Understanding Security Deposits and Fees in HOME Rental Projects

The Final Rule for the HOME Investment Partnerships Program (HOME), effective February 5, 2025, establishes specific rules regarding security deposits and fees that property owners and managers must follow. These regulations are designed to protect tenants while maintaining fair housing practices. Below, we outline the key aspects of these guidelines.

Security Deposits: Key Requirements

1. Refundable Nature and Limits
   Security deposits must be fully refundable and cannot exceed the equivalent of two months’ rent. This ensures that tenants are not overburdened financially.
2. Prohibition of Surety Bonds
   The use of surety bonds, security deposit insurance, or similar instruments is strictly prohibited, whether as a replacement for or in addition to a security deposit. This regulation is especially relevant as such services gain traction in the rental housing industry.
3. Deductions and Refunds
   Upon tenancy termination, owners must:
   • Provide an itemized list of charges, specifying amounts for each item deducted from the deposit.
   • Promptly refund the remaining balance to the tenant after deducting any valid expenses.

Permissible Fees

HOME regulations allow property owners to charge specific fees, provided they align with the following parameters:

1. Application Fees
   Owners may charge a reasonable application fee. The definition of “reasonable” is flexible, depending on factors such as location, financing sources, and the type of background checks performed.
2. Customary Parking Fees
   Parking fees are permissible if they are customary for rental housing projects in the area.
3. Fees for Voluntary Services
   Optional services such as bus transportation or meals can be charged, but participation in these services must remain voluntary for tenants.

Prohibited Fees

To safeguard tenants, HOME regulations explicitly prohibit:

• Charges for surety bonds or similar instruments in place of or in addition to security deposits.
• Non-customary fees such as those for laundry room access or fees to inspect units.
• Fees for addressing deficiencies caused by normal wear and tear or unrelated to tenant activity.

Intersection with Other Housing Programs

Property managers must also account for overlapping program regulations, such as the Low-Income Housing Tax Credit (LIHTC) program. For instance:

• While parking fees may be allowed under HOME, they may not comply with LIHTC guidelines if the parking space is included in the project’s eligible basis.

Best Practices for Compliance

1. Stay Informed
   Managers should familiarize themselves with HOME and other applicable program rules to avoid compliance issues.
2. Transparent Communication
   Clearly outline all fees and security deposit policies in lease agreements to ensure tenants are well-informed.
3. Record-Keeping
   Maintain detailed records of all fees collected and refunds issued to provide transparency and support regulatory audits.

Property owners and managers can foster trust with tenants by adhering to these guidelines while ensuring compliance with HOME program regulations.