I'm lucky enough to be able to help teach the seminars, along with Brenda and Anders, and it's really a neat thing to do. We get to talk with people around the state, hear the questions, the concerns, the funny parts and the difficulties. It's nice. You should come.
But one of the difficulties of the seminars (and our jobs more generally here) is explaining a concept where the laws don't match the common practice. Brenda and I regularly rock-paper-scissors (it's a verb!) over who has to teach our section on Earnest Money, which isn't all that complicated, but infrequently followed in common practice. So, I'd like to explain how application fees work (where does all that money go when you put in an application?), what folks are supposed to do, and what they aren't, but keep in mind, everyone understands this differently, even though the law is on your side if you do it right. And you get a gold star.
You've been warned.
What the heck are you talking about in the first place, you say? When prospective tenants pay a fee that is turned in with an application for rental housing, those are often called "application fees" or are sometimes mistakenly called "security deposits." Technically, they are "earnest money," a kind of deposit which has a bunch of rules about how it can be used. Those rules are all found in ATCP 134.05.
What's the process?
1. Before a landlord can accept any money from a prospective tenant (PT), the landlord has to take the following 6 actions:
- Let the PT look at a lease. ATCP 134.03(1)
- Explain which unit(s) the PT is applying for. ATCP 134.05(1)
- Tell the PT about any building code violations (ie, is there something that the building inspector is looking into?). ATCP 134.04(2)
- Explain if any of the money will be used to pay for a credit check fee, which is limited to a maximum of $25 per applicant. ATCP 134.05(4) (was $20 prior to 4/18/18)
- Explain if any of the money will be used to pay for a background check for tenants applying from out of state, which is limited to a maximum of $25 per applicant. ATCP 134.02(3, Wis. Stat. 704.085(2), 2017 Wis. Act 317, Sec. 41, Eff. 4/18/18.
- Tell the PT about which utilities are or aren't included in the rent. ATCP 134.04(3)
- Explain how the utilities are divided between the units and common spaces, if there aren't separate meters for the units. ATCP 134.04(3)
2. Prospective tenant puts in an application to a landlord or management company. They require an application fee (but it's really the same thing as "earnest money"), and so PT turns in a check along with the application.
3. Landlord thinks about the application. The landlord can keep the money in order to make a decision about whether to rent to the PT for either 3 business days or, if their application says they can keep it longer, a maximum of 21 calendar days.
4. There's a decision about the application. The choices are:
- Landlord rejects the application/refuses to enter a lease. In this case, the landlord must return the money (minus the actual cost of the credit check fee) within the end of the next business day from the point of the decision.
- PT withdraws the application before the landlord makes a decision. In this case, the landlord must return the money (minus the actual cost of the credit check fee) within the end of the next business day from the point of the PT's withdrawal.
- Landlord accepts the PT's application, and the PT signs a lease. In this case, the landlord must turn the money (minus the actual cost of the credit check fee) into a security deposit for a new lease OR return it to the PT by the end of the next business day.
- Landlord accepts the PT's application, but the PT doesn't choose to rent. In this situation, the landlord can use the application fee for the costs of finding a new tenant. The landlord must comply with mitigation laws, where they have to make the unit available for other prospective tenants, and can charge for re-rental costs (such as advertising and lost rent). The landlord cannot charge for their time in re-renting the unit, and cannot hold the earnest money without a reason. (More information on mitigation in our Ending Your Lease page, and in Wis. Stat. 704.29)
Tips for Tenants
- If you've given an application & paid a fee, but you want to withdraw it, we suggest a three-prong attack:
- Call the landlord and ask if your application has been accepted,
- If it hasn't been accepted, ask to withdraw your application,
- Send a letter explaining that the landlord hasn't made a decision and you are withdrawing your application.
- If the landlord is keeping your earnest money, and you are disputing that, we suggest this course of action:
- Write a letter. It should explain why you don't think the landlord has a right to this money, and that they should return it to you. Tips on writing letters here.
- Complain to Consumer Protection. It's their ATCP laws that give the rules about Earnest Money, so they have some limited capacity to mediate and enforce those rules. The Consumer Protection complaint form is here.
- Sue the landlord in Small Claims Court. You can sue for up to double the amount that was wrongfully withheld, and if you are low income, you can ask the court to lower the filing fees. Small Claims Court tips are here, with lots of helpful links.
Tips for Landlords
Each time we teach this section in our seminars, we ask the landlords to raise their hands if they ask for application fees from prospective tenants. Fewer landlords raise their hands each time, and the truth is, that if you have any concept of the laws, often, it doesn't seem worth it to take that money, give all the disclosures, meticulously track the days passed, and then return it correctly based on the outcome and the amount owed. Whew. It's a lot just to think about.
But if you take application fees, then to be an ethical, law-abiding landlord, you have to do all that. Since the only amount that you can reliably keep is the actual cost of the credit check fee, we find a lot of landlords saying that it's not worth the time. Are there any landlords reading out there who see it differently? We'd love to hear from you - go ahead and let us know there's a better way.
Hi! Did you know that we aren't attorneys here at the TRC? And this isn't legal advice, either. If what we've written doesn't sound right to you, consult with someone you trust. A list of housing attorneys is available here.
Edited 5/27/19 to include background check fees, and an increase in the amount that can be charged for credit check fees, due to changes from 2017 Wis. Act 317, Sec. 41, Eff. 4/18/18.