Is it possible to levy on a judgment debtor’s security deposit held by a landlord? Can a landlord refuse by saying that they need to hold the deposit until the debtor moves out? In court, landlords often prevail on third-party claims on security deposits.
I am a Judgment Broker, not a lawyer, and this article is my opinion, please consult with a lawyer if you need legal advice.
Often, even if you get an assignment order on whatever is left in a security deposit after the judgment debtor moved; sometimes once the judgment debtor knows they will not be getting their deposit back, they simply do not pay the landlord the final month’s rent, so there is no deposit left after the judgment debtor moves.
Even if the landlord is only holding the judgment debtor’s money, some judges believe the deposit is theirs as security for the rental agreement, and they will turn it over only after a successful dissolution of the rental agreement. Some judges do not even want you to subpoena landlords for personal appearances in court because that would be too harassing. They believe you should be able to get whatever you need from a landlord simply by subpoenaing documents.
One could subpoena the landlord’s bank statements if the debtor is paying through direct deposit, or paying rent in other ways that do not allow you to figure out where the money is coming from; less intrusively.
In most cases, the amount held is not worth the effort to fight a claim of exemption, unless it is an expensive rental. If you challenge such a claim, be prepared to pay the landlord’s attorney fees. Experienced judgment enforcers attempt them on occasion, however if the landlord files a third-party claim on the funds, they do not oppose the claim, they just drop it.
In California, the landlord’s attorney might bring up the CCPs, the sections that describe what property is exempt from execution. One CCP implies that property is not assignable or transferable by the debtor, except to the landlord. The landlord’s attorney might argue, although the CCP is not that specific, it does make sense that the deposit is not subject to execution. At this point, you will probably lose your opposition to the third-party claim.
The deposit of the tenant is assignable to the landlord. Tenants do it all the time when they authorize the landlord to deduct from the deposit for repairs (often the language is in the rental agreement itself) and to pay a portion (or all) of the last month’s rent. See California Code 1950.5(h). Because such deposits are assignable, and because they belong to the tenant, not the landlord, they are subject to execution. Whether your court allows this is more art than science.
You might try to argue that the security deposit the landlord is holding is, by law, property of the judgment debtor, held by the landlord, and therefore is subject to a levy as per California Code of Civil Procedure sections 695.010(a) and 699.710; and Civil Code sections 1950.5(a),(d),(m),(n) and (o). Of course, relying on these statutes is not an automatic slam-dunk.
Generally, a judge will use your “Motion for Turnover Order and Sanctions, for ZZZZ, Third Party Holding Assets of XXXX, Judgment Debtor” as an opportunity to view the situation as a possible claim of exemption for the judgment debtor. Many judges will order the funds to be turned over only if they believe the judgment debtor can easily replace them to the landlord. Otherwise, as a matter of public policy, the judge is not going to order a rental deposit to be turned over if it ultimately results in the eviction of the judgment debtor tenant, especially where innocent minor children are involved.
There is no guarantee one will prevail in a challenge to a third-party claim. In summary, you can give security deposit levies a shot, but do not push too hard if the landlord fights it. The more relevant California laws appear below:
1950.5(a) This section applies to security for a rental agreement for residential property that is used as the dwelling of the tenant.
(d) Any security shall be held by the landlord for the tenant who is party to the lease or agreement. The claim of a tenant to the security shall be prior to the claim of any creditor of the landlord.
(h) Upon termination of the landlord’s interest in the premises, whether by sale, assignment, death, appointment of receiver or otherwise, the landlord or the landlord’s agent shall, within a reasonable time, do one of the following acts, either of which shall relieve the landlord of further liability with respect to the security held:
(1) Transfer the portion of the security remaining after any lawful deductions made under subdivision (e) to the landlord’s successor in interest. The landlord shall thereafter notify the tenant by personal delivery or by first-class mail, postage prepaid, of the transfer, of any claims made against the security, of the amount of the security deposited, and of the names of the successors in interest, their address, and their telephone number.
(m) No lease or rental agreement may contain any provision characterizing any security as “nonrefundable.”
(o) Proof of the existence of and the amount of a security deposit may be established by any credible evidence, including, but not limited to, a canceled check, a receipt, a lease indicating the requirement of a deposit as well as the amount, prior consistent statements or actions of the landlord or tenant, or a statement under penalty of perjury that satisfies the credibility requirements set forth in Section 780 of the Evidence Code.