What to Do If You Can't Pay the Security Deposit in New York
Security deposits are the norm when renting an apartment in New York, along with credit checks and income documentation.
Whether the amount is $500 or one month's worth of rent, the security deposit can be a prohibitive cost when it comes to moving.
Not everyone has enough savings and many lose out just because they can't afford the security deposit in addition to their first month's rent.
Besides borrowing from friends or family, third-party security deposit insurance companies can be your one-stop solution to high overhead costs.
Paying Your Security Deposit in New York
- Landlords are restricted to asking for one month's worth of rent for security in accordance with the laws in New York
- Security deposits can be prohibitive to those who don't have good savings.
- Security deposit insurance allows the tenant to secure their lease with very little money upfront and costs less than the traditional security deposit.
- Some security deposit insurance companies offer insurance, but others offer surety bonds.
- Surety bonds require a very small one-time fee that will automatically pay the landlord in case of damages.
- The tenant will still be held liable to pay for any reparations paid out to landlords with surety bonds
- All fees associated with security deposit alternatives are usually non-refundable.
Changes to Security Deposits in NYC From 2019
As noted above, prospective tenants are required to pay for the first month’s rent and the security deposit.
But often this standard is ignored, as unethical owners and managers can ask for security deposits that are exorbitantly high because there weren't any regulations in place.
However, in June 2019, New York State put a cap on such egregious expenses.
In particular, it was the Housing Stability and Tenant Protection Act of 2019 that mandated the following: “No deposit or advance shall exceed the amount of one month’s rent.”
So if you rent an apartment for $1,800, you can only be asked to pay the first month’s rent and the $1,800 security deposit.
This means owners can’t ask you to pay both first and last month’s rent and the security deposit in one shot.
Remember that the most a landlord can ask for a security deposit is up to one month's worth of rent.
If you're lucky it can be as low as a few hundred dollars, depending on the landlord or management company.
Some People May Still Experience Hardship
However, these combined figures are still too high for some families or individuals.
As early as last year, some prospective renters would be denied by the landlord or owner when they asked if they could enter into a payment plan agreement.
Nowadays—since May 2020—Governor Cuomo backed The Renters Relief Plan, which gives renters the ability to use their security deposits towards the next month’s rent.
But they are also asked to pay the security deposit back in full within 90 days.
That time period may still be impossible for many new tenants. So what do you do when you can’t come up with the costs?
If you can’t afford to pay for the security deposit or to pay it back within 90 days or in the time that it has been called for, signing up with a security deposit insurance will be able to curb your costs in a significant way.
What If You Can't Pay For the Security Deposit?
Unfortunately, paying the security deposit is a requirement in order to secure your lease and apartment. So, if you don't have the money, you may be out of luck.
Some options would be to borrow money from friends or family or to take out a small loan like a payday loan.
Payday loans are considered predatory and you may find your debt compounding rather rapidly in a short time, digging yourself into a hole you may not be able to get out of.
Another option might be taking out a cash advance from a credit card.
However, high fees and interest rates are usually associated with taking out a cash advance so this might put you in further debt.
Some management companies now take credit cards so this also might be an option, but again, putting you in debt.
There is a better and cheaper way to secure your lease, and that's through security deposit insurance.
What is Security Deposit Insurance?
Security Deposit insurance is an insurance that covers the landlord for any potential damages via the lease agreement in lieu of the actual security deposit.
The insurance company is a third-party vendor that the tenant pays a monthly premium to like, renter's insurance, to cover any violation of the lease that would result in the security deposit being withheld.
Unlike the security deposit, however, the premium is non-refundable.
The benefit is that you don't have to worry about the damages, and even with the monthly premiums, the overall cost tends to be less and certainly reduces any upfront costs significantly.
What is a Surety Bond?
Many companies offering security deposit services don't actually provide insurance but something called a surety bond.
With this model, the tenant pays a low one-time non-refundable fee to the vendor providing the bond.
In exchange, the vendor will guarantee or pay for any damages stipulated in the lease, in place of the security deposit.
However, the tenant is responsible for then repaying the vendor for any paid out damages.
It works out to the tenant's advantage if they fulfill their end of the lease and do not damage the apartment.
While the fee may be non-refundable, it is significantly less than paying a security deposit upfront.
The Best Security Deposit Insurance Companies
Every security deposit insurance offers different models and fee structures, so it's important to do your own research to find out which is best for you.
PropertyNest ranked the best security deposit insurance companies in New York by category, making it easier for you to find which one best fits your needs.
Is Security Insurance Model Better or a Surety Bond?
Paying a monthly premium is the "conventional" form of replacing your security deposit.
After all, this model does in fact, resemble the way other insurance policies work.
The insurance premium usually comes out to a certain percentage of your monthly rent divided into the months of your lease.
Whereas all that is needed for the surety bond is a much lower one-time fee.
Damages are automatically paid to the landlord in both scenarios but the tenant is not responsible for remittance of damages with insurance, only with the surety bond.
|Security Deposit Insurance||Surety Bond|
|Cheaper than security deposit||Yes||Yes|
|Lease/apartment damages are paid to landlord||Yes||Yes|
|Lease/apartment damages are covered||Yes||No|
|Coverage throughout lease, including lease renewals||Yes, as long as monthly premiums are met||Yes|
|Coverage when changing apartments||Yes, as long as landlord participates and premium are met||Yes, within the same apartment complex|
|Landlords must agree to participate||Yes||Yes|
*It may be possible to get a refund if you end up not signing your lease. Different restrictions apply per company.
Benefits of Using Security Deposit Insurance
Building owners or management lease companies benefit from guarantors because they can find more renters that can move into their apartments immediately.
With more tenants moving in, the scarcer the apartments in the complex become, and landowners directly benefit as they can price their rentals at a higher price.
Drawbacks of Using Security Deposit Insurance
Security deposit or guaranties may sound like a dream come true, but there are some reasons to avoid them, especially if you can dish out the money.
Security Deposit Insurance is Non-Refundable
For those who pay cash upfront to cover the security deposit and have fulfilled their duties as a tenant, then you are allowed to get your security deposit back along with interest and without the deduction of any administrative fees incurred.
The timelines to get your deposit back is 14 days at the end of your lease term.
But for those who use an insurance company, there is often no reimbursement or it’s difficult to get a refund.
A tenant can get back the refund, but only if the tenant ends up not moving into the unit for a reason that legally voids the lease.
You Must Be Signed onto a Lease
A tenant can’t move to a month-to-month lease while using security deposit insurance, so this limits any type of living flexibility.
Your Landlord Must Be a Program Partner in Most Cases
Signing up with a third-party guarantor company is a good idea if you are lacking funds and because the company guarantees the security deposit.
However, you have to find a building owner who’s already taking the insurance. If they don’t, there’s no harm in asking other owners or landlords if they are willing to take this insurance arrangement.
Security Deposit Insurance Opens Doors for More New Yorkers
Before third-party security deposit companies came on the scene, choices were scant for anyone in New York that couldn't cough up the security deposit.
This is an expensive and largely unaffordable city.
With the difficulty residents already have with getting approved for an apartment rental, being required to put a lot of money upfront was an insult to injury.
It may not be the right choice for someone who can afford to put up the security deposit along with their first month's rent.
However, security deposit insurance is a great alternative for people who don't have a lot of money and who might otherwise not be able to sign the lease.
While the fees are non-refundable, the existence of these services have already helped numerous New Yorkers move to their apartment of choice.