Re: Problems with initial rental deposits - Posted by Mr Donald (NORVA)
Posted by Mr Donald (NORVA) on October 17, 1998 at 23:25:50:
How much is your deposit? What is it used for? Credit check, first month’s rent, last month’s rent or Damage Deposit?
Here’s how to create a legal float and ensure that your tenants are credit worthy.
Have them fill out your application, and attach a deposit check - for damage deposit. Make it clear that $20 or $25 of the deposit is non-refundable, and to be used for the credit check. Period.
Deposit the check. Wait to see if it clears - and make sure that you only accept checks drawn on local banks - no starter checks or counter checks or anything like that.
Also, don’t accept cash, or money orders, or cashier, certified check for this deposit, or it’ll be the only money that you may see.
Deposit the check in your local bank, or better yet, certify it at their bank to ensure the funds are there and will clear.
If you don’t certify it, wait two weeks or so until approving the tenant if you can - that way you’ll know if they have cashflow management problem (in other words, they can’t balance a simple checkbook).
If you can’t certify it, or it bounces, then simply DON’T RENT TO THEM.
Never commit to your prospective tenant right away, just let them know that you’ll be getting back to them as soon as the credit check and application are reviewed by your management office - and that it could take at least 2 weeks for a thorough investigation.
Once the check clears for certain - usually after two weeks, allow them to move in if you accept them, and collect their first month’s rent then.
If they change their mind, TFB :), as they’ll have to wait for the funds to process through the bank - and you collect your $20 or $25 non-refundable credit check fee. Tell them that your management office will forward the deposit back to them (less the credit check fee within two weeks to the address on their application).
You shouldn’t have any problems with this setup at all - just check your local and state laws on whether you can allocate part of the deposit as a credit check fee. If not, just collect a second check for $20 to $25 for the credit check fee, with the stipulation and understanding that it is non-refundable.
You should always make the clearing of the check part of the application. Enjoy the float for 2-4 weeks as a result - and the interest too.