Story Time: The Fatal Holding Fee — This Could Happen to You with a Section 8 Tenant

Did you know how vulnerable you are from the time you fill out the move packet to the time of the inspection? The tenant can choose another house and you may never know. Why? If the tenant doesn’t feel like telling you, no one will. The PHA, Public Housing Agency, is not allowed to even tell you because you, the landlord, are not their client.

Let me tell you how it went down with me one time. ONE TIME. This wasn’t normal.

Holding Fee vs. Security Deposit

To protect myself from this kind of problem, I am always sure to collect a holding fee from my applicants as part of the approval process. A holding fee is just that. It’s money down to hold the house. If the tenant backs out at the end, then that’s my retribution for the lost time. I keep the money. I also state in my contract about the holding fee that if it’s my fault the tenant cannot move in, that I refund the holding fee.

The Technicality of a Holding Fee: In your contract about the holding fee, which I have as a paragraph in my welcome letter to the applicant, I state that once the tenant moves in this fee will be applied to her rent. I do NOT say it will be applied to her security deposit. If a judge sees the holding fee is equal to the security deposit AND I state it will be applied to the security deposit, the judge will just deem it a security deposit. If the judge sees it as a security deposit, then the applicant who backs out on the landlord is entitled to receive that money back.

I thought my clarity on my welcome letter about what the holding fee is was pretty bulletproof with this particular applicant. But NO!

How it Started

The Section 8 voucher holder applied for my house. (See my video and blog about how I do a phone screening before I even showed her the house). I ran her background check. (See that video and blog too about the process specific to Section 8 voucher holders.) I picked up her move packet. (There’s a whole process about that so look for that video and blog too.) I turned it in to Section 8 and waited for her PHA to tell me when the inspection would be. I received the call with the date of her inspection. And that’s when it went silent between my office and the applicant.

What Happened — Could Have Been Fatal

We were doing our final preparations for the Section 8 inspection. I called the tenant to tell her we’re all on track. She would not answer. I thought something might have happened to her.

My staff and I next tried repeatedly to reach out to her Section 8 office. After about two weeks of my attempts and on the same day of the inspection, I was told via email by the PHA they cannot talk to me because I am not their client. I had no idea what that meant. Was she dead? What should I do?

Shortly after that, also on the date of the inspection, I finally did hear from the tenant. She called to say she wanted her “security deposit” back because she found another house. I was so angry!

I told her that is NOT how a holding fee works. It is NOT a security deposit. She just cost me several weeks of missed rent waiting on a now nonexistent inspection.

She then informed me that she would kill me if I did not give her the money back. I was undeterred because my office has a steel door with a code. Not to mention my office is nearly impossible to find. We do all our work electronically so no tenants come to my office. I figured she was just blowing smoke. I have a contract stating that holding fee is mine now. I’m solid.

But she showed up right when my leasing agent was at the steel door. My agent recognized her from showing her the house and she let her right in. The woman came flying at me screaming. I was barely able to escape into my office. I pulled my door shut as she was pulling it open.

I called my husband in a panic as she was screaming through my door that I should get out there and fight her. My husband suggested I give her the holding fee and be rid of her. It’s not like calling the police would give me 24/7 protection.

I reluctantly gave her the money. Then I didn’t come back to my office for about a week! I was really shook up after that. I’ve never been in a position like that in my, obviously, very insulated life.

Lessons Learned

  1. For one, I think her reaction was very abnormal and it does not define people with Section 8.

  2. I learned to stay in closer contact with the Section 8 voucher holder from the time of submitting the move packet to the date of the inspection.

  3. I learned, when doing research for Section 8 Secrets Revealed, that I could have made a complaint about the caseworker who didn’t have the courtesy to be more helpful.

  4. I could have submitted a formal complaint to this voucher holder’s PHA with the director copied in the email about the voucher holder’s behavior toward me. She doesn’t deserve tax-payer funded free rent subsidies. There are plenty of other people who do deserve it.

I will say it again. It’s all about relationships! We need to be good to our applicants, our staff, each other, to the staff of the PHA. It usually works for our benefit when we are kind. I have not let this incident scare me from Section 8 voucher holders.