Security deposit refunds may seem like a back-office detail, but they’ve become one of the most common sources of litigation in multifamily housing. Operators large and small are facing lawsuits, fines, and regulatory actions for something as simple as a missed deadline, a missing receipt, or an incomplete refund letter.
In 2024, three major class actions underscored how costly refund mistakes can be:
These aren’t small operators. They’re some of the largest, most sophisticated companies in the industry — which shows how fragmented, complex, and risky deposit compliance really is.
High turnover among property managers, shifting rules, and jurisdictional differences all create risk. Plaintiffs’ attorneys know deposit law is low-hanging fruit: deadlines are strict, statutory damages are clear, and the burden of proof often falls on the operator, not the resident.
Even if funds are eventually returned, penalties, treble damages, and reputational harm can still apply.
Every state — and often major cities — has its own statutes. Here are a few examples:
Roost Tip: Lawsuits often center on over charging and documentation gaps. Photos, receipts, and itemized statements aren’t just compliance—they’re protection.
It’s not just about timing. Many states and cities now require proof:
Even where not required, attaching photos has become best practice to reduce disputes and defend against claims.
Tracking interest is another compliance trap. Rules vary:
Operators must manage accrual, disbursement, and 1099 reporting — across jurisdictions with different rules. Manual tracking often falls short.
As much as 10–20% of refund checks go uncashed. States expect those funds to be reported and remitted under unclaimed property laws. Deadlines vary—typically one, three, or five years.
Most states also mandate due diligence notices (often certified mail) to former residents before funds are escheated.
Penalties for missing filings:
Failure to comply has led to multi-million-dollar settlements—even for Fortune 500 companies. Multifamily operators are not immune as states ramp up audits.
Refunds are the last mile of the leasing cycle—and often overlooked. Residents notice when refunds are late, deductions feel unfair, or documentation is missing.
Deposit disputes are among the top drivers of negative online reviews. And once a review mentions “deposit scam” or “illegal fees,” it spreads fast. The result: higher vacancy, rising acquisition costs, and reputational damage far beyond the cost of a fine.
Compliance isn’t just a legal issue. It’s a resident satisfaction issue.
Manual workflows leave too much to chance:
Even small misses—like a late letter or missing attachment—create unnecessary risk and erode resident trust.
Roost was built to take the compliance burden off your team:
Our workflows also reduce back-office burden. Banking integrations, streamlined reporting, and smart notifications mean less manual work and better resident communication.
The result? Faster refunds, stronger compliance, fewer disputes.
Security deposit compliance is no longer a box-checking exercise. It’s a strategic risk area that impacts legal exposure, resident trust, and operational efficiency. The lawsuits of 2024 prove that even industry leaders aren’t immune.
The path forward is smarter processes. Centralization, automation, and proactive team support reduce errors, simplify reporting, and strengthen resident relationships. Done right, compliance doesn’t just protect you from fines—it builds trust where it matters most.
