There are several potential advantages to owning a Section 8 rental property, such as guaranteed rent paid by the government and a waiting list of pre-screened tenants.
However, some landlords believe that one of the biggest risks of Section 8 is property damage caused by a tenant, and that the risk of damage far outweighs the potential rewards.
In this article, we’ll take a closer look at how Section 8 may pay for special damage claims, and discuss tips for avoiding property damage caused by a tenant.
- Section 8 is the Housing Choice Voucher Program funded by HUD and administered by local public housing agencies (PHAs).
- In some cases, a landlord may be able to have Section 8 pay for tenant damage, up to a maximum amount.
- The Special Claims Processing Guide from HUD explains how to submit a special claim for property damage caused by a Section 8 tenant.
- A landlord may be able to minimize potential property damage caused by a tenant by thoroughly screening prospective tenants, collecting a security deposit, and performing routine property inspections.
Does section 8 pay for damages caused by a tenant?
Section 8, also known as the Housing Choice Voucher Program, is designed to assist low-income families, the elderly, and the disabled afford decent, safe, and sanitary housing in the private market sector. Funds for Section 8 are provided by the U.S. Department of Housing and Urban Development (HUD), and local public housing agencies (PHAs) administer the voucher program.
According to its Special Claims Processing Guide, HUD recognizes that rental property owners who participate in the Section 8 program to provide affordable housing sometimes have potential financial risk because of the limitation on security deposits and waiting list requirements.
To help compensate owners for financial loss, HUD has developed a special claims process to reimburse a landlord for damages caused by a Section 8 tenant.
How special claims for Section 8 tenant damages works
As Chapter 5 of the Special Claims Processing Guide explains, a landlord may file a special claim for damages caused by the negligence or abuse of a former Section 8 tenant. In order to be eligible for a special claim, the following eligibility requirements must be met:
1. Tenant Section 8 rental assistance
Tenant was receiving rental assistance at the time of move-out, or a tenant’s rental assistance was terminated prior to the tenant moving out due to the tenant’s failure to comply with Section 8 program requirements.
2. Security deposit collected
Landlord collected the appropriate security deposit from the tenant. According to this state-by-state chart of security deposit limits from the legal resource website Nolo.com, security deposits are generally equal to 1-2 months of rent.
If a landlord did not collect the appropriate security deposit, a special claim for tenant damages will be reduced by the amount of the security deposit a landlord should have collected.
3. Tenant billed for damages
A certified letter must be sent to a tenant detailing:
- Charges for damages.
- Disposition of the security deposit.
- Demand for payment.
- Notification that a collection agency will be hired to collect the debt if the tenant fails to pay.
- Proof that a collections agency was hired.
- Notice that the tenant has the right to discuss the charges with the landlord.
Before using a tenant security deposit to pay for damages, a landlord should be aware that landlord-tenant laws in some cities and states may prohibit a landlord using a refundable tenant security department to pay for damages.
4. Allowable damages
Property damage must be due to a tenant’s negligence or abuse, and not normal wear and tear. Items that are not considered as damaged by HUD include legal and collection agency fees, unpaid tenant utility bills, and the cost of photographing a unit to prove tenant damage.
A landlord may not request reimbursement for tenant damage if funds from a reserve for replacement account were used, or if damages were covered by landlord insurance. In addition, a landlord’s claim for damages will be denied if a tenant was not provided with an itemized list of damages.
Process for submitting a Section 8 special claim for damages
A claim must be submitted to HUD within 180 calendar days from the date the property is available for occupancy. HUD will review the claim, ask a landlord to resubmit information if a claims package is incomplete, and approve, reduce, or deny a special claim.
Section 1-5 of the Special Claims Processing Guide describes the complete process for submitting a special claim for damages caused by a Section 8 tenant. Here are some of the key parts of the process for submitting a claim for Section 8 tenant damages.
Documentation to support a Section 8 damage claim includes:
- Evidence that a landlord took all reasonable steps to collect money for damages caused by a tenant.
- Certification that damages are not due to normal wear and tear.
- Copies of move-in and move-out inspection reports.
- Copy of security deposit disposition notice provided to the tenant indicating move-out date, amount of security deposit collected, amount of security deposit returned and any amounts withheld, and charges for tenant damages due under the lease.
- Repair cost breakdown that includes invoices, or receipts, or landlord certification, or other documentation acceptable to HUD.
Determination of useful life
A landlord must determine the useful life expectancy of a replaceable item that has been damaged by a Section 8 tenant. For example, assume a landlord determines that carpeting has a useful life of 5 years. The carpeting was installed 3 years before the tenant moves in, and the tenant leaves after renting for 1 year.
When the tenant moves out, the carpeting has to be completely replaced 1 year sooner than expected. The tenant may only be charged for 1/5 the cost of the new carpeting, which was the remaining useful life of the carpeting.
However, if the carpeting was older than 5 years and needed to be replaced due to damage caused by the tenant, none of the cost of replacing the carpeting could be charged to the tenant because the carpeting has exceeded its useful life.
Maximum claim amount
The claim amount for damages caused by a Section 8 tenant may not exceed the monthly contract rent, less the security deposit, plus amounts collected from a tenant or other sources to pay for damages.
To illustrate, assume that a home has a contract rent of $900 per month. The security deposit collected when the tenant moved in was $500, and the tenant caused $1,000 in damages that the landlord is unable to collect. HUD will pay for tenant damages up to $400, which is the security deposit minus the contract rent.
Tips for avoiding damage from a tenant
Here are some tips a landlord may wish to follow to help minimize the risk of having a tenant who damages the property:
- Even though Section 8 tenants are pre-screened by the local public housing agency (PHA), a landlord may still wish to screen a Section 8 applicant the same way that any other prospective tenant would be screened.
- Thorough tenant screening includes a credit and background check, income and employment verification, a rental history report to check for prior evictions, and speaking with an applicant’s employer, and current and previous landlords.
- Collect a security deposit amount allowed by state landlord-tenant law, because Section 8 does not pay for tenant security deposits. A tenant with low income may be unable to pay a full security deposit, so a landlord may wish to weigh the potential risk of collecting less than the maximum security deposit amount.
- Perform routine inspections of the inside and outside of the home, in addition to the annual property inspections performed by HUD. Inspecting a Section 8 rental property more frequently may allow a landlord to identify and correct minor issues before they become big and expensive.
- Enforce the terms and conditions of the lease, including charging a late fee if the rent is not paid in full and on time. In some instances, a Section 8 tenant may be afraid of losing their housing voucher if HUD learns that a tenant is not living up to their end of the lease.
Pros and cons of Section 8
Any tenant may cause unexpected damage to a rental property, not just Section 8 tenants. By weighing the pros and cons, a landlord may better understand the potential risks and rewards of owning a rental property eligible for Section 8:
Pros of Section 8
- Rent payments are paid by the government (up to the voucher limit).
- Section 8 tenants are pre-screened by the local housing authority.
- Occupancy levels of Section 8 rental properties are generally high, because most cities have a waiting list of Section 8 tenants.
- Turnover of Section 8 rental property is usually low.
- A Section 8 tenant may be more motivated to pay their share of the rent and take care of the property to avoid losing their housing voucher.
Cons of Section 8
- The first month of rent may not be received from HUD until months after a Section 8 tenant moves in.
- Section 8 caps the amount of monthly rent based on what HUD determines is the fair market rent.
- Section 8 does not pay for a tenant’s security deposit.
- A Section 8 landlord must agree to frequent property inspections conducted by the local PHA, and to promptly make any required repairs.