How unclaimed security deposit refunds impact property management

Managing security deposits is a critical part of running a multifamily housing operation. But what happens when tenants move out and forget to claim their security deposit refund? Whether due to an outdated address, lost paperwork, or general oversight, unclaimed security deposit refunds can pile up fast. These unclaimed funds don’t just disappear—they come with legal and financial risks that can haunt property management companies for years.

Let’s dig into what happens with unclaimed property, why it’s a bigger deal than you might think, and how property managers can take action to avoid trouble down the line..

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What is unclaimed property?

Unclaimed property refers to assets or funds held by a business that haven’t been claimed by their rightful owner. This can include anything from a forgotten bank account to uncashed payroll checks. In the world of multifamily housing, unclaimed property most often takes the form of unclaimed security deposit refunds. These refunds eventually become subject to state escheatment laws, meaning they must be turned over to the state government if left unclaimed.

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Why unclaimed security deposits are a problem

Failing to return a security deposit or neglecting to notify a tenant can be a headache for property managers. But when these refunds go unclaimed, they turn into a potential liability. Each state has its own rules about how long you’re allowed to hold onto unclaimed security deposit refunds before you must hand them over to the state. Miss those deadlines, and you could be looking at fines, penalties, or even audits.

Here are a few key reasons why unclaimed security deposit refunds are more than just an administrative hassle:

Financial penalties: Holding onto unclaimed funds past the state-mandated period can lead to hefty fines and interest charges.
Audits and legal scrutiny: Some states regularly audit businesses to ensure compliance with unclaimed property laws. A failure to comply can result in legal action.
Damaged tenant relationships: Former tenants may still be tracking how their security deposit refund was handled. If they realize they never received it, it can create a lasting negative impression and harm your business reputation.

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Legal risks and how they add up

Unclaimed security deposit refunds are regulated differently depending on the state. Every jurisdiction has its own laws dictating how long property managers can keep a tenant’s unclaimed deposit refund before it must be turned over to the state as unclaimed property. This timeframe can range from a few months to several years. Beyond that, states also dictate what notifications you need to send, how to store records, and what fines you’ll face for non-compliance.

For property management companies operating in multiple states, the complexity multiplies. Keeping track of the patchwork of unclaimed property laws can feel like a full-time job. Missing a deadline in just one state can lead to significant financial penalties or a full-scale audit.

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How unclaimed property processes can hurt your business

In the fast-paced world of multifamily housing, administrative oversights happen. Unclaimed security deposit refunds can fall through the cracks for various reasons:

Tenants forget to provide a forwarding address.
Notices sent by property managers are returned undelivered.
Busy teams don’t have a streamlined system for tracking outstanding refunds.

The consequences are clear. Not only do you risk legal and financial repercussions, but the operational burden of managing unclaimed property eats into time that could be spent on leasing or maintenance. The larger your portfolio, the bigger this problem becomes—leading to compounding administrative chaos.

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State-specific escheatment laws for unclaimed security deposits

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The laws surrounding unclaimed security deposit refunds vary from state to state. Below is a sample of how 10 states handle unclaimed property, highlighting the range of rules and regulations property managers need to navigate:

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State	Time Before Escheatment	Notification Requirements	Fines/Penalties for Non-Compliance
California unclaimed property	3 years	Send written notice within 1 year	Up to $50/day for each violation
Texas unclaimed property	3 years	Written notice 60-120 days before escheatment	Fines + interest accrual on unpaid funds
New York unclaimed property	3 years	Send notice 90 days before escheatment	$100/day or more for non-compliance
Florida Unclaimed property	5 years	Must make reasonable effort to contact tenants	Variable penalties based on violation severity
Ohio unclaimed property	5 years	Notify tenant within 180 days	Civil penalties up to $1,000/day
Nevada unclaimed property	3 years	Send written notice 60-120 days before escheatment	Fines + criminal charges for non-compliance
Illinois unclaimed property	5 years	Must send notice 120 days before escheatment	Fines start at $500 per violation
Georgia unclaimed property	5 years	Send notice 60-120 days before escheatment	Fines of $25/day per unreported property
Washington unclaimed property	3 years	Written notice 60 days prior	10% of deposit value per day late
Colorado unclaimed property	5 years	Written notice required 180 days before	Fines up to $2,000 for each instance

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This table highlights the complexity of dealing with unclaimed security deposit refunds, with each state having its own deadlines, notice requirements, and penalties.

Strategies to manage unclaimed security deposit refunds

So, how can you avoid the unclaimed property trap? Here are a few strategies property managers can implement to streamline processes and reduce the risk of holding unclaimed security deposit refunds for too long:

Automate notifications: Sending timely reminders to tenants about their unclaimed security deposit refunds can go a long way in preventing them from becoming escheatable. Automating these notifications ensures you stay compliant with state laws. This feature is included with Roost.
Leverage technology: Property management software, like Roost, can help track security deposits, issue refunds automatically, and monitor compliance with state laws. Implementing the right system can drastically reduce manual errors and the operational burden.
Maintain accurate records: Keep organized records of all communication with tenants regarding their security deposit refunds. This way, if there’s ever a question about whether a refund was properly handled, you’ll have the documentation to back it up. As well, date and time-stamped due diligence communications (including emails and letters sent).
Train your team: Ensure your staff understands the importance of managing unclaimed property and the legal and financial risks involved. Regular training can help them stay on top of these details.
Hire legal or compliance experts: If managing a large portfolio, consider bringing in a legal expert or compliance officer to handle unclaimed property issues. This can save your business from hefty fines and audits down the line.

Conclusion: Avoiding the unclaimed property trap

Unclaimed security deposit refunds are a hidden risk that can have a significant impact on your property management business if not handled properly. With different rules in every state, property managers need to stay vigilant about how they manage unclaimed property to avoid financial penalties, legal issues, and audits.

By automating processes, maintaining accurate records, and ensuring compliance with state laws, property managers can protect their business from the headaches and risks of unclaimed property. Security deposit refunds should be a simple, straightforward part of your operation—don’t let them turn into a legal and financial nightmare.

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