Texas Security Deposit Law: Why the New Deposit Bill Is a Win for Multifamily

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With legislation around the eviction moratorium, rent relief programs, and security deposits constantly evolving, Texas property owners and operators need to stay up-to-date on the latest rental housing laws. What are the biggest challenges facing both operators and their residents, and what do multifamily experts in the region have to say? What does the newest security deposit bill passed in May 2021 mean for the industry?

States continue to roll out rental assistance programs, and a wave of security deposit legislation is sweeping across the nation, so we invited esteemed industry experts from AMLI Residential and Madera Residential to discuss key concerns, including:

  • How to navigate federal and state eviction moratoriums
  • Tips for accessing rent assistance
  • Analysis of state security deposit bill
  • Options to replace security deposits
  • What this legislation means for multifamily operators and what’s required to be compliant

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Texas Eviction Moratoriums & Rent Assistance Program

The CDC eviction moratorium is set to expire June 30, 2021. As of March 31, the Texas Supreme Court’s 34th Emergency Order, which applied the provisions of the CDC moratorium to Texas courts, has expired. This means eviction proceedings can take place, barring where local government protections apply.

To help make sense of the various regulations, we hosted an educational presentation and expert panel to help inform apartment operators in the state of Texas — below is a recap of the webinar.

Federal Rent Assistance

The CAA and ARPA bring a combined total of $45 billion in federal funding to cover rental arrears. Based on population, the program allocates $1.3 billion in funding for Texas.

Note: For the full letter of the law, access CAA here and ARPA here.

CAA & ARPA Funding Eligibility Requirements

The eligibility criteria for both the CAA and ARPA funding programs require that:

  1. Combined household total gross income cannot exceed 80% the area median income for the location where the property is located.
  2. Household must demonstrate a risk of homelessness or instability.
  3. Household has experienced loss of income due to Covid-19.

Texas Tent Relief Program

The 2021 Texas Rent Relief Program (TRRP) — which is intended to distribute the $1.3 billion in federal funding available in Texas — is currently available and being distributed. Those interested in applying should visit texasrentrelief.com.

Applicants are eligible for up to 15 months of assistance, covering past due rent from the previous 12 months and future rental assistance for three months. While there is no maximum grant allowance per household, rent may not exceed $4,600 per month. Units that exceed the limit are not eligible for assistance from the Texas Rent Relief Program.

Operators can begin the process of applying for funds themselves, but renter participation is required in order for an application to be accepted. For a list of program FAQs, visit here.

Texas Eviction Diversion Program

The Texas Eviction Diversion Program (TEDP) is a voluntary program that allows eligible landlords and tenants to mutually agree on a resolution to an eviction case before displacing a resident. The program was created to prevent evictions that are already on court dockets, as a last resort to keep renters in apartments.

TEDP is a program specific to Texas, and is designed to encourage mediation to resolve past-due rent issues between operators and their residents, rather than evict or displace renters. Applicants are given funding priority over those utilizing the Texas Rent Relief Program, making this an attractive option for operators. For a full list of program requirements, visit here.

SB 1783: The New Texas Security Deposit Law

In May 2021, new security deposit legislation was passed in Texas, marking a big win for both operators and renters in the state. Effective September 1, 2021, SB 1783 codifies the current practice of utilizing a small monthly deposit waiver fee instead of a large upfront deposit upon move-in. The bill outlines the following:

  • If the property requires a security deposit, operators can instead choose to offer the renter an option to pay a fee in lieu of a security deposit, however there is no mandate that operators offer such an option
  • The fee must be memorialized in an agreement and signed by both the property and renter (this requirement could be covered through a lease addendum)
  • The fee can either be recurring monthly or payable on any schedule so long as it’s agreed to between the renter and property
  • The statute also specifically states that an operator may use the fee to purchase insurance covering renter defaults like unpaid rent and physical damage to a unit under the lease (otherwise known as lease insurance)

SB 1783 specifically says that the fee collected under this section is not a security deposit, meaning the fee does not need to comply with the security deposit statute.

What the New Texas Deposit Law Means for Multifamily

A Move Away From Deposits

Considering today’s economic climate, it’s increasingly important for operators to meet the needs of renters who are dealing with financial strain. Most Texas operators understand that renters prefer not to pay large upfront deposits. In the great state of Texas, we’ve seen more and more operators try to address affordability by charging, sometimes, only $100 for deposits.

What’s the issue with this approach? It doesn’t mitigate risk. So, what happens when these security deposits aren’t enough?

Lately, we’ve seen a trend to move away from deposits toward risk fees. But these fees do not always provide sufficient coverage for operators in relation to the risk they’re taking on. Operators need better backend protection, which is why across the country, we’re seeing rapid movement toward deposit replacement solutions, like Zero Deposit lease insurance, to protect against rent loss.

In fact, since the start of 2020, there’s been a 58% increase in Zero Deposit properties across Texas.

How SB 1783 Is Different From Renter’s Choice Laws

Legislation like SB 1783 takes Renter’s Choice laws — which require deposit alternatives like surety bonds be offered — a step further in eliminating the issues associated with deposits and their alternatives. In other words, deposit replacement laws provide apartment operators true deposit replacement solutions while leaving it up to the operator to determine the best deposit replacement option.

Ultimately, deposit replacement laws like SB 1783 enable operators a secure way to choose a deposit solution like lease insurance while also creating more affordable move-ins for renters.

SB 1783 marks an important victory for the multifamily industry. LeaseLock supports legislation that gives operators a true — and secure — choice in selecting deposit solutions that they determine is best for their properties and which, at the same time, can make renting more affordable for their residents.

Top Operator Concerns With Security Deposits & Deposit Alternatives

More operators are seeking out deposit solutions more than ever before. Some key concerns operators are looking to tackle include:

  • Administrative burdens for both onsite staff and accounting teams
  • Increased risk exposure if the renter defaults prior to having paid the full deposit amount
  • Complexities that slow the leasing process due to administrative burdens and compliance issues
  • Compliance issues for owners with properties across several states and cities — each with its own legal requirements.

The Security Deposit Solutions Market

Operators should understand the key differentiators between the deposit solutions available: deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives (i.e., surety bonds) create operational complexity as they require onsite training, third-party applications, and background checks and/or FICO scores. Because they’re out-of-workflow, deposit alternatives often lead to low adoption.

Security Deposit Replacements

Deposit replacement solutions (i.e., lease insurance) totally eliminate deposits. Lease insurance eases administrative burdens, streamlines back-office workflows, and provides significantly more protection for rent and damages compared to traditional deposits and deposit alternatives.

Texas Rental Housing Laws Expert Panel Discussion

LeaseLock hosted an educational webinar and expert panel session on the many legislative challenges facing owners and operators in Texas. Moderated by our very own Ed Wolff – Chief Revenue Officer, the panel featured industry thought leaders, Jeffery Lowry – Chief Operating Officer at Madera Residential and Traci Hall – President – West Region at AMLI Residential.


Below is a preview of the panel questions covered:

  1. As the pandemic ends and eviction moratoriums are lifted, how can operators properly prepare for eviction filings?
  2. Renters and operators are feeling overwhelmed and confused about applying for rent relief — what can operators do to help direct residents to rental assistance?
  3. How should operators think about risk mitigation in today’s economic climate?
  4. Renter fraud has become a more pressing issue across all asset classes — how are operators addressing this?
  5. What types of tools should operators have in their tech stack that integrate into the workflow to maximize efficiency and reduce disruptions?

To access a recording of the of the rental housing laws presentation and panel, fill out the form below:

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