Property Management & Rentals

Rental Property Depreciation

Rental Property Depreciation

Rental Property DepreciationWhen it comes to investments, real estate can offer some solid benefits. Property appreciation, tax breaks and in the case of rental property, recurring cash flow can turn your property into a money generating investment. You can take advantage of these benefits whether you use a Property Management company or self-manage your own rentals.

In many ways, the law seems to favor real estate investors and rewards those who make this type of investment with a number of opportunities for different tax breaks.

One tax break that many landlords benefit from is depreciation; which allows you to recover some of the cost of income-producing property through yearly tax deductions. You can do this by depreciating the building, and in some cases, the personal property inside by deducting some of the cost each year on your tax return.

Generally speaking, depreciation results in more money in a landlord’s pocket. Since the single largest expense that most landlords have is the cost of the rental property, being able to depreciate it allows you to claim a significant portion of that expense by spreading it out over the course of a number of years, thereby reducing the amount of tax that you owe.

If you’re currently a landlord or are thinking about buying an investment property, having a basic understanding of the deductions that you may be eligible for can help you to save significantly on your tax bill. In the case of depreciation, it can also help you to prepare for unexpected costs down the road, allowing you to manage your portfolio and structure your deals in a way that will benefit you the most.

With this in mind, let’s take a look at depreciation for rental property, and see how you can use this deduction to reduce your tax bill.

What Is Depreciation?

Depreciation, in a nutshell, is based on the concept that some assets are depreciating in value.
While real estate in most areas is an appreciating asset increasing in value, the truth is that the building itself along with some of the property inside the building, like appliances, are things that’ll wear out over time. As the years go by, property wears out, decays, or becomes otherwise unusable.

Depreciation is an annual tax deduction that landlords can take that reflects this cost.

With depreciation, landlords can depreciate the value of the building, land improvements, such as landscaping, as well as personal property items that are inside the building, but not physically part of it; for example, refrigerators, stoves, and carpet.

One thing that makes depreciation so valuable for landlords is the fact that you get to take it year after year. In the case of most rental properties, the cost of depreciation is spread out over the course of 27.5 years, making it a long-term benefit. Additionally, unlike many deductions, landlords don’t have to pay anything in order to claim depreciation, aside from the cost of the original asset, and owners are entitled to depreciation even if their property goes up in value over time, as is often the case.

Here’s a practical example of how depreciation works:

Example: Denise purchases a rental property with a depreciable value of $100,000. Because of this, she is entitled to a yearly depreciation deduction of $3,636 for the next 27.5 years (excluding the first and last year, when it will be somewhat less). The only thing Denise has to do to get these annual deductions is to keep the property as a rental, file a tax return, and do some simple bookkeeping. She doesn’t need to spend an additional penny on this property.

Rental Property Depreciation

Depreciation Recapture

Now, there’s a downside to depreciation that most people tend to overlook, that is, depreciation recapture.
Depreciation recapture is a small “Gotcha!” from your friends at the IRS, which requires you to pay 25% tax on any gain realized through depreciation.

So if you were to sell your rental property down the road, you’ll have to pay 25% tax on the total amount of depreciation deductions that you took over the years.

Of course, there are a few alternatives to this tax.

One alternative is using what’s known as a 1031 deferred exchange, or a “like-kind exchange”, which allows you to defer this payment. With an 1031 exchange, when you sell your property you can roll the depreciation into the next property that you purchase. The downside to this option, though, is that you’re simply deferring the tax. You’ll still have to pay recapture taxes when you sell the exchanged property in the future.

Another option is not selling the property at all, but instead keeping it as a rental and then passing it on to your heirs. When they inherit the property, they won’t have to pay your depreciation recapture taxes.

A third option is to sell the property at a loss, but of course, this is a far less popular option.

In most cases, the longer you wait before you sell, the less of an impact the depreciation recapture taxes will have. This is because you’ll have had many years to make use of the additional tax savings that accrued from using depreciation. Additionally, you may not be in the same tax bracket that you would have been in had you made the sale earlier on.

Keep in mind that there are a number of different ways that you can structure your investment properties and use tax deferral strategies to avoid depreciation recapture taxes. It’s a good idea to speak with an accountant to see what your options are and to find out how you can best take advantage of depreciation.

Depreciation Is Not Optional

At this point, you may be thinking, “Ok, I’ll just skip depreciation, and not claim it”.

Unfortunately, depreciation is not optional. You must take a depreciation deduction if you qualify for it.

If you fail to take it, the IRS will still treat you as though you had taken it. This means that if you sell your property, its value for tax purposes will be reduced by the amount of depreciation that you failed to claim. You’ll show a larger profit from the sale that you’ll have to pay taxes on.

If you have unclaimed depreciation, you can deduct the entire amount in one year. To do so, you’ll want to make what is known as an I.R.C. Section 481(a) adjustment and file IRS Form 3115 to request a change in accounting method. Generally, this type of change is granted automatically by the IRS, and you won’t need to file any amended tax returns. You may need to seek out an accountant, though, as it’s a confusing form.

What Can Be Depreciated?

First, there’s depreciation on the rental building itself. This usually accounts for the largest depreciation deduction that you can take.

With this deduction, the rental building itself (the structure) can be depreciated. The land that it’s sitting on, however, cannot. This makes sense when you think about it. While the house may be slowly wearing down with time, land doesn’t wear out or “depreciate” in the same way.

Secondly, personal property that’s a part of your rental business, can also be depreciated. This includes things like appliances or furniture in the house, as well as office or construction equipment, cars, and other vehicles that you own, and use for the rental properties.

Of course, only property that you own is able to be depreciated. You can’t depreciate property that you lease for your rental activity such as office space. Additionally, you aren’t able to depreciate property that’s solely for personal use. So no depreciation for your personal residence, and should you convert a rental property to a personal residence, you must stop taking the depreciation for the property. If a property serves as both a rental and for personal use, you may depreciate only part of its value; the percentage of the property used for rental purposes.

Note: Thanks to the new GOP tax bill; the Tax Cuts and Jobs Act, depreciation for assets that have “useful lives of less than 20 years” has increased from 50% to 100%. This means that if you buy appliances or new carpet, or make land improvements, you can write off the entire cost of these expenses in the year that they occurred.

Finally, the amount of your depreciation is based on the cost of the property itself. The amount that you borrowed to purchase –i.e. the interest rate on the loan is irrelevant. You can, however, deduct interest on the mortgage, or for HELOCs that are used for the property.

How Does Depreciation Work?

Practically speaking, how do you go about claiming it on your tax return?

First, you must determine what’s known as your property basis, that is, how much the property’s worth for tax purposes.

Usually, your basis is the cost of the property, and any expenses of the sale such as real estate transfer taxes.

Land cannot be depreciated, so it must be deducted from the cost of the property.

Next, you must determine the depreciation period, or “recovery period” of the property or aspects in question, that is –how long the IRS says you must depreciate it for.

Real property placed into service after 1986 is depreciated under what’s known as the Modified Accelerated Cost Recovery System (MACRS). Under this system, the depreciation period for residential real property placed in service after 1986 is 27.5 years. Prior to 1987, different depreciation methods with different depreciation periods were in effect.

The periods are the same whether the property being depreciated is old or new. When you buy property, you start a new depreciation period beginning with year one, even if the prior owner previously depreciated the property as well. This makes no difference to you, though, your depreciation period starts when you purchase the property.

You then deduct a certain percentage of its basis each year during its recovery period.

Next, you’ll want to calculate your deduction amount. Your depreciation deduction is a set percentage of the basis of your property each year.

This percentage varies, depending on the depreciation method you use. All real property must be depreciated using the straight-line method. Under this method, you deduct an equal amount each year over the depreciation period, generally 27.5 years.

At the end of the day, depreciation can be a useful and often-necessary deduction that landlords can take. Just make sure you work with a good accountant, who can fill you in on depreciation, as well as depreciation recapture if you’re planning to sell the property down the road. This will allow you to structure your purchases in a way that will benefit you the most and will help to keep you from being hit with any unexpected taxes in the future.

To learn more about depreciation, be sure to check out the IRS Publication 946 (2017), How To Depreciate Property.

Here are some additional resources about Real Estate Tax Deductions and 1031 Exchanges:

Please Note: While this article contains information that we’ve learned from classes and from working with our clients over the years, please keep in mind that we are not tax professionals. This information is intended to inform and to guide only, and it is not meant to serve in place of tax advice from a licensed tax professional. These principles should only be applied in conjunction with a CPA. To learn more about depreciation as it applies to your own financial situation, please consult a tax professional.

shouldisellorrentmyhouse

Should I Sell or Rent my House?: Weighing your Options

You are a homeowner and for whatever reason, it’s time to move on. Maybe you’ve outgrown your house, perhaps there’s a new job waiting in another location or you’re just ready to move to a more appealing home in a different neighborhood. No matter what the reason, you are no doubt struggling with the question, should I rent or sell my house?

This decision often comes down to where you are in life and what your long terms goals are. If you don’t have a lot of cash reserves or investments, you might need the proceeds from the sale of your existing home to go towards the down payment on a new home. If on the other hand, you’re looking for investments, managing a rental property might be a great option for you.

Deciding Whether to Sell or Rent

There are a lot of different factors to consider before jumping into the world of rental property investing. Some of them are financial, while others have to do with the demands this type of investment can make upon your time and lifestyle.

Let’s take a look at the major considerations that will affect your decision.

Start with the money

Cash flow should be the primary focus when considering the financial side of the rental business. Just like it sounds this term describes how cash flows in and out of your accounts.

Cash can flow positive or negative, but for most people, positive cash flow from your rental property will be the goal.

There are rare exceptions to this principle, these exceptions usually involve taking losses for tax purposes, certainly not something most people are looking for.

The other reason you might consider taking the negative cash flow would be if you were pretty far into a 15-year loan. You would do this in order to pay off the house and own it free and clear.

Establishing Cash Flow

In order to establish cash flow, you’re going to have to do some estimating of both income and expenses. It’s important to be realistic about these numbers. When I work with a new property owner in our property management company, I tend to lean on the pessimistic side of these numbers.

If the property leases for more money and the expenses end up being less, our clients are pleasantly surprised.Click To Tweet

If the property leases for more money and the expenses end up being less, our clients are pleasantly surprised. If there is some kind of negative trend in the market, having forecasted from the worst case scenario means they’re less likely to get hurt. I suggest you do the same when making your estimations.

Your Property’s Income

Rental property income can come from a number of different sources. Some landlords offer various services and options to tenants for a fee. Services like landscape maintenance, cleaning and various insurance policies for late rent. It’s a good idea for the new landlord to keep it simple, this means using only the rent payment when calculating income.

Establishing Rental Rate

The first thing you need to establish is how much you can realistically lease your property for. You want to be realistic because you want the property to lease quickly, no matter what the condition of the rental market. Keeping it leased goes hand in hand with keeping the cash flow positive.

You have several options when it comes to pricing.

  1. There are free valuation websites like Zillow where you can get a ballpark idea of what your home could lease for. This gives you a starting point, but ultimately you’re going to want to do detailed research to get a more accurate estimation.
  2. You could ask a Realtor to do a rental analysis. They will most likely use data from the MLS (Multiple Listing System), this is a good option because the data is generally accurate and verified.
  3. Another option would be to do your own research by combing through sites that feature rental properties in your neighborhood. You can talk to neighbors in order to see what they know about rental prices as well as calling any “For Rent” signs to see what people are asking.
  4. Finally, you might use a property management company to manage the property. One of the primary services they provide will be pricing. Since they manage multiple properties and will usually have MLS access, their price is usually the most realistic.

I can’t stress enough how important it is to get the pricing right. Tenants tend to move in waves, this means they usually start looking 30 to 45 days prior to when they want to occupy. Additionally, they probably need to give notice to their current landlord. If you take the first couple of weeks testing your price, you may find your rental sitting vacant for a couple of months. This mistake will kill your cash flow.

It is important to be methodical about your pricing and please don’t use the ”This is how much I need to get method”. This method consists of the homeowner looking at their payment and adding a little profit in order to determine the rental rate. This doesn’t work because the market doesn’t care how much your payment is or how much profit you want.

Renters will be looking at everything available on the market. If your rental is overpriced they will more than likely politely pass leaving you clueless as to why they didn’t lease it. So, before you do anything else establish a fair market rental value for your property.

Your Property’s Expenses

Once you establish the fair market rental value for your property you can start to apply debits to that number in order to see if the cash flow will be positive. here is a list of expenses you’re going to want to use in order to figure out if this is going to work.

  • Mortgage: Add up your principal, interest, property taxes and insurance (landlord policy).
  • Taxes: You will need to pay federal income taxes on the net income (rent plus other money minus expenses) you receive from your rental property each year.
    • Each year when you file your tax return, you will add your net rental income to your income for the year, such as salary income from a job, interest on savings, and investment income.
    • Property Taxes were covered above in the Mortgage section. If you, not your lender make your own tax payments, you can add them here.
    • Owning a rental property allows you to make several tax deductions for things like interest and depreciation.
  • Operating expenses: This is a broad category
    • Advertising – Websites, Print, Social Media
    • Travel – Driving back and forth to the property
    • Cleaning and maintenance
    • Legal fees – Documents (leases, disclosures, etc.)
    • Credit and background checks
  • HOA Fees: If you live in a neighborhood that has an association you’re going to want to pay those fees yourself. Since late payments of HOA fees can bring serious consequences and fines, you don’t want to leave this one to the tenants. Having said this, you may want to roll the HOA cost into the rental rate.
  • Management fees: if you choose to use a property manager you will need to calculate their monthly fee along with any other additional fees into your expenses total. Using a property manager can eliminate other expenses along with a significant amount of time and hassle. if you are the least bit squeamish about dealing with tenants you owe it to yourself to talk to a property manager.
  • Commissions: if you or your property manager are putting the property into the MLS system for Realtors to show and help you lease, you’ll need to offer a commission which varies from area to area.

Once you’ve tallied all of your expenses and compared against the potential income you’ll receive from the property, you’ll have a better sense of whether or not renting versus selling is a good idea.

Your Time and Effort

In addition to the financial aspects, you should consider the effect managing rental properties will have on your personal life.

If you’re going to self-manage your rental property, you will need to handle the following:

  1. Advertising – The internet makes this a lot simpler than it used to be. You’ll still need to prepare ads, take photos, compile house details and post all of this information.
  2. Answering calls – No matter how automated you try to make the leasing process, tenants still want to talk to a human. They have questions and frankly, want to get a feel for what kind of person you are.
  3. Scheduling showings – Plan on showing the property at all times, even on evenings and weekends. People with 9 to 5 jobs are going to request this. In our experience, if someone is really looking for a house to rent they will carve out time during the day.
  4. Showing the property – This can actually be a lot of fun and it’s good to get to know your prospective tenants. One important word of warning don’t be wooed by their personality, you need to be objective and make your decision on the application and the data you get from that exercise. In other words, put a lot of weight on the tenant’s credit score, background check and references.
  5. Processing the application
    1. Pulling credit
    2. Checking background
    3. Calling References (previous landlords, employment & personal references)
  6. Preparing a lease – You can find a boilerplate lease online, but an even better idea is to contact a local real estate attorney and pay for a copy of their lease. Remember, every market is different and a local real estate attorney will most likely have a lease that takes into account aspects of your local market.
  7. Documenting the property condition – This is important because when your tenant moves out you need to be able to prove any damage claims you make against them prior to deducting any monies from their deposit. You want to avoid any opportunities for subjective opinions about property conditions and damages.
  8. Emergency Phone Calls – You should offer your tenants a way to reach you at anytime day or night in case of emergencies. To minimize these calls, it is a good idea to explain to the tenant who to call in case of certain types of emergencies. For example, in most cases, a gas leak should elicit a call directly to the gas company instead of the property manager.
  9. Ongoing maintenance- You’re going to want to make sure the property is regularly maintained. This means winterizing and de-winterizing sprinklers, cleaning and servicing the furnace and making sure smoke detectors and CO2 detectors are in proper working order. These items are important because carbon monoxide is so dangerous and landlords own much of a liability around it.
  10. Performing regular property inspections – Even the best tenants lose sight sometimes of the fact that this is your house. Regular inspections are necessary for a number of reasons:
    • Making sure all occupants are on the lease
    • Checking for unapproved pets
    • Verifying there are no illegal activities taking place
    • Checking for things like smokers in a non-smoking property
  11. Collecting Rent – This includes dealing with late and or unpaid rents.
  12. Evictions – The possibility of having to serve and process an eviction
  13. Preparing a property to release – At the end of the lease term, the property needs to be returned to a condition where it is ready to move into by another tenant. This can include:
    • Carpet cleaning
    • General cleaning throughout
    • Patch and paint of walls
    • Other maintenance items in the property
    • Rekeying of all locks
    • General landscape maintenance

Some homeowners have no problem with performing any of these items. But oftentimes, it is very time-consuming to find the right vendors and schedule all of the work to be completed in a timely and cost-effective manner. A property manager will handle all of this for the homeowner and this is one of the big benefits of using a property manager.

Other important reasons you might lease

You might consider renting your property if you have a desire to return to the area. Here in Colorado Springs, we often see military families that plan on returning to the area at retirement or when they’re through with their military service. For this reason, they will decide to put their home into a property management program or in some cases, manage themselves from a distance. The upside is that when they return they know exactly where they’re going to live. Additionally, pricing fluctuations don’t affect them as they don’t have to buy back into the market at a higher rate.

Another good reason to rent your home is the possibility of catching a rising equity tide. During the latest recession, we used a term referring to some of our homeowners as “accidental landlords”. These were people that were unable to sell their homes without writing a check and were not willing to walk away or go through the short sale process. These people put their homes up for rent and decided to weather the storm. Fast forward to the latest real estate boom, and many of these people have sold their homes at a tidy profit.

Some people have a genuine desire to own property and be a landlord. Every now and again you meet someone who just loves owning a lot of property and getting to know their tenants. They really don’t mind the hassles involved and always seem to be on the run and energized by what they do. Yes, these people exist but are rare.

The Upsides of Selling

You’re Done

Selling your home and walking away with a profit is a great feeling, especially in a seller’s market. Doing so can give you the flexibility to take advantage of other opportunities.

This money can potentially be a substantial amount of money which you might use this as a down payment on your next property. Many people love the prospect and the excitement of starting over in a new home.

Be aware that in an extremely hot seller’s market you will need to be able to find someplace to move to. Talk to anyone trying to buy in a hot market and you will soon learn about the stress and disappointment of navigating this type of market. This is a problem you don’t want to discover after your house is under contract.

Tax-free profit

If you’ve lived in your home for at least 2 out of the last 5 years prior to the sale, you may be eligible for an exclusion on any capital gains tax up to $250,000. If you are married and file jointly this amount doubles to $500,000 (2017). You’re not going to find a lot of other Investments that give you this kind of break.

Free Time

Handling a rental property as a homeowner takes a fair amount of time and effort. Re-read the section on Time and Effort and ask yourself if you are really ready to handle all of those responsibilities. Using a property management company alleviates most of these responsibilities, but selling your property alleviates all of the responsibilities once and for all.

Escaping Maintenance and Repairs

If your home is a maintenance nightmare, or in need of repairs, renting it out is probably a bad idea. The tenant will certainly expect the condition to be up to a livable standard. Repair requests will create a constant hassle and eat into your bottom line.

With a home in need of numerous repairs or remodeling, selling is most likely the best option. This allows you to deal with any repairs and deferred maintenance in one fell swoop, after the inspection and prior to closing. Once you negotiate those items, the maintenance and repair headaches are over.

Conclusion

This list will certainly get you thinking about the core issues that surround selling versus renting. Timing, lifestyle, income and a long list of other factors go into the decision to be a home seller or a landlord. This information should go a long way to get you pointed in the right direction.

As always, if you have any questions or help to get started selling or renting out your home, feel free to give me a call.

Additional Resources

Here are some helpful resources I used while putting this article together:

Converting Your Home To A Rental Property-Luke Skar

Should I Rent or Sell my House-Bill Gassett

Should I Sell or Rent My Home? Factors to Consider-Anita Clark

Pros and Cons to Selling a Tenant Occupied Property-Michelle Gibson

 

 

evictions_in_colorado

What Landlords Should Know About the Eviction Process

You vetted the tenant –as carefully as possible.

You pulled credit reports, did a background check, verified their job, and called their previous landlords to make sure everything checked out.

At first, they may have been an ideal tenant; paying the rent on time, and rarely causing problems.

But somewhere along the way, something changed and a tenant that was once considered qualified –is no longer abiding by the terms of the lease.

In most cases, this violation comes in the form of late rent. Maybe they’re having trouble paying due to a job loss that results in a sudden loss of income, or income being cut in half due to a divorce. Other times, lease violations involve a tenant moving a new roommate in, without seeking permission first; or even adopting an undisclosed pet or two, and bringing them into your ‘no pets’ rental. Sometimes, there may be more serious issues involved; such as drug-related activity or criminal activity.

The fact is that even the most carefully vetted tenant, can sometimes slip through the cracks. And things come up that can transform even the most ideal renter into one who’s in violation of the lease.

No matter what the issue is, for landlords, it’s extremely important to ensure that you take action as soon as possible, to help prevent the problem from compounding or getting worse. Once a tenant falls too far behind on the rent, it can be all but impossible for them to get caught up. It may seem like an insignificant detail, but for many landlords who depend on rental income, a tenant who falls one month –or longer behind on the rent, can represent a serious loss.

For tenants who may be violating the lease in other ways, such as moving pets in without permission, taking action to address the issue sends the message that you care about your rental, and expect all of the residents to abide by the rules. Letting things “just slide” for too long can lead to complacency and the start of a downward spiral.

If you’ve reached the point of no return, where a tenant who is in violation of the lease isn’t complying with your warnings, the next step is usually to begin the eviction proceedings.

Notice of Termination With Cause

For a landlord to evict a tenant in Colorado before the tenant’s rental term has expired, they must have a legal cause. Colorado law defines legal cause as:

  • Failing to pay rent
  • Violating the lease
  • Committing a serious act, such as a crime

The first step in this process involves giving the tenant a 3-day notice. This notice states your intention to evict the tenant and informs them that they have three days to fix the lease violation or vacate the property.

The procedure for the 3-day notice is something we discussed in detail in our previous article.

Once they’ve received the 3-day notice, the tenant usually has two options:

  1. To pay rent, or remedy or, ‘cure’ the violation, or
  2. Move out.

The tenant has three days to correct the problem or move, and if they fail to do so, then you may begin the eviction procedures through the court. This process can be initiated on the 4th day after the tenant receives the notice.

The Formal Eviction Procedure

If the 3-day notice doesn’t result in the tenant paying the rent, or ‘curing’ the violation –or moving out, you can then proceed with the formal eviction procedure.

This involves filling out a few forms including JDF 99, or, Complaint in Forcible Entry and Detainer, plus a CRCCP Form 1A –Summons in Forcible Entry and Unlawful Detainer, and a CRCCP Form 3 –Answer Under Simplified Civil Procedure.

Once you’ve filed the complaint with the court, you have one day to mail a copy of all of the forms to the tenants. Do this via first class mail with prepaid postage.

Next, the court clerk will schedule a hearing. This is usually between 7 and 14 days from the date that the summons is issued. However, the tenants must be given at least 7 days between the date they are formally served and the court date itself.

The summons can be issued by the sheriff’s department or a private process server –or by another adult who isn’t involved in the eviction. If the tenants cannot be served in person, the papers can be posted on the door of the rental.

After the tenants have been served, they must show up in court, or file a counterclaim to the allegations in your complaint. If you’ve filed everything correctly and the tenants do not make a counterclaim, you may receive a summary judgment in your favor.

If the Tenant Contests the Eviction

If they feel they have legal grounds, a tenant may try to contest the eviction. They could do this by filing an answer on or before the time set by the court.

Some common legal defenses that a tenant may use include claims that you failed to maintain the rental unit, or that you are retaliating against them. Fighting an eviction could increase the amount of time that the tenant is able to stay at the rental property.

If the tenant files an answer with the Justice Court, then a hearing will be scheduled. A notice of the hearing date will be mailed to all parties.

However, if the tenant fails to answer or appear on the date indicated in the eviction papers, you can obtain an eviction “Order” by default.

If the Tenant Does Not Contest the Eviction

If the judge makes a decision in your favor, you can then file for possession of the property. To do this, you’ll want to complete the Motion for Entry of Judgment (JDF 104). After reviewing it, the court will give you a signed copy of the Order for Entry of Judgment (JDF 107).

Next, the countdown begins. The tenant will have 48 hours from the date of the judgment to vacate the unit. If they don’t, then you can then complete the Writ of Restitution (JDF 103) and present it to the court.

Once the judge approves it, they’ll contact the sheriff’s department to execute it; that is, to remove the tenant.

Removal of the Tenant: What Happens if a Tenant Refuses to Leave?

If the tenant hasn’t vacated the premises, then the actual eviction will take place.

You’ll receive a time and date from the court or sheriff’s department, stating when they will arrive to execute the writ.

You can then arrange to have the tenant’s personal property removed from the rental at the date and time that you received from the court. This is generally done with the help of a local moving company. You will have one hour to remove the tenant’s belongings, so make sure you will have enough manpower available to remove everything during this time.

On the day of the eviction, the sheriff will serve the Order to the tenant and then will remain on site.

In some jurisdictions, such as El Paso County, the Sheriff will generally “Pre-Serve” the tenant by posting a notice letting the tenant know they will be back to take possession. This is done to encourage the tenant to leave instead of waiting for the eviction itself to take place.

Keep in mind that the only person who is authorized to remove a tenant from the rental unit is a law enforcement officer. A landlord must never try to force the tenant out of the unit. If you attempt to, the tenant could take legal action against you.

Neither the sheriff nor the landlord has any responsibility to safeguard the tenant’s property once it is removed. If you find that a tenant has left behind personal belongings, you aren’t required to contact the tenant before disposing of them. However, if you do decide to store them for the tenant, you can charge storage.

After the Eviction

Once the tenant has been evicted; the landlord or property manager can take steps to get the property ready to rent again.

In most cases, the first step is getting the property re-keyed.

At this point, the cleaning and repairs can commence as well. This involves a walk-through inspection of the unit, taking note of any damage that the tenant caused.

You also process the security deposit that you obtained from the tenant when they first moved in. If there is any back rent owed or damage to the rental, you can apply the security deposit to this, and send the remainder to the tenant. Keep in mind that general wear and tear is not the tenant’s responsibility, and cannot be taken out of their security deposit.

If additional back rent or money is still owed, even after the security deposit has been applied, you can start the process of seeking this as well.

While evictions can be a stressful and often-confusing time, it’s important for landlords to ensure that they follow the law to the letter. Complying with the law will help the eviction proceedings to go much more smoothly. If you were to attempt to take the law into your own hands at any point, or neglect to send out the right form, a tenant could have a reason to contest the eviction, and the judge could end up throwing your case out. In this case, you may have to start the proceedings again.

Evictions are never pleasant but they do get easier over time. Once you have a clear understanding of the law and know the steps that are required, it’ll be a lot easier to navigate the process and ensure that you do so in a way that’s in compliance with the law.

If you’re not sure where to start, you could always consult with an experienced attorney, to make sure you’re clear on what’s required of you, and what steps you should take.

Note: The information in this article is intended to inform and educate, it should not be taken as a substitute for legal counsel. If you have any questions about the eviction process or your rights as a landlord please contact an attorney.

The 3-Day Notice – What Landlords Should Know About the Eviction Process

The 3-Day Notice – What Landlords Should Know About the Eviction Process

When it comes to rental property, there’s a lot that you can do upfront to help ensure that you’ll be in for a smooth and relatively stress-free journey.

Important preventative measures include having an airtight screening process, clear communication, and ensuring that you’re protected by a rental agreement.

But sometimes, despite the best efforts of even the most scrupulous landlord or property manager, there will be situations where people fall through the cracks. Even the most carefully vetted tenant can go wrong, unexpectedly failing to pay the rent on time or violating the lease.

While seeking a peaceful resolution is always the best course of action, some situations can’t be resolved. In these cases, a landlord may have no choice but to evict a tenant.

Evictions, for the most part, tend to be relatively straightforward, but this process also contains specific steps that landlords are required to follow, by law. For landlords, it’s extremely important to ensure that you operate within the requirements of the law, and always follow the correct process to the letter.

In this guide –part-one in our series, we’re going to show you the first step in beginning an eviction that’s in compliance with the law. Let’s begin with a look at the 3-day notice, the notice that landlords are required to give before they can begin the eviction proceedings.

The Eviction Process

In Colorado, the only way that a landlord can evict a tenant from any type of rental property is by going through what’s known as a ‘Forced Entry and Detainer (FED).’ This involves taking legal action to obtain a court order requiring the tenant to vacate the property. To put it another way, an eviction is essentially a lawsuit filed in court by a landlord in order to remove a tenant from a rental property.

Before a landlord can begin the eviction proceedings, though, they must first serve the tenant with a 3-day Notice. This notice should state the landlord’s intention to evict the tenant, and inform the tenant that the must fix the lease violation or vacate the property within 3 days.

Note: For tenants who are on a month-to-month lease, a landlord can terminate the lease by giving the tenant written notice of the intent to terminate ten days before the last day of the rental month. If there’s a written lease that’s for a longer time period, the notification period should be changed to the longer time.

Reasons for Eviction

While landlords are within their rights to evict tenants from their property, this can only be done for a few select reasons.

A landlord may initiate an action to evict the tenant for the following reasons:

Tenant has failed to pay rent

If a tenant fails to pay the rent on time, then a landlord can move forward with eviction proceedings.

Tenant has violated a term of the lease

A landlord can also evict a tenant if they violate the lease agreement in some way. This is one reason why it’s vitally important for landlords to ensure that they have lease agreements, in writing, that their tenant is required to sign at the time of move-in. Without an agreement, it’s much more difficult to enforce the rules, and they may not hold up in court.

Some of the most common lease violations include:

  • Keeping a pet in a ‘no pets’ rental: A ‘no pets’ policy means no pets –at all. Service animals and emotional support animals fall outside of this policy.
  • Adding a roommate(s) without notifying the landlord: Rental agreements contain the name of every adult tenant who is residing at the premises. Subletting the rental or having a roommate without the landlord’s express permission is a violation of the lease.
  • Violating HOA covenants in a community with an HOA
  • Not keeping the utilities on: If a tenant is responsible for the utilities, and falls behind in the payments or otherwise has them shut off, this is considered a lease violation as well.
  • Tenant has committed a substantial violation while in possession of the rental premises.

This could include:

  • A violent or drug-related felony on or near the rental property
  • An act on or near the rental property which substantially endangers a person or the landlord’s property .
  • Tenant refuses to leave the rental after the end of the lease, which includes a month-to-month tenant staying on after the landlord has given required notice that the lease will not be renewed at the end of the month.

Taking the Law Into Their Own Hands

While many landlords may feel tempted to proceed with evictions their own way, taking drastic measures such as forcibly removing the tenant by changing the locks, it’s important to note that this type of action is never a good idea.

For landlords, failing to follow the eviction process as outlined in the law will only delay the eviction proceedings, and could harm your case should you end up before a judge.

Here’s a look at some of the actions that landlords should never take:

  • Self-help by a landlord is illegal in Colorado. This includes locking a tenant out of the property. Locking a tenant out of their property, and you’ll run the risk of the tenant filing a lawsuit against you for damages.
  • Any lease clause giving a landlord the rights to bodily evict a tenant or the tenant’s possessions, or to change the locks on a rental is unenforceable.
  • Physical contact or intimidation on the part of either the landlord or tenant should be reported to the police.
  • If a tenant is current with rent payments but is locked out of the rental unit, a tenant may regain possession of the rental premises by obtaining a court order through the eviction process.

The 3-Day Demand Notice

So let’s get down to it. Every eviction must begin with a written 3-day demand notice. It’s the law, and following this process will keep you in compliance.

Here’s how you can start a lawful eviction process.

Before filing an eviction action in court, the landlord must give the tenant notice of their intention to evict them by serving the tenant a ‘Demand for Compliance or Right to Possession’ notice, also known as a ‘3-day Notice.’

The 3-day Notice should state that the tenant must either fix (cure) the lease violation, or vacate the property within three days (not including the date of posting).

The 3-day Notice must be written but does not have to be a formal document. It should, however, contain the following:

  1. The address of the rental property
  2. Name(s) of the tenant(s)
  3. Date the 3-Day Notice is served on the tenant
  4. Explanation of why the landlord is evicting the tenant, also known as ‘the grounds’ for eviction. Grounds for eviction can include nonpayment of rent or a violation of a lease term, and the lease terms are being violated
  5. Amount of rent owed by the tenant, if the eviction is for nonpayment of rent
  6. A demand giving the tenant three days to “cure” the lease violation by either paying the past-due rent, fixing the lease violation, or moving out
  7. The landlord’s signature

Serving the Notice

Serving the 3-day Notice may be done through:

  • A personal service that leaves the notice with a resident of the rental household who is over 18 years old.
  • Or by posting it in a conspicuous place where the tenant will have to see it. For example, by tacking it onto the front door. Take a picture of the notice posted to the front door.

As soon as possible after serving the 3-day Notice, the landlord should also mail a copy to the tenant at their mailing address. Ideally, this should be done by certified or registered mail.

Before the landlord can initiate an eviction in court, the 3-day Notice must have been posted for three days, not including the day of posting. Saturdays, Sundays and legal holidays do count for the three days, but if the third day falls on a Sunday, it’s a good idea to give the tenant through Monday to pay the rent or fix the violation.

Fixing the Problem

Once you’ve posted the notice, the tenant will have a short window of time to fix the violation. This means that if they’re late on the rent, then they should pay it within the three-day window and the eviction will be called off.

It’s important to note that some lease violations cannot be cured, and therefore if the tenant doesn’t vacate the rental by the end of three days, then they can be served an eviction notice. However, even if a tenant does vacate the property during this timeframe, they are still responsible for past-due rent and for rent through the lease term. A landlord or property manager may still follow through with the eviction proceedings and could obtain a judgement for the amount that’s owed.

The Second Notice: Notice to Quit for Repeat Violation

If the tenant does not cure the violation or surrender the property, the landlord can then send out the second notice. This one is known as a ‘Notice to Quit for Repeat Violation.’ This notice does not need to give the tenant a right to cure the violation.

For this reason, it’s important to be specific regarding which terms the tenant is violating. When posting a ‘Notice to Quit for Repeat Violation,’ it is a good idea to reference the first 3-day Notice just so there’s no confusion.

Following the Law

Finally, as a landlord, you should make sure your 3-day notice contains all of required information, and is served correctly. If the document is incomplete or served incorrectly, your tenant could show up at court to contest the case. In some cases, the judge may dismiss your case and you’ll have to start over. In some cases, you could also have to pay the tenant’s litigation cost and attorney fees.

As a landlord, it’s easy to feel overwhelmed at the eviction process. But your best course of action is to ensure that you proceed with the eviction in a way that’s in compliance with the law. If you’re uncertain about any steps in the process, or if you’d like to ensure that you get your 3-day notice right, you could always consult with an attorney just to play it safe. Read more about the eviction process.

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Assistance Animals: Landlords Know Your Rights and Requirements

While landlords are usually free to allow, or ban pets from their rentals, and are well within their rights to do so, there’s one very important exception to this rule that landlords should know about: assistance animals.

When it comes to the issue of service animals and emotional support animals (ESAs), landlords should note that these animals are exempt from no-pets policies. The reason is simple: these animals are not considered to be pets, but rather necessary aids for someone who has a disability. Because they don’t fall under the category of pets, landlords should make every effort to accommodate a reasonable request from a tenant who has a disability and allow these animals in their units. Landlords should also waive any pet rent or additional security deposits that they would normally require for pets.

When leasing their homes, some homeowners may feel concerned –that there’s room to exploit this system and attempt to smuggle pets in under the guise of service animals or emotional support animals; there’s no need for alarm. While a landlord is required to make reasonable accommodations for requests from people with disabilities, they also have rights to screen requests to ensure legitimacy.

If you’re a landlord –and wondering how you should treat requests for service animals or emotional support animals, read on. In this guide we’ll explore the difference between pets, service dogs, and emotional support animals; and see what your obligations –and rights are as a landlord.

Defining What Roles Animals Play

First, let’s look at the three different categories of animals; and see the difference between pets, service animals, and emotional support animals.

  • Pets-Any domestic or tamed animal that’s kept for companionship or pleasure is considered to be a pet. Tenants with pets are not afforded any special protection under Fair Housing Guidelines, and landlords can choose whether to allow a pet in their rentals. They can also choose to implement requirements for pets –such as obedience training, up-to-date vaccinations, a clean bill of health from their veterinarian, and requiring the animal to be spayed or neutered. They can also impose breed restrictions as well as weight restrictions; such as no pets over 30 pounds. In most states, landlords can also charge a pet deposit –a form of a security deposit for a pet, as well as charge a pet rent each month. Colorado state law doesn’t have any statute on pet fees or pet deposits. If you’re outside of Colorado, though, be sure to check your own state laws before charging a pet rent or pet deposit.
  • Service Animals– A service animal, under Colorado law, is a dog or even a miniature horse that has been trained to do work or perform specific tasks for a person with a disability. The most well-known form of service dog is Seeing Eye® dog, but service dogs can be trained to assist with a number of disabilities. For example, they can pull a wheelchair, alert a person before they have a seizure, or even calm a person who suffers from Post-Traumatic Stress Disorder.The definition of a service animal can apply to, but are not limited to the following:
    1. Guiding an individual who is blind or has low vision
    2. Alerting an individual who is deaf or hard of hearing to sounds
    3. Providing protection or rescue assistance
    4. Alerting an individual to impending seizures
    5. Pulling a wheelchair
    6. Fetching items
    7. Providing emotional support to a person with a disability

    The tasks a service dog can perform are not limited to this list; however, the work or task a service dog does must be directly related to the person’s disability. The Americans with Disabilities Act (ADA) states that service dogs are exempt from ‘no-pets’ policies, and may accompany a person with a disability into places that members of the public normally go, including state and local government buildings, businesses and non-profits that are open to the public, and on public transportation. Both the ADA and the Fair Housing Act require landlords to make similar accommodation for these animals, to allow them in units that have no-pets policies in place. This is something that falls under the category of reasonable accommodation, which requires landlords to make every reasonable attempt to accommodate people with disabilities. These animals are also exempt from pet deposits and pet rent, or any other pet-related fees. These animals are also excluded from any restrictions on breed and size.

  • Emotional Support Animals (ESAs)-An emotional support animal is an animal, typically a dog or cat but it can include other species, which provides therapeutic benefit to its owner through companionship. The animal provides emotional support and comfort to individuals with psychiatric disabilities and other mental impairments. The main difference between a service dog and an ESA, is that while service dogs have been trained for a specific task, ESAs are not required to undergo any training at all. Unlike a service animal, an emotional support animal is not granted access to places of public accommodation. However, the federal Fair Housing Act (FHA) states that an emotional support animal is to be viewed as a “reasonable accommodation” in a housing unit that has a ‘no-pets’ rule for its residents, when an individual requires the animal in order to have an equal opportunity to use and enjoy the housing. As with service dogs, a landlord should not charge a pet deposit or pet rent for ESAs, and these animals are also excluded from breed and size restrictions.

Handling Requests for an Assistance Animal

When a landlord or housing provider receives a request for a service dog or ESA, they should ask two questions.

  1. Does the person seeking to use and live with the animal have a disability — i.e., a physical or mental impairment that substantially limits one or more major life activities?
  2. Does the person making the request have a disability-related need for an assistance animal? In other words, does the animal work, provide assistance, perform tasks or services for the benefit of a person with a disability, or provide emotional support that alleviates one or more of the identified symptoms or effects of a person’s disability?

A landlord is allowed to verify a tenant or applicant’s need for service dogs or emotional support animal by requiring a letter from the tenant’s doctor or licensed mental health therapist, stating their need for the animal.

However, there are two things that a landlord should avoid doing during the verification process:

  1. Landlords May Not: Ask for verification when the disability is obvious In the case of a Seeing Eye® dog, for instance, the landlord should not require proof of the tenant’s disability if they are blind. For emotional support animals, or for disabilities that are not immediately obvious, a landlord can require a letter from the doctor.
  2. Landlords May Not: Ask the tenant’s doctor for information about the tenant’s disability When requesting a letter from the tenant’s doctor, a landlord should take care not to ask for information relating to the tenant’s disability itself, and instead, should only ask for information regarding the tenant’s need for the animal.

The ADA states that the only two questions that may be asked are the following:

  1. Is the dog a service animal required because of a disability?
  2. What work or task has the dog been trained to perform?

Reasonable Accommodation

A request for a service dog or ESA is classified as a reasonable accommodation for a person with a disability. A reasonable accommodation is a change, exception, or adjustment to a rule, policy or practice used in running a community. In most cases, a landlord should be able to make accommodation for a person with a disability and allow them to have a service animal or ESA.

On the other hand, a person with a disability who makes a request for any modifications to the unit or common areas, on the other hand, is considered a reasonable modification. In these cases, the resident is usually responsible for paying for related costs. In practice, though, management may agree to some type of cost sharing with the resident as part of the interactive process expected under the Fair Housing Act.

Exceptions

There are a few exceptions to the Fair Housing Act, and some properties may be considered exempt from providing reasonable accommodation.

  • A building with four or fewer units, one of which is owner-occupied
  • Single-family homes where the owner does not use a real estate agent to buy or rent the property
  • Housing owned by organizations or private clubs that are used for members

Tenants Are Responsible for Their Service Animal or ESA

While landlords are not able to charge a tenant who has a service animal or ESA a pet deposit or pet rent, the tenant can be held responsible for any damage that their animal causes in the unit. Additionally, a landlord can issue a warning and even evict a tenant who has a service animal or ESA if that animal poses a threat to others, disturbs the peace, or causes considerable damage. An assistant animal may not be a nuisance for other tenants.

Different State Laws

It’s important to note that some states have laws that provide broader protection than the ADA. For example, some states may offer protections to trainers of personal assistance animals as well. However, in some cases, a state may have disability discrimination laws that exclude psychiatric service dogs from protection. However, this doesn’t mean that the ADA doesn’t apply in these states. As long as federal law applies the ADA trumps more restrictive state laws.

Importance of Tenants Upholding the Law

Just as landlords must make reasonable accommodation for people with disabilities, tenants must also ensure that they abide by the law as well. Any person who misrepresents the right to an assistance animal would commit a class 2 petty offense.

Tenants Should Make the Request

In most cases, a tenant should first make the request for the animal to the landlord, before obtaining the animal. [Sample letter] While the law doesn’t require it, it’s good practice for this request to be in writing. The request should explain how the reasonable accommodation helps or mitigates symptoms of the disability. The tenant does not need to disclose the disability, but he or she will need to provide documentation from a doctor or other licensed health professional stating that the animal provides emotional support that alleviates one or more of the identified symptoms or effects of an existing disability.

While landlords are allowed to restrict or ban pets from their rentals, when it comes to service animals and ESAs, in most cases, a landlord should make every attempt to accommodate reasonable requests from tenants who have a disability. For emotional support animal requests, or requests for a service animal where the disability may not be obvious, a landlord can require a letter from the tenant’s physician or psychiatrist. If this document is produced, then in most cases, a landlord should allow the animal.

For tenants, all requests for a service animal or ESA should be made to the landlord prior to obtaining the animal. Ideally, this request should be made in writing. If the landlord requires more information on your need for the animal, this can usually be provided in the form of a letter from your doctor or licensed therapist.

Finally, if you’re a landlord who’s wondering how to handle a specific request for a service animal or ESA in your rental consider speaking with an experienced local attorney. A good attorney will be able to inform you of the best course of action for your situation, allowing you to ensure that you stay in compliance with federal, state, and local laws.

Colorado Landlords: for more information on Colorado state law, have a look at some of the landlord-tenant laws that apply to residential units.

Tenants who are looking for help making a service animal or ESA request, here is a sample request letter that you can modify and use to make a request to your landlord.

Home Warranties: What Every Landlord Should Know

Home Warranties: What Every Landlord Should Know

If you are a landlord, then you are all too familiar with the frustration that comes when you find out that the heater has gone out at your rental unit, or that there’s a leak –yet again.If you’re tired of the frustrations that come from dealing with breakdowns, and costly repairs eating into your profits, there’s a solution that you may want to consider: purchasing a home warranty for your rental.

Today, you can buy warranties for almost anything, including homes. Home warranties are particularly popular with landlords, who know all too well that if something can go wrong at a rental, it will. A good home warranty can help a landlord to save a significant amount of money if costly repairs are necessary. It can also help landlords to ensure compliance with state and federal laws.

While home warranties can be invaluable for landlords who are interested in protecting their investment, it’s important to note that not all warranties are created equal. Each warranty is unique in terms of the coverage that it offers, the exclusions, and terms and conditions.

If you’re interested in a home warranty for your rental, there are a few things that you should know before purchasing one. Here’s a brief rundown on what, exactly, a home warranty is, the benefits and disadvantages of getting one, and finally, what you can do to ensure that you choose the best option for your property.

What Is a Home Warranty?

The term ‘home warranty’ is enough to cause some confusion for those who are unfamiliar.

Traditional warranties are a type of guarantee of the quality of a product or service, usually made by the seller or manufacturer to the buyer. Home warranties, though, are not guarantees, but instead, contracts to provide repairs and replacement for home systems and appliances that break down or fail due to normal wear and tear.

Home warranties were first started in 1971 by American Home Shield. The industry has grown considerably since then, and today dozens of companies offer home warranties. A few main players include American Home Shield, Total Protect, SEARS, and First American, as well as HMS Home Warranty and Old Republic Home Protection.

Some people may also confuse home warranties with insurance, but there are some distinct differences between the two. Insurance provides coverage for specific events, such as fire, flooding, and theft; while home warranties cover the components or major appliances in a home against breakdown.

The best way to think of a home warranty is to view it as a home services contract. Home warranties are designed to provide repairs for breakdown or damage to specific home components, as well as replacement if they cannot be repaired.

Benefits and Disadvantages of Home Warranties

Home warranty plans offer a number of advantages for landlords. If something goes wrong, you won’t have to start looking for an electrician or plumber –or rush to the rental to make the repairs yourself. Instead, you can just place a call to the home warranty company, and they’ll send someone out for you. Having a home warranty will also make it easier to budget for expenses and repairs, helping you to avoid being caught out by unexpected issues. You simply budget for the premium and keep some money for the service call fees. No need to worry about forking out hundreds of dollars all at once for a new water heater when the old ones goes out.

However, home warranty plans have some disadvantages too. Just like insurance, you pay for the plan even if you don’t end up using it in the end. Most policies cost a few hundred dollars, usually somewhere between $400-$800 per year. In some cases, it may work out to be more economical to pay for issues as they arise, rather than prepay for potential repairs that may or may not be required. Additionally, most warranty companies will attempt every repair before authorizing a full replacement. Another issue with home warranties is that you run the risk of claims being denied. If the home warranty company considers the breakdown to have been caused by neglect, improper use, or a pre-existing problem, they may choose not to accept the claim. Additionally, some landlords may realize when making a claim that their warranties don’t include coverage for the item in question. Finally, there is also the issue of wait times. Sometimes repairs can be delayed during high-demand seasons.

Most home warranties usually include the following:

  • Refrigerator
  • Dishwasher
  • Built-in microwave
  • Garbage disposal
  • Stove/Oven
  • HVAC
  • Electrical system
  • Plumbing
  • Washing machine and dryer
  • Ductwork
  • Ceiling fans
  • Water heater
  • Garage door opener

While more premium warranties may also include coverage for:

  • Sump pump
  • Pool
  • Ice maker
  • Stand-alone freezer
  • Well pump
  • Lawn sprinklers
  • Plumbing fixtures
  • Lighting fixtures
  • Roof repairs
  • Septic systems
  • Water filters

Things that are not usually covered include:

  • Structural issues
  • Problems that are the result of neglected maintenance
  • Damage caused by frozen pipes
  • Outdoor repairs
  • Permit fees
  • Disposal fee for old appliances
  • Rust
  • Improper installation
  • Mismatched systems
  • Pre-existing problems
  • Anything that’s outside of normal wear and tear

As always, the list of what is and isn’t covered will vary considerably from company to company so be sure to ask for a list of things that are covered when weighing up different options.

Tips for Selecting a Home Warranty

To be sure, having a home warranty can provide you with peace of mind if things go wrong, writes Anthony Giorgianni of Consumer Reports, “But you should also realize that the providers of these plans have built-in wiggle room that can make it easier for them not to make payments. As a result, hundreds of consumers have complained to the Better Business Bureau about their plans, often because they didn’t get the payouts they expected.”

To ensure that you find the best warranty for your needs, and to help prevent disappointment when it comes time to make a claim, you’ll want to make sure you understand exactly what’s included in your home warranty, and have a clear understanding of the terms and conditions.

With this in mind let’s take a look at how you can ensure that you find a home warranty that’s a good fit for you and your rental property. As always, being informed is key to ensuring that you make the best decision possible, and will help you to choose a warranty that’s right for you.

Read the Fine Print to See What’s Covered

When considering a home warranty, it’s important to read the fine print. Each home warranty is different, with their own set of particular inclusions, exclusions, and conditions. For example, some warranties will not cover washing machine repair, even if you opt for appliance coverage. Some, that claim to cover plumbing, may not cover common parts that often go out, such as faucets, but instead will only provide coverage for the pipes that are in the walls. Before signing up for a warranty program, make sure you take the time to read the contract carefully so that you fully understand what’s covered, and what isn’t.

Check online reviews

Next, you’ll want to ensure that you’re buying from a reputable company. Before signing an agreement, have a look at the Better Business Bureau and online review sites to see what people are saying; and to find out what their rating is.

Find Out How the Warranty Company Selects their Contractors

Another important consideration is how the company selects their contractors. Are they vetted in any way? How do they ensure they are qualified? How long have their vendors been working with them? Will they be able to guarantee that the work will be completed in a timely manner? You should also ask what happens if a vendor doesn’t meet your expectations. A reputable home warranty company should allow you to request that subpar vendors not be used for future call-outs.

Find Out What the Waiting Period Is

You’ll also want to keep in mind that most home warranties also include a waiting period between the date that you sign up, and when you can actually begin to use the service. Usually, this period is anywhere between 30-90 days.

See If the Company Will Work With Property Management Companies

If you have a property manager overseeing your property or plan to enlist the services of one at some point in the future, you’ll want to check with the home warranty company to see if they work with property management companies. Some companies will allow the landlord to keep a credit card on file to cover service call fees. Others, however, require payment from the tenant when the technician arrives –something that could lead to potential problems and complications.

See What the Service Fee Is

The service fee or call out fee is the flat rate that you’ll pay out-of-pocket for repairs. Similar to a deductible on an insurance policy, most service fees range between $75 and $125 per claim. In some cases, you’ll have the option to pay a higher service fee for a lower monthly payment.

See What the Limits of Liability Are

Most home warranties have a limit on the amount of money that they will pay out in a year. In some cases, the company may assign a specific limit to each item. For instance, if they have a $400 annual limit on dryers, it will only pay up to $400 each year for the dryer to be repaired or replaced. According to Reviews.com, half of the 17 home warranty companies that were analysed cap their coverage at $500. Limits can make or break a warranty, so be sure to find out where your coverage will be capped before making your decision.

Ask About the Recall Period

Often home warranty companies will provide what’s known as a “workmanship guarantee” for any repairs performed by one of their contractors. This means that if anything goes wrong with the repair or installation during a specific amount of time after the work was done, the home warranty company will repair it at no additional charge to you.

Ensure that the Coverage Is Right for Your Property

When purchasing a home warranty policy, you’ll want to make sure that it’s the right one for the property. You can choose warranties that include various degrees of coverage, including ones that cover the rental’s major systems such as electrical and plumbing, as well as a more premium plan that extends to cover appliances. You’ll also want to consider the age of the property when making your decision. While newer properties that are less than ten years old, most of the appliances will already be covered by manufacturers’ warranties, so there may not be a need for an extensive warranty. Additionally, “Many states require the builder to repair defects in materials and workmanship for a few years – typically two to 10 years,” writes Don Vandervort, founder of Home Tips. For older properties, though, it may make more sense to purchase more extensive coverage.

If you’re on the fence about a home warranty, be sure to consider the pros and cons of coverage to see if it’s something that you could benefit from. Remember, plans vary considerably, so if you’re not happy with a quote that you received from one company, don’t be afraid to look elsewhere. It doesn’t hurt to ask for a discount as well –some companies may be willing to negotiate.

Having an emergency fund to cover unexpended costs could stand in for a warranty. But you’ll want to honestly assess whether you’re disciplined enough to set aside a certain amount of money each month for emergency repairs. For landlords who would like to have as much coverage as possible, or who may not be able to commit to putting $100 in a repairs account each month, having a home warranty may be an ideal solution. Some landlords find that warranties are especially helpful in the beginning, until they’ve had time to build up some reserves. Other long-distance landlords use warranties to reduce some of the stress and hassle of having to coordinate repairs from afar.

No matter which way you’re leaning, at the end of the day you’ll want to ensure that you make a decision that will benefit both you and your property, so have a look to see what’s out there before making your final decision.

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Utilities: What Every Tenant Should Know

While tenants should always ensure that they abide by the terms of the lease, unfortunately, this doesn’t always happen.

One common lease violation that occurs is when tenants attempt to shut off the utilities upon vacating a property. In addition to often being a violation of the lease agreement, turning off the utilities can also lead to potentially serious problems –water damage, freezing pipes, and a dead landscape –just to name a few. Not to mention that when the landlord has to turn the utilities back on, additional extra costs are often incurred. Sometimes, tenants will even vacate a property –while still owing unpaid utility bills, putting the landlord in the frustrating position of being unable to turn the utilities back on until the back payments are made.

For many tenants, though, shutting off the utilities usually isn’t done with bad intentions. Often, shutting them off may seem like a logical step that’s done when leaving the property. The fact is, though, that utilities should almost never be turned off –and tenants should never ask a utility company to do so without the express permission of the landlord.

To help you to abide by your rental agreement, and to ensure that you understand your responsibilities as a tenant, here’s a look at some dos and don’ts when it comes to utilities.

Transfer Utilities Don’t Terminate

First, it’s important to understand that the utility connection should never be terminated, canceled, or disconnected by a tenant. While it’s true that in most single-family rentals, tenants are usually responsible for paying their own utilities for the duration of their lease, it’s also true that they are responsible for damage that occurs to the property due to a disconnection of the services.

Tenants disconnect or terminate services for various reasons –this includes going out of town, moving out early, or breaking the lease. No matter what the reason, though, tenants should never disconnect the utilities. There are a number of risks that are involved with having the utilities shut off at the rental, and should damage occur due to the utilities being shut off, you could be held liable for the cost of repairs; the expenses can be taken from your security deposit.

Here are some of the damages that can occur when the utilities have been disconnected:

  • A dead lawn and/or landscaping due to water being shut off
  • Melted ice from the ice maker causing damage to the floors
  • The sump pump would fail to work during a rainstorm
  • A risk of broken pipes in winter due to lack of heat
  • No water for the cleaning crew to do their job

Oftentimes, there will also be a reconnect fee when the landlord has the utilities turned back on. In addition to the damages, this fee can also be taken out of your security deposit.

Protection That Landlords Should Take

While the utilities shouldn’t be disconnected, the unfortunate fact is that it still can happen. Tenants cancel the services instead of transferring them, or unpaid utility bills pile up, resulting in the utility company then shutting them off. For this reason, landlords should proactively take steps to help protect themselves and their property.

Here’s a look at a few things that landlords can do:

  • Turn on Third Party Notifications – Third party notifications allow the landlord or property manager to be copied in on communications between tenants and the utility company. This will alert them if the utilities are going to be shut down, canceled, suspended, or transferred.
  • Have the Utilities Revert to Owner – Setting up the utility account to revert back to the landlord helps to eliminate the gap that’s left when tenants leave. It also means there should be no reconnection fees and enables landlords to be in the know at all times.
  • Outline Requirements in the Lease

Finally, and perhaps most importantly, landlords should always protect themselves with an airtight lease that outlines a tenant’s responsibilities and requirements, as well as the consequences for nonpayment. A violation of the rental agreement that results in damage to the property could result in the landlord being able to apply part or all of the security deposit toward the damages.

Here is a look at some things that should be included in the lease:

  • A list of all utilities that tenants are responsible for
  • The stipulation that tenants are not permitted to have the utilities shut off
  • A requirement for tenants to place the utilities in their name effective the first day of the lease
  • A stipulation that a tenant’s failure to place the utilities in their name is a violation of the lease
  • A proviso that the tenant agrees that a copy of the lease may be provided to a utility company and that the landlord is entitled to receive delinquent billing or cut-off notice from the utility company without the consent of the tenant
  • A stipulation that if for any reason, a tenant has the utilities turned off, the landlord can charge a reconnect fee for each utility, plus any utility company charge
  • A stipulation that failure to pay the utilities is considered to be a violation of the lease
  • A stipulation that, in the event that the utility company does not allow the tenant to place the utilities in their name, and bills the owner or landlord, the landlord will provide a copy of the utility bill to the tenant and the tenant must pay the landlord
  • A stipulation that tenants can and will be evicted for non-payment of utilities
  • A stipulation that, should the tenant leave before the lease is up, resulting in the landlord being required to pay the utility bill, the amount can be taken from the security deposit

In many cases, if there is an outstanding balance on the account, the utility company will not provide services to the next tenant; and in some cases, the landlord, before the balance has been paid. For this reason, any outstanding balances that are owed by the tenant will be pursued.

Note: Just as tenants should avoid turning off the utilities at the rental, landlords should as well. While some landlords may be tempted to shut off a tenant’s utilities due to a violation of the lease, or in an attempt to force an eviction, in almost every situation, this is against the law, and doing so could result in the tenant taking legal action against the landlord. It’s important for landlords to ensure that they refer to, and abide by the eviction laws in their state.

Utilities: Best Practices for Tenants

For tenants, it’s in your best interest to be well-informed on the issue of utilities, and aware of your responsibilities, as well as what could be considered to be a violation of the lease. If your landlord doesn’t supply you with information regarding the utilities, here are some general best practices for tenants regarding utilities

  • Ask Questions

If you have any questions regarding your rental agreement or concerning your utilities, it’s important that you ask your landlord. Always ask questions about utility services and the billing process, before you sign the lease.

Here are a few good questions to ask:

–          Are the utility accounts in the tenant’s name or the landlord’s?

–          Which utilities does the tenant need to set up?

–          Are there preferred providers for each utility?

–          What is the contact information for each of the utility providers?

–          Are there any outstanding utility charges on any of the accounts?

–          What kind of heating is in the unit?

–          Where are the thermostat, fuse box, and hot water heater located?

–          Who is in control of the temperature settings?

–          When is the heat turned on?

–          Does the landlord charge a fee for any late or unpaid utilities?

  • Know Your Responsibilities

The term utility refers to a number of different services. Common utilities include electric, gas, water, sewer, and garbage. Other services such as phone, cable, and internet –are additional amenities. In most single-family rentals, tenants are responsible for most of the utilities, but in some cases, landlords will pay for utilities that are required to keep the unit in good condition –such as sewer, water, and garbage.  However, every rental agreement is structured differently, so be sure to find out which utilities you are responsible for.

  • Set Up Your Utility Accounts Promptly

Upon moving in, be sure to transfer the utilities into your name as soon as possible. In some cases, you may even be able to schedule a utility transfer before you move in. Note that as a tenant, you are only responsible for the utilities that you use during the length of your tenancy.

  • Pay Your Bills on Time

Paying your utilities promptly and on time is important. It’s also a good idea to keep documentation of the payment and any communication between you and the utility company and/or landlord in reference to your bills. By keeping current with your bill you will reduce your chances of running into problems. Tenants who are behind on utility payments should contact their utility provider to resolve the issue as quickly as possible.

  • Take Action to Resolve Utility Disputes Quickly

They key to resolving most disputes is documentation. If your utility company has a problem with your payment or lack thereof, having the proper documentation to prove that you did, in fact, make the payment can help to keep you out of trouble. If you have a problem with your bill, take steps to reconcile this quickly so as not to incur any late fees, and to avoid any disruptions with your services.

At the end of the day, utilities are usually the tenant’s responsibility, but ultimately, the rental is the property of the landlord. Because of this, any damage that’s caused by, or expenses that are incurred from shutting off utilities or failing to pay can usually be taken directly from the security deposit.

Tenants –if you have any questions regarding the utilities at your rental –don’t hesitate to ask your landlord or property manager. Being well-informed on your rights, as well as your responsibilities as a tenant is vital for ensuring that you abide by the terms of your lease, and can help to save you from a tremendous amount of money –and hassle.

Colorado tenants –are you looking for homes to rent in or near Colorado Springs? Have a look at Springs Homes rental properties today!

Disclaimer: The information provided is for and advisory purposes only. Springs Homes accepts no responsibility for its accuracy. Landlord-tenant law varies considerably from state to state and we recommend that you consult with an attorney familiar with current federal, state, and local laws when creating a rental agreement.

Renting to People With a Criminal History

Renting to People With a Criminal History: HUD Guidance

Landlords who have a rule banning applicants who were convicted of a crime-may want to rethink that policy.

Recent guidelines issued by the US Department of Housing and Urban Development (HUD) on April 4, 2016 call for landlords to do away with blanket bans, that disqualify applicants based on prior convictions or arrests. Having a general ban, that precludes applicants from housing solely on the basis a criminal record, could be considered a violation the Fair Housing Act.

The Fair Housing Act; signed in 1968, prohibits landlords from discriminating on the basis of race, color, religion, sex, or national origin. While criminal history is not a protected class, under the new HUD guidelines, turning down applicants on the basis of a criminal record, without considering the nature of the crime or facts surrounding the conviction, can’t be legally justified –and could, indirectly, be a violation of the Act.

As many as 100 million U.S. adults, or nearly one-third of the population, have a criminal record of some sort. Additionally, the United States prison population, with 2.2 million adults, is the largest in the world. Since 2004, an average of over 650,000 people have been released every year from both federal and state prisons –and 95 percent of those currently incarcerated, will be released at some point in the future.

For individuals who are released, the ability to secure safe and affordable housing is a crucial part of their successful reentry into society. Yet many individuals who were formerly incarcerated are finding it extremely difficult to secure housing –because of their criminal history.

Troubles Securing Housing

Michael Bowers, a single father, has had his share of trouble finding housing in Austin, Texas.

This is due to the fact that Bowers has a criminal record. As a teenager, he was arrested for stealing a debit card and going on a $340 shopping spree.

“I was young,” says Bowers, speaking of his crime. “We were drinking. There was a card. I was like, ‘I’m going to use that to buy stuff that I want.’ It was a dumb mistake.”

This crime led to Bowers spending a few days in jail and being put on probation. Today, however, nearly ten years later –one consequence of this mistake continues to plague him –most landlords still refuse to rent to him.

“The most frustrating thing is I’m just a single dad,” says Bowers, who lives in Austin with his daughter. “I work hard, and I just want to give my child a place to live.”

The fact remains that many landlords are rejecting tenants on the basis of their criminal history –or even an arrest that never even led to a conviction, without taking into account the nature of the crime, how long ago it occurred, or rehabilitation.

For people like Bowers who are trying to get their life back together, finding housing remains one of the most difficult hurdles.

The HUD Guidelines: Disparate Impact

While many landlords still screen out applicants based on a criminal history or an arrest record, doing so may be a violation of the Fair Housing Act.

A landlord violates the Fair Housing Act when their policy or practice has an unjustified discriminatory effect, even if the landlord had no intent to discriminate. This is known as “disparate impact” –which occurs when policies or practices that appear on the surface to be neutral, result in a disproportionate impact on a protected group.

“Criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers,” the guidelines note. Black and Latino Americans are disproportionately affected, the memo notes since they are incarcerated at rates disproportionate to their share of the general population. Black and Latino individuals comprise an estimated 58 percent of the U.S. prison population, despite accounting for only 29 percent of the total U.S. population.

Under this standard, even a policy that may seem neutral on the surface –could have a discriminatory effect against protected classes, and thus could be a violation of the Act, if it’s not supported by a legally sufficient justification.

It’s important to note that while HUD doesn’t recognize having a criminal record as a protected characteristic under the Fair Housing Act; proponents argue that criminal history-based restrictions on housing opportunities could, indirectly, violate the Act.

Additionally, proponents state, that by making it easier for people with an arrest record or criminal history to find a home, housing providers will help to increase the chance of an individual’s successful reentry to society.

“The fact that you were arrested shouldn’t keep you from getting a job and it shouldn’t keep you from renting a home,” says HUD Secretary Julian Castro. “The ability to find housing is an indispensable second chance in life.”

JoAnne Page, President, and CEO of the Fortune Society, which works with formerly incarcerated individuals, also highlight the importance of housing for individuals with a criminal background. “We know that if a person does not have a stable, affordable place to live, being a contributing member of society is extremely difficult,” she says.

Considering a Criminal Record: A Landlord’s Requirements

While the HUD guidelines outline what landlords should not do when weighing up a potential tenant’s application, they’re less clear on what type of criminal convictions can be used when assessing an applicant.

As there are no guidelines on which crimes should be considered acceptable, and which are not, aside from certain drug-related charges. In most cases, landlords are advised to use their discretion, with the HUD guidelines stating that they should consider circumstances on a case-by-case basis.

Case-by-case, means that imposing a blanket ban on individuals with a criminal history, is no longer an option. Instead, landlords and property managers will have to put a bit more care into evaluating applications on an individual basis.

Industry groups, such as the National Apartment Association, are weighing in on the new guidelines. The NAA released a white paper on best practices to members, which advised taking measures such as adjusting screening policies to include only certain types of offenses –rather than a blanket ban, outlining clear justifications for those policies, and giving applicants a chance to explain mitigating circumstances.

While the HUD guidelines are just that, guidelines –and landlords are not bound by law to follow them, the best practice is for landlords to take the HUD guidance seriously, and change any current policies that automatically exclude applicants with a prior conviction; as well as any policies that have not been thoughtfully developed and justified.

Steps Landlords Should Take to Comply With the New HUD Guidelines

While these guidelines may sound daunting –the good news is that for most landlords, they may not be as formidable as they sound.

“Employers have been taking most of these steps for years,” explains attorney Denny Dobbins, “It will not be difficult for good Landlords to comply.”

In order uphold these guidelines, though, landlords will need to need to be a bit more thorough when it comes to documenting their reasons for denying an applicant. They’ll also want to ensure that their policy’s approval criteria, as it pertains to a person’s criminal history, are supported by a legally sufficient justification. For example –if a landlord has an apartment complex, they must also take the safety of the other residents into consideration; therefore they may be able to prove that banning individuals who have committed violent crimes is a justifiable decision. Additionally, landlords who house families with children may not be able to rent to anyone on the Sex Offender Registry. Thus, denying a registered sex offender would not constitute a violation of the Fair Housing Act.

But under these guidelines, landlords cannot institute a sweeping ban on all applicants with a criminal history, and cannot reject applicants for arrests that did not lead to a conviction. Additionally, landlords must take care to ensure that all potential applicants are treated the same; and that comparable criminal histories are assessed similarly; without considering race, national origin, or any protected class.

Consider the Crime

HUD states that a housing provider must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety or the property and criminal conduct that does not.

Landlords are advised to take into consideration the nature of an individual’s conviction as well as time elapsed since the conviction. The only clear exception that the guidelines make is for convictions for manufacturing or distributing drugs.

Factors that landlords should consider include:

  • The nature of the crime
  • The facts or circumstances surrounding the criminal conduct
  • Time elapsed since the conviction
  • Evidence of rehabilitation
  • The Nature of the Crime

Landlords that oversee multi-unit residences must balance out their nondiscriminatory screening policies, with their duty to ensure resident and property safety. This means assessing the nature of the crime to see if there is legally sufficient justification to ban an applicant from the housing. Unfortunately, this is a gray area –and one where landlords and property managers alike much exercise diligence and discretion.

While the HUD guidelines aren’t clear, HUD indicates on their website that for public housing authorities, a criminal background investigation must be performed to determine lifetime registered sex offenders –which then may be precluded from housing. It would seem to follow, that if public housing authorities can draw the line at registered sex offenders that non-public housing landlords could do so as well. But when it comes to offenders who are not on the registry, the guidelines are less clear.

“The nature and gravity of a sex crime may be so serious that even the slightest amount of risk may be too much when contemplating the protection of your substantial and legitimate interest(s),” says Denny Dobbins, attorney. “A case-by-case evaluation based on the facts is necessary for how long to prohibit residency for those with a sex crime who do not have a lifetime sex offender registration status.”

Landlords who are uncertain should consult with an attorney.

  • The Facts or Circumstances Surrounding the Criminal Conduct

Landlords are advised to assess the circumstances surrounding the criminal conduct. This means that they should consider the age of the applicant at the time of the crime, as well as any other mitigating details. Landlords should also take care not to exclude applicants based on arrests alone since an arrest doesn’t always lead to a conviction.

  • Time Elapsed Since Conviction

The amount of time that’s passed since the conviction occurred should also be taken into account. Although the HUD hasn’t given a specific timeline that’s reasonable for felonies or misdemeanors, some have suggested a period of six or seven years for some felonies or high-risk crimes.

  • Evidence of Rehabilitation

If an applicant presents evidence of rehabilitation, this should be taken into consideration as well.

Practically Screening Applicants

There are practical ways that landlords can maintain compliance with the HUD guidelines.

Here’s a look at a few things landlords should consider doing:

 

  • Run Criminal Background Checks Last

When it comes to the application process, landlords and property managers may want to consider running criminal background checks last; until after an applicant has already passed employment and income verification, credit checks, and previous rental history. Not only will this help to keep housing providers from having to make many potentially difficult decisions, it will also save time when processing applications.

 

  • Avoiding Problem Screening Questions

One key area where landlords should tread especially carefully is when screening tenants. Asking potentially problem questions such as, “Have you ever been convicted of a crime?” and instead, looking to ask more relevant questions, such as “Have you been convicted of a crime in the last seven years?” is a better option; one that shows that the landlord isn’t imposing an outright ban on applicants with a criminal history; and instead is asking relevant questions and assessing applicants on a case-by-case basis.

 

  • Ask for Proof of Mitigating Circumstances

Landlords and property managers should consider informing applicants that, if they have a criminal background, they are welcome to submit proof of mitigating circumstances at the time of the crime as well as proof of any rehabilitation efforts. Requesting this information is a step in the right direction, and also shows that the landlord isn’t implementing a sweeping ban on applicants who have a criminal background.

 

  • Review Existing Policies

Finally, landlords and property managers should review their existing rental policies and tenant screening procedures. Landlords should pay special attention to ensure that there are no qualifying questions that could be considered discriminatory against potential tenants. Doing away with sweeping statements, such as disqualifying all applicants who have a criminal background; and instead implementing policies that allow for a case-by-case analysis is an important step that housing providers should take to protect themselves.

Qualifying Applicants

Landlords should inquire with the current and previous landlord to assess an applicant’s qualification. Questions to ask include:

  • Did the applicant pay the rent in full and on time?
  • Did they abide by all the terms of the lease?
  • Were there any problems with the applicant?
  • Were there complaints from other tenants about illegal activity?
  • What was the timeframe that the applicant rented in the unit?
  • Would you rent to the applicant again?

Landlords should also obtain a consumer credit report and carefully check the information therein. Landlords should:

  • Check the information for accuracy. Ensure that the information on the report matches what is on the application –including the name, date of birth, and address.
  • Was each credit grantor paid on time?

Every landlord should have a written list of rental criteria, and ensure that they uphold it consistently with each rental application. Examples of rental criteria include:

  • Sufficient Income
  • Proof of Income That’s 3x the Rent
  • Good Landlord References
  • History of On-Time Rent Payments
  • A Good Credit Report
  • The Ability to Abide by the Terms of the Lease

If an applicant fails to meet the above criterion, the fact that they may have a criminal record becomes irrelevant. In the end, the best way for a housing provider to avoid claims of discrimination and ensure equality for all applicants –is to ensure that decisions are not based on one single factor; a criminal record, and instead seek to use other qualifying questions when making a decision.

In addition to helping to prevent claims of discrimination, this method will also help to alleviate fears of landlords, who may be concerned about safety implications that come from not having a blanket ban in place. As Chris with Tenant Verification Services writes, “In most instances…individuals who have a criminal record and continue to lead that type of lifestyle, will not meet your criteria anyways.”

Finally, landlords should make sure they have a look at the HUD Guidelines for themselves, as well as this helpful white paper from the NAA. They should also consider consulting with an attorney, to ensure that their screening policies, qualifying questions, and applications –are all in the clear.

Tenants: do the HUD guidelines affect your home search?

Disclaimer: The information provided is for and advisory purposes only. Springs Homes accepts no responsibility for its accuracy. We recommend that you consult with an attorney familiar with current federal, state, and local laws.

Security Deposits in Colorado

Security Deposits in Colorado: What You Should Know

In an ideal world, security deposits wouldn’t exist. Tenants would move into a rental –and look after it with the best of care. They would always pay the rent on time, and continually abide by the terms of the lease

Unfortunately, though, things don’t always work out this way. Things happen and mistakes are made. Sometimes, tenants end up vacating a property, leaving it in a state that requires renovations and repairs. Other times, they may fall behind on the rent –and leave owing thousands of dollars in bills and back rent.

Security deposits provide an ideal solution to the problem of tenant damage and owed rent. Think of them as an insurance policy for the home. The landlord collects the deposit at the time that the tenant moves in, and when they move out, the landlord applies the funds towards any outstanding rent, or damage that was caused by the tenant.

 

Security deposits, though, are not a simple cut and dry issue. Each state has different laws and requirements pertaining to the collection, use of, and sometimes even storage of security deposits, and landlords should take care to ensure that they’re operating in a way that’s in compliance with both state and municipal law. Additionally, security deposits are often a hotly contended issue –tenants usually assume they will be getting all of their deposit back, while landlords will usually attempt to keep the deposit and use it to fix up the rental. Property managers, unfortunately, often find themselves stuck in the middle –trying to ensure that the deposit is applied correctly, while at the same time helping to manage the expectations of both the landlord and the tenant. Little wonder that disputes about security deposits are one of the most common reasons that landlords and tenants end up in court.

Landlords and tenants would do well to know the law as it pertains to security deposits, and to have a clear understanding of their requirements when it comes to the use of the deposit. For landlords, this is vital for staying on the right side of the law, while for tenants, having a good knowledge of security deposits will help them to know their rights, and understand what they can do to ensure that they will get their deposit back.

With this in mind, let’s take a look at security deposits, and see what the law says about handling them. We’ll also uncover what tenants can do to increase their chances of getting their deposits back –in full!

Purpose of the Security Deposit

First, let’s look at the purpose of the security deposit. The security deposit is designed to cover damage, caused by the tenant, as well as unpaid rent and outstanding bills. It can also be used to cover cleaning services to restore the rental to the condition that it was in before the tenant moved in.

In the event that the total damages and unpaid rent are higher than the security deposit itself, the landlord or property manager has the option to pursue the tenant for back rent and damages. The deposit, however, usually helps to fill the gap and provides a level of protection.

According to Colorado state law, a landlord may keep all or a portion of the security deposit for any of the following reasons:

  • Unpaid rent
  • Unpaid utility bills
  • Cleaning required to restore the rental to its previous condition
  • Cleaning services, for example, a professional rug shampoo, that was agreed to under the lease
  • Payment for damages to the rental that are beyond “normal wear and tear”
  • Any other breach of the lease causing financial damage to the landlord

 

Damages to the Rental

While a landlord may keep the security deposit for any of the above, they cannot keep the deposit for anything that’s considered to be normal wear and tear. This includes faded paint and drapes, worn hinges on doors or locks, and old or worn carpet.

Here’s a look at some damages that a landlord cannot apply the deposit towards. The following are generally considered to be normal wear and tear.

In most cases, the deposit should not be held for the following:

  • Faded or chipped paint
  • Faded curtains or drapes
  • Old, worn carpet or furniture marks in carpet
  • Worn hinges on doors or locks
  • Hole in wall from missing door stop
  • Broken plumbing pipes, unless damaged by the tenant
  • Central drain problems, unless caused by incorrect disposal of items
  • General dust, including dusty blinds
  • Bulb that went out in the refrigerator

On the other hand, the deposit can be used for damages that the tenant caused –issues that go beyond normal wear and tear.

Landlords can generally use the deposit for:

  • Large holes or excessive damage to walls
  • Stained carpet
  • Flooring that has tears, holes, or burn marks
  • Broken windows
  • Damaged window screens
  • Damaged doors and locks
  • Appliances that were broken by misuse
  • Clogged drains from misuse
  • Damaged/missing window blinds
  • Broken or damaged fixtures

 

Just because there was damage, though, doesn’t mean that the landlord can keep the entire deposit. The item or fixture’s age and condition when the tenant moved in must be taken into consideration as well. A common way to calculate how much of the deposit should be used for damages is applying the deposit so that the tenant only pays for what is known as the “remaining useful life” of the item.

So, for example, suppose a tenant has damaged carpet that’s seven years old. Supposing the carpet has a lifespan of about ten years, and a replacement carpet of comparable quality would cost $1,000, the landlord could charge only $300 for the three years’ worth of life that would have remained had the tenant not damaged the carpet.

Cleaning Services

In addition to damages, a security deposit can also be applied toward cleaning the rental, especially if it was excessively dirty. Trash or belongings left behind, grime or dirt in the kitchens and bathroom, and a general state of uncleanliness can usually all be considered excessively dirty.

It’s important to note that “clean” can mean different things to different people. It’s a good idea for the landlord to outline in the lease exactly what type of condition they expect their property to be left in when the tenants leave.

Here’s a list of cleanliness issues that the security deposit can generally be held for:

  • Dirty kitchen appliances
  • Food left in the fridge or cupboards, crumbs in drawers
  • Gunk around toilets
  • Trash or belongings left in the home
  • Dirty carpets
  • Dirty baseboards

Specific cleanliness requirements should be outlined in the lease. For instance, if it’s stipulated in the lease that carpets should be professionally cleaned at each change of occupancy, this means that the tenants should ensure that they hire a professional to clean the carpets. Simply opting for the cheapest carpet cleaner usually isn’t enough to tackle excessively dirty carpets.

Unpaid Bills

In some cases, tenants may leave unpaid bills, including utilities, when they vacate a property. In these situations, the security deposit can be kept and applied toward these outstanding balances.

Landscape Maintenance

If stipulated in the lease, landscape maintenance is another area where the security deposit can be applied. Landscape maintenance issues include a dead lawn caused by neglecting to water it, uncut grass, as well as dead trees and bushes. The lease should always outline who is responsible for landscape maintenance.

The Refund Process

If the tenant has complied with all of the terms of the lease, has paid the rent in full and on time every month, has left no outstanding bills for the landlord to cover, and has caused no damage that goes beyond normal wear and tear, then the tenant is entitled to the return of their security deposit.

Laws pertaining to the return of security deposits vary considerably from state to state. But in Colorado, landlords are required to return the security deposit within 30 days, in most cases, although landlords and property managers can take up to 60 days if stipulated in the lease. However, they should never go beyond the 60-day limit. Any more than 60 days and the landlord or property manager could be held liable for three times the amount that was withheld.

If there are any deductions, the landlord or property manager should provide an itemized list of expenses incurred, along with the price of the necessary costs or repairs. Although the landlord is not required to provide the tenant with copies of receipts for expenses or repairs, they may wish to do so as further clarification.

Any remainder of the deposit should be returned to the tenant.

Tenants should either arrange to either collect the security deposit from the landlord in person or leave a forwarding address where the landlord to can mail the security deposit.

Tenant’s Recourse

If the tenant disagrees with the deductions taken for expenses and damages, or if the landlord has not provided an itemized list, within 30 days, or up to 60 if specified in the lease, the tenant may send out what’s known as a “Seven-day Demand Letter” to the landlord. This letter should itemize the charges that the tenant is disputing, and state that the tenant may sue the landlord for three times the amount of the deposit withheld if the entire deposit or the disputed portion is not returned to the tenant within seven days of receipt of the letter.

The Seven-day Demand Letter should be sent certified mail, return receipt requested, and the tenant should keep a copy of the letter.

If the landlord returns the security deposit in full, or pays the tenant the disputed portion within seven days, the matter is considered to be resolved.

If the tenant has the intention of filing a legal suit against the landlord, they must notify the landlord seven days before doing so. This allows the landlord time to return any amount that may have been wrongfully withheld, outside of court.

A Seven-day Demand Letter Must Include:

  • The address of the rental property
  • The dates of the tenant’s occupancy
  • The amount of the security deposit
  • The tenant’s current mailing address
  • If applicable, an explanation of the disagreement regarding the portion of the deposit withheld

If the tenant does not hear from the landlord within the seven days as specified by the demand letter, they can then choose to pursue legal action. For more information security deposits and tenant recourse in Colorado, see this document by the City of Longmont Colorado.

What Happens If a Landlord Fails to Follow Colorado’s Security Deposit Law?

If the landlord does not return the security deposit or an itemized list of deductions within the time period, they forfeit all rights to the deposit.

Additionally, if the landlord fails to follow security deposit laws in the state of Colorado, the tenant could be awarded up to three times the amount wrongfully withheld, plus reasonable attorney’s fees and court costs.

In some cases, clauses that are contrary to Colorado state law may be written into the lease. These clauses cannot be enforced in court. Landlords should take care to identify and eliminate these clauses before the lease is signed. If either party has a question concerning the enforceability of a lease term, they should seek legal advice.

Steps Tenants Should Take to Ensure That They Get Their Deposit Back

There are a number of things that tenants can do to ensure that they will get their deposit back.

One of the most important steps that a tenant should take is to ensure that they have carefully read and understand the terms of the lease. The lease should outline what is required of tenants in terms of lawn maintenance, as well as the condition that they should leave the property in when they vacate. It should also include additional stipulations, if they are required, such as having carpets professionally cleaned.

As a general rule, if tenants leave the rental in the same condition that it was in when they moved in, and paid the rent as well as any other bills, they should get their security deposit back

Tenants should also be sure to give proper notice when vacating the property, and should ensure that they remove all of their furniture and belongings, and clean the unit before they leave.

It’s also a good idea to document the condition of the rental when they first move in, and when they move out.

Document the condition of the rental:

    • At the time of move in: Tenants should walk through the apartment, ideally with the landlord or property manager, and take note of any damage that they see. They should make a list, and have the landlord sign it; and take photos of each room and any damage that they note.
    • At the time of move out: Tenants should also take pictures of the rental when they move out. They should keep the photos in case there are any issues with the return of the security deposit.

Colorado Security Deposits: FAQs

“Does Colorado law limit the amount that a landlord can charge for the Security Deposit?”

No. At the state level, Colorado does not set a limit on the maximum amount that a landlord can charge for a security deposit. But landlords should check city and county laws to ensure that there’s no limit set by their municipality.

“Can a landlord charge a nonrefundable deposit?”

No. A security deposit is considered to be the property of the tenant, and as such, the landlord holds the deposit as a security, in case the tenant violates the terms of the lease.

“Are there requirements for storing the security deposit?”

No. While some states require the landlord to store the security deposit in a financial institution and even require the deposit to earn interest, there are no requirements for how a landlord must store a security deposit in Colorado.

While security deposits may seem like a straightforward process, there’s still plenty of room for confusion and disputes to arise. To simplify the process, and help prevent misunderstandings surrounding the deposit, landlords should detail their process for handling security deposits in the lease. This should include important details, like what’s considered to go beyond normal wear and tear, the type of condition that the tenant should leave the unit in, and the process for returning the security deposit itself.

It’s also important for landlords to have walk-through inspections and to take photos or collect video footage to document the condition of the rental. This will provide irrefutable proof of the state of the unit, at the time that the tenant moved in.

Having both photographic evidence and an airtight lease will help to inform and educate tenants on what the deposit is used for, and what they can do to ensure that they will get it back. For landlords, they will also prove to be invaluable evidence, should they have to prove their case in court.

Colorado tenants –looking for homes to rent Colorado Springs? Have a look at Springs Homes For Rent to see homes that are available!

5 Essential Tips for First Time Rental Property Owners in Colorado Springs

There are a number of reasons why you might consider becoming a landlord in Colorado Springs or anywhere in El Paso County. Maybe you’re downsizing to a smaller property, but still want to maintain your current home for income. Perhaps you’ve found a great deal on an income-producing property and are planning to use the revenue for your retirement. Or you’ve found your dream home with an attached apartment or suite that will help you defray the costs.

Whatever your motivation, here are some critical steps you need to take to minimize hassles and be financially profitable.

  1. Be realistic. Remember that you’ll still be paying the mortgage on your rental property, so you can’t count on the rental income to be pure profit. Be sure to calculate taxes (local and federal), utilities, upkeep, maintenance and insurance as part of your cash outflow. Plus you may have some lag time before you find the right tenants. If you’re relying on the rental income to purchase something in the near future, e.g. a round-the-world-cruise or new car, you may have to wait a while.

  2. Keep scrupulous records. Set up an online system such as Quickbooks or Freshbooks. This will help you keep track of all incoming and outgoing cash flow, as well as create reports that will make your tax preparation much less stressful. It’s also a good idea to maintain a file with all the paper receipts, or scan them into a device.

  3. Consult with a professional. Even if you’ve done your own taxes and accounting for years, you’ll want to meet with an accountant or tax attorney to learn the legal do’s and dont’s and ensure that you are financially suited to handle the task of being a landlord.

  4. Hope for the best, prepare for the worst. You may not be able to find a tenant for months. Rent payments may be consistently late. Your renters may damage the property or hold loud parties. Or you may have dream tenants. Just remember, this is a business proposition, so try not to become emotionally involved.

  5. Understand your tenant’s rights as well as your rights as a landlord. Consulting with an attorney who specializes in property leasing will help prepare you to deal with any situation that may arise. Be sure to put all your expectations (date rent payment is due, additions made to the property, noise level, best time to contact you) in writing as part of your lease agreement.

At Springs Homes we specialize in Colorado Springs Property Management, we work with properties not only in Colorado Springs but anywhere in El Paso County. We not only manage properties but we can also help investors find properties that meet their needs. We are a great solution for those that want to landlords but are weary of the hassle and the liability. Our investors simply leave the hassle to us.

The preceding information is deemed to be reliable, but is not guaranteed. If you are thinking of purchasing rental property in the Colorado Springs area, be sure to consult with your tax professional or tax advisor for specific information pertaining to your financial situation.

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