if the case was as stated she would have notes and keys and would not contact the manager although they live in site. So Monday I called several times with all calls being forwarded to voicemail. Never a call back. When I finally reached them I was once again told they were just waiting for the stamp and they would call me when they knew. At this point I contacted corporate and spoke with the receptionist whom informed me the guy responsible was out if town however still approving applications so she emailed him the current situation and said I would receive a call back from the property manager by the end of the day. Surprisingly no call back. Is there a time limit on how long they can gave all money for move in and be approved but no key? Any suggestions would be sincerely appreciated.
    Thank You,
    Mandy Kelly

    1. Hi Mandy,

      Your situation sounds very frustrating, indeed. I recommend you contact your own attorney, or a legal services organization in your state. There is a good deal of help out there for renters who face difficulties with their landlords, and much of it is free. Just about every state and/or county has a free (or, low-cost) legal clinic that can help with this kind of thing.

      Best wishes,
      Judy

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