Filing a Surety Bond Instead of a Security Deposit
My question involves landlord-tenant law in the State of: Michigan.
I am going to move out of my apartment in approximately 45 days. When moved in I was told I could pay a refundable security deposit of 1.5 times my rent or pay a one time non-refundable fee called suredeposit. The agent acting on behalf of the landlord made it sound like insurance. I pay this fee and won't get it back but it covers your deposit and damages. Now that I am about to move out and looked into it I have come to discover I unwittingly purchased a security bond for the landlord. Basically I payed a small fee for a bond that the landlord will then make a claim for damages/rent/ect. on. Then they Bond company comes after me like a collection agency removing my ability to disputed or deal directly with my landlord and damaging my credit report if i do not pay it imminently.
My question are am I understanding suredeposit correctly? Is this type of security deposit legal in Michigan? Do I have any legal ground to fight this after being completely lied to by the agent acting on behalf of the landlord? Am I entitled to a damages bill before they make a claim on the bond?
Re: Sure Deposit.did I Get Screwed
never heard of it before but if it was disclosed in your lease or associated documents, I'm not sure where you see a problem.
in the end, the most additional you would be out would be the cost of the bond. If there were damages, you would have had to pay them whether you used the conventional security deposit or the bond.
You would be entitled to the same notice concerning damages whether the bond was in play or not. Offhand I do not know MI's requirement but will look into it.
I don't see it benefiting the landlord but actually the tenant that cannot or does not want to lay out the cash for a security deposit. The landlord is bound by the same laws regardless.
regarding notice:
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554.609 Itemized list of damages; check or money order; contents of notice of damages.Sec. 9.
In case of damage to the rental unit or other obligation against the security deposit, the landlord shall mail to the tenant, within 30 days after the termination of occupancy, an itemized list of damages claimed for which the security deposit may be used as provided in section 7, including the estimated cost of repair of each property damaged item and the amounts and bases on which he intends to assess the tenant. The list shall be accompanied by a check or money order for the difference between the damages claimed and the amount of the security deposit held by the landlord and shall not include any damages that were claimed on a previous termination inventory checklist prior to the tenant's occupancy of the rental unit. The notice of damages shall include the following statement in 12 point boldface type which shall be at least 4 points larger than the body of the notice: “You must respond to this notice by mail within 7 days after receipt of same, otherwise you will forfeit the amount claimed for damages.”.
and you have a very limited time to respond:
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554.612 Response to notice of damages.Sec. 12.
If a landlord claims damages to a rental unit and gives notice of damages as required, the tenant upon receipt of the list of damages shall respond by ordinary mail to the address provided by the landlord as required by section 3 within 7 days, indicating in detail his agreement or disagreement to the damage charges listed. For the purposes of this section the date of mailing shall be considered the date of the tenant's respons
make sure you provide a valid forwarding address:
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554.611 Notice of forwarding address; effect of noncompliance.Sec. 11.
The tenant shall notify the landlord in writing at the address given under section 4 within 4 days after termination of his occupancy of an address at which communications pursuant to this act may be received. Failure to comply with this requirement relieves the landlord of the requirement of notice of damages but does not prejudice a tenant's subsequent claim for the security deposit.
Re: Sure Deposit.did I Get Screwed
While surety bonds and security deposits accomplish the same thing, they function very differently. A security deposit requires you to give your landlord a set amount of money, often as much as two months rent, before you can rent an apartment.
This money guarantees the landlord that he or she will not have to pay for any damage you cause or rent you fail to pay. A surety bond only requires you to put up a fraction of that amount when you sign the lease to guarantee the apartment.
However, there are three important differences.
1. The fee, ranging from a minimum bond of $87.50 to 17.5 percent of the going security deposit, for a surety bond is non-refundable, and is kept by the company issuing the bond – not the landlord. With a security deposit, when you move out you may receive a refund, after the landlord deducts expenses incurred to get your apartment ready for the next resident.
2. A surety bond offers coverage for a fixed period, typically 5 years. A security deposit is typically good for the life of the lease. If you’re looking for a larger apartment in the same building, both options will generally remain in effect, and you only owe an amount proportional to the increase in rent.
3. Last, and perhaps most important, is that you will still be financially liable for any damages to the apartment. However, instead of paying the landlord for damages, you will pay the company issuing the surety bond.
Re: Sure Deposit.did I Get Screwed
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rualakerhellya
My question involves landlord-tenant law in the State of: Michigan.
I am going to move out of my apartment in approximately 45 days. When moved in I was told I could pay a refundable security deposit of 1.5 times my rent or pay a one time non-refundable fee called suredeposit. The agent acting on behalf of the landlord made it sound like insurance. I pay this fee and won't get it back but it covers your deposit and damages. Now that I am about to move out and looked into it I have come to discover I unwittingly purchased a security bond for the landlord.
Unwittingly? At some point you had to sign something to get the bond. At that point it would have been laid out on paper in front of you. My guess is that you signed it without thoroughly reading and understanding what you were signing and that's dangerous.
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rualakerhellya
Basically I payed a small fee for a bond that the landlord will then make a claim for damages/rent/ect. on. Then they Bond company comes after me like a collection agency removing my ability to disputed or deal directly with my landlord and damaging my credit report if i do not pay it imminently.
My question are am I understanding suredeposit correctly?
Yes. That's exactly how a surety bond works.
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rualakerhellya
Is this type of security deposit legal in Michigan?
I can't imagine why it wouldn't be. Bonds are used for a variety of purposes. No reason they can't be used for security deposits. The company has been at it for 15 years. Bonding companies are regulated by the Department of Insurance. If you have any doubts call up and ask.
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rualakerhellya
Do I have any legal ground to fight this after being completely lied to by the agent acting on behalf of the landlord? Am I entitled to a damages bill before they make a claim on the bond?
No and no.
You signed a contract that allows the landlord to collect from the bonding company without having to deal with you.
The bonding company, on the other hand, should have to justify any dollars that it's coming after you for. Keep in mind that you did not post a security deposit. Your landlord waived it in exchange for allowing you to post the bond. I think that the security deposit law would not apply in this case and the bonding company would have the right to collect whatever you agreed to in the contract.
Re: Sure Deposit.did I Get Screwed
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adjusterjack
I think that the security deposit law would not apply in this case and the bonding company would have the right to collect whatever you agreed to in the contract.
I don't believe the have. Regardless who is the liable payor (tenant or bonding company), the landord must comply with the laws of notice if they intend to withhold anything. Given the tenant has a right to dispute the claims of damage, I seriously doubt the bonding company would want to step into the landlords shoes and defend the claim.
Re: Sure Deposit.did I Get Screwed
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jk
I don't believe the have. Regardless who is the liable payor (tenant or bonding company), the landord must comply with the laws of notice if they intend to withhold anything.
There's the rub. The landlord doesn't have anything to withhold. He didn't collect a security deposit so there's no security deposit to withhold. He submits his bills to the bonding company.
Think of it like bail. The court doesn't hold the defendant's money when the defendant buys a bail bond. The court has no obligation to return any money to the defendant or justify to the defendant what it collects from the bonding company when the defendant skips.
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jk
Given the tenant has a right to dispute the claims of damage, I seriously doubt the bonding company would want to step into the landlords shoes and defend the claim.
But that's exactly what the bonding company ends up doing. The landlord waives the security deposit. The tenant has a contract with the bonding company where he agrees to reimburse the bonding company for any money it pays to the landlord.
Granted, I haven't seen a copy of the Suredeposit bond form so I can't say what, if any, the process is for disputing the amount of the damages other than it would be between the tenant and the bonding company and the landlord would be out of the picture.
I found an appellate case in Ohio which supports my contention:
http://scholar.google.com/scholar_ca...fffffffffffe04
The Ohio Court of Appeals, in Kopp v. Associated Estates Realty Corp - 2010, ruled that the Suredeposit bond was not a security deposit and not subject to the Ohio security deposit law.
I have not found any decisions for Michigan on point and the few other cases around the country that involved Suredeposit did not involve the tenant suing for the return of money.
Obviously, the Ohio decision is not precedential in Michigan and whether or not it would be persuasive in Michigan is anybody's guess, but it's logic suits me.
Re: Sure Deposit.did I Get Screwed
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adjusterjack;932872]There's the rub. The landlord doesn't have anything to withhold. He didn't collect a security deposit so there's no security deposit to withhold. He submits his bills to the bonding company.
it doesn't matter if it he is withholding money or seeking it be paid from the bond:, he has only a right to seek repayment of justified damages.
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Think of it like bail. The court doesn't hold the defendant's money when the defendant buys a bail bond. The court has no obligation to return any money to the defendant or justify to the defendant what it collects from the bonding company when the defendant skips.
and just like a bail bond, when the defendant skips (damages) the court demand payment from the bond company. Here, the landlord is in the place of the court and the defendant the tenant and the bondsman, the bondsman. The landlord cannot seek payment without justified damages just as a court cannot demand payment of the bond without the defendant causing damages (skipping).
If a court sought payment of the bond without a valid basis, yes, the defendant would have standing to object to the call of the bond.
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But that's exactly what the bonding company ends up doing. The landlord waives the security deposit
. the landlord did NOT waive the deposit. He did not require it be paid in cash but he definitely did not waive it. The money behind the bond is the security deposit and he cannot make a claim without a valid basis to do so. Since the money effectively still comes from the tenant, there is no difference in the actions required between the landlord and tenant.
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The tenant has a contract with the bonding company where he agrees to reimburse the bonding company for any money it pays to the landlord.
but state law demands that any payment landlord receives for damages be based in fact.
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Granted, I haven't seen a copy of the Suredeposit bond form so I can't say what, if any, the process is for disputing the amount of the damages other than it would be between the tenant and the bonding company and the landlord would be out of the picture.
I don't think so. I believe it is still between the landlord and the tenant. Claiming it is between the bond agent and the landlord, well, what if the damages exceeded the bond?
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I found an appellate case in Ohio which supports my contention:
unless you find one for Michigan don't bother. We do things our way regardless what anybody else does. Its the michigan way.
but in the Ohio case the tenants were seeking a refund of what they agreed to were non-refundable fees. They did not seek a refund of a claim of damages nor did they argue a right to dispute possible damages, because it was not involved in their case.
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{¶2} On December 15, 2000, appellants entered into a 12-month lease with appellee for a rental unit in Arrowhead Station located in Westerville, Ohio. The lease provided for a monthly rental fee of $840 due by the first of each month. The lease incorporated an addendum referred to as a checklist that provided for a $75 "Redecorating Fee" and a $300 "Pet Fee." The checklist indicated that those fees were nonrefundable and that $40 of the stated monthly rent was "Pet Rent." Appellee also required a security deposit that consisted of a refundable deposit equal to one month's rent. As an alternative to the conventional security deposit, however, appellants were given the option of purchasing a security deposit bond referred to as "SureDeposit" from Bankers Insurance Company ("BIC"). According to theSureDeposit Bond Acknowledgement ("Acknowledgement"), signed by appellants, in exchange for a nonrefundable purchase price of $437.50, appellants had security bond coverage in the amount of $2,500.00.
{¶3} In addition to incorporating the checklist, the lease also incorporated the Acknowledgement and noted: "Tenant has deposited with Landlord the sum ofSureDeposit Dollars ($0.00) * * * for the purpose of insuring performance by Tenant of all obligations of Tenant as provided in this Lease." For administering the program, BIC paid appellee 20 percent of all bond premiums.
{¶4} Appellants terminated the lease on October 31, 2001, which was two months prior to the lease's expiration. On June 18, 2003, appellants filed the complaint herein seeking a return of the above-described fees.
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Regarding the SureDeposit, the trial court concluded appellants voluntarily chose to purchase a bond in lieu of making a security deposit, and therefore, the $437.50 premium paid for the bond was not a deposit as defined by R.C. 4321.01(E).
I see this sort of situation no differently than if there was an escrow account rather than the bond. Since tenant is ultimately responsible for the claim for damages, denial of their right to dispute a claim of damages by the landlord would be inequitable and the law doesn't like inequities.
It would also result in an unjust enrichment to the landlord.
Re: Sure Deposit.did I Get Screwed
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jk
unless you find one for Michigan don't bother. We do things our way regardless what anybody else does. Its the michigan way.
Courts in every state often look to other states' case decisions for guidance when they have no prior decisions of their own.
Until Michigan courts step up with a decision there's no way of knowing what the Michigan "way" is.
Meantime, I agree with the points you make except that this is not between the tenant and landlord, it's between the tenant and the bonding company. Sure, the landlord may have to justify his damages to the bonding company, and the tenant may have a dispute process available to him. The tenant may also have some protection from charges in excess of the bond amount, or not. No way of knowing any of this without reading the bond and its application and there may also be a contract between the bonding company and the landlord outlining the landlord's duties.
Too many things are up in the air but I'll stick to my opinion.
Getting back to the OP's question, he's got 44 more days to make sure he leaves the rental spotless and undamaged. :friendly_wink:
Re: Sure Deposit.did I Get Screwed
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adjusterjack;932938]Courts in every state often look to other states' case decisions for guidance when they have no prior decisions of their own.
yes, unless your state believes they are superior to all others and that is Michigan's point view in general. In real life you have those that are leading the parade and those that are following.
Up here we simply start our own parade and then ask: where is everybody else? this is THE parade.
Think about it; we are the ONLY state in the US with no fault insurance on our cars. We have THE highest cost for insurance in the country. You think we got here by following anybody?
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except that this is not between the tenant and landlord, it's between the tenant and the bonding company.
The landlord tenant relationship is not altered by the presence of the bond. There could be a dispute between the bond agency and the tenant if the bond agency paid more than tenant agreed to but that is about the only issue possible between those two parties. I, just as you, are not privy to a contract from the bond company in question so I cannot speak with certainty but I suspect the contract allows for the bond agency to pay landlord any demand they make under the law. At that point it removes the bond agency and the dispute is between the landlord and the tenant.
I know you've dealt with bonds before. Are you not aware the bond purchaser has standing to dispute a claim made against the bond? I work in construction and it is a very prominent part of the business dealings. When a performance bond is called, it is limited to a valid claim for damages. The bond agency is not empowered either through contract nor knowledge to contest a claim. The bond agency simply becomes the guy holding the cash ready to pay whomever is proven to be the rightful recipient.
If I've got a $4 MM dollar bond out there because I have a $4MM contract, if I finish $2MM of the work (presuming it would require $2MM to complete the job), the customer cannot simply make a claim for the $4MM value of the bond. They are entitled to only the cost to complete my work. I have a right to contest any claims made as it is effectively my money.
and notice that in Ohio the people sued the landlord, not the bond agency. If the landlord was out of the picture it would have likely been dismissed long before it went to court.
Re: Filing a Surety Bond Instead of a Security Deposit
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jk
I don't see it benefiting the landlord but actually the tenant that cannot or does not want to lay out the cash for a security deposit. The landlord is bound by the same laws regardless.
Given that the only consequence of failing to give proper notice under MCL 554.609 is the loss of the landlord's ability to make a claim against the security deposit, MCL 554.610, the landlord is only affected by the notice/itemization law if Michigan's courts decide that a surety bond is a form of security deposit, and even if a court were to make such a finding, the remedy is mooted by the contractual relationship of the various parties -- there is no security deposit to be refunded to the tenant, so to the extent that there is an attempt to recover money from a former tenant it would be necessary to either convince the tenant to voluntarily pay the money or to recover the money through the courts.
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adjusterjack
There's the rub. The landlord doesn't have anything to withhold. He didn't collect a security deposit so there's no security deposit to withhold. He submits his bills to the bonding company.
It's somewhat difficult to determine how this particular company's programs work, as they don't put a great deal of information on their public site and don't appear to publish their standard contracts between themselves and either the landlord or the tenant. That said, in their FAQ they do suggest that the tenant directly pay the landlord for any damages claim, suggesting that they contractually require the landlord to first notify the tenant of the claims and to try to recover the money from the tenant before making a claim against the bond. I also found an article suggesting that, as of a few years ago, that 60% of the amounts paid as bonds were held to indemnify the landlord with the balance going to the bonding company -- an arrangement that should help discourage excessive claims, as they would drain the landlord's account balance. There's also no reason to believe that the bonding company wouldn't entertain a defense to the charges by the tenant in association with any claim made by a landlord, particularly given that the bonding company would have to prove the reality of any claim for unpaid rent or damages were they to try to pursue a civil action against the tenant.
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Quoting adjusterjack
Obviously, the Ohio decision is not precedential in Michigan and whether or not it would be persuasive in Michigan is anybody's guess, but it's logic suits me.
The ultimate question may be less whether the surety bond is a security deposit, and more whether the tenant is fully appraised of what the surety bond signifies and the rights that they are giving up by purchasing the bond instead of paying a deposit. Most states have a variety of consumer protection laws that could potentially come into play if the explanation is unclear or misleading.