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Rental Deposit Levies
What if your judgment debtor is sneaky, and does not have a regular job. You cannot find their bank account, and they seem to work for cash. However, they rent a nice place, and you know they placed a security deposit with the landlord. Can one levy on that rental security deposit? The answer is maybe.
Everything depends on which state, which county, which judge, which debtor, which landlord, and the recovery procedures you already took to recover your judgment.
The landlord has a bunch of information about the judgment debtor. The debtor's rental application usually contains: SSN, DOB, old addresses, references, POE (place of employments), vehicle info, spouse/children, etc. If you can arrange it, the levying officer sends the judgment debtor a copy of the memorandum, and serves the third-party levy on the landlord.
What about levying on pre-paid rent? What if your judgment debtor pre-paid their residential rent for about two years. Could that rent be levied? The first thing to try, may be to start a third-party examination proceeding (called an ORAP - Order for Appearance) on the landlord (after scheduling a judgment debtor examination and then sending any required consumer notices to the debtor), to get the landlord to detail their financial arrangement with your judgment debtor.
Most likely, the debtor and the landlord will both try to contest your claim to the funds and an examination proceeding, followed by a determinative hearing under California CCP 708.180 will be the most expedient way to provide due process to everyone that might have a claim to the funds, including you or your creditor.
You might want to attempt to avoid the expense of the ORAP procedure, and could show a third-party levy to the landlord, with your cover letter mentioning your plan to initiate an ORAP against the debtor perhaps have to sue the debtor and/or the landlord for possible fraudulent transfer of prepaid rent, etc.
The security deposit that a renter paid, is not their sole property, until after the landlord returns it (if any is left) to them. The landlord may own some or all of the deposit, at the end of rental or lease, for unpaid rent, damages, etc.
One might have the landlord served with an order, to levy any money owed to the debtor. However, when the levy is served, there is no money due, because they are still living at the property.
Most of the time, security deposits are not returned to debtors. The debtors will know their security deposit was levied. When debtors move out, they often do not pay their last rent payment, which means the creditor gets nothing. Sometimes the security deposit is simply the first and last month's rent, that also leaves the creditor nothing.
Levying the rental security deposit of commercial renter debtors may work better, because the deposit requirements are higher, with more restrictions.
Levying a rental security deposit is usually a weak enforcement tactic. Often, one gets better results by serving an information subpoena on the landlord, requesting copies of the rental application and the front side of the last check received for the debtor's rent.
That might provide an employment or a banking lead. Of course, some debtors pay with money orders and debit cards. You might find the judgment debtor is a Section Eight tenant, which means the debtor might be judgment-proof.
In California, there is a somewhat vague law, CCP 695.030. Whether this law applies to rental security deposits is debatable. If the landlord or another valid party contests your claim, it is best to drop the issue, unless the deposit is worth fighting for in court. Not opposing valid claims, and just dropping them, may be a good general policy.
If you wish to argue in court about your right to your judgment debtor's rental deposit, you might bring up CCP 701.020. Arguably, the security deposit the landlord is holding is, by law, property of the judgment debtor, held by the landlord, and therefore subject to levy. See California CCPs 695.010, 699.710, and 1950.5.
The debtor could replace a depleted security deposit. If the debtor is sneaky, and you document the other ways you tried to recover the judgment, and showed how the debtor is uncooperative; some judges might approve a rental deposit levy. Even if you have an assignment order in place to capture any refund when the debtor moves out, many debtors simply stiffs the landlord for the last month of rent so nothing remains for a creditor.
There may be one more reason to try to levy a rental security deposit, if you have a policy of not challenging landlords who resist. It may change the landlord's attitude about their debtor renter. There have been cases of debtors paying off judgments within a week of a levy served on the landlord for their security deposit. This is not just a coincidence, however your mileage will vary.
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