SDHDA Clarifies How to Handle a Security Deposit After a Tenant Termination

The South Dakota Housing Development Authority (SDHDA) has clarified questions from management agents and LIHTC project site owners on what they need to do when processing a vacancy claim.

Under South Dakota law, owners and managers must either return the terminated tenant’s security deposit or provide a written statement with the specific reason for withholding all or any portion of the security deposit within 14 days of the tenancy termination. The SDHDA has implemented a change to its special claims processing procedures for regular vacancy claims.

Previously, if a tenant’s security deposit was withheld for unpaid rent or damages, but an unpaid rent or damage claim wasn’t filed, the portion of the security deposit withheld was included on the regular vacancy claim and the claim was reduced by that amount.

In a memorandum issued by Vona Johnson, director of rental housing management, the SDHDA is no longer deducting the amount of a security deposit retained on a vacancy claim if the following criteria are met:

If all or any portion of the security deposit was withheld to cover unpaid rent that had accrued prior to the move out date, the claim must include: (a) a copy of the tenant ledger showing the applicable month(s) and the amount of rent owed; and (b) a copy of the security deposit disposition statement that was sent to the tenant within 14 days of the move-out.

If all or any portion of the security deposit was withheld to cover damages to the unit, the claim must include: (a) a copy of the security deposit disposition statement that was sent to the tenant within 14 days of the move-out; and (b) an itemized list of the damages and repair costs for each item.

PRACTICAL POINTER: The SDHDA warns that items resulting from normal wear and tear or other routine costs (e.g., ordinary cleaning, carpet shampooing) should not be included.

If a vacancy claim plus any documentation above is submitted to the SDHDA, then the withheld security deposit is applied in the following order: (1) toward unpaid rent; (2) if anything remaining, toward tenant damages; and (3) if anything remaining, toward the vacancy.