Recently some Minnesota residential landlords have started using an alternative to security deposits – security-deposit bonds. Instead of paying a refundable security deposit, say $1000, the tenant buys a $1000 bond from a company like SureDeposit for a non-refundable premium of $175. If he owes money at the end of the tenancy, the landlord gets reimbursed up to $1000 by the bonding company but the tenant then owes the bonding company for the money it has paid the landlord.
On the upside the tenant’s up front payment is lower. On the downside, he is not insured – he still owes the debt to the bonding company. Furthermore, the bonding companies and landlords take the position that he has no rights under Minn. Stat. § 504B.178, the statute that protects residential tenants who pay security deposits.
This essay discusses in detail [i] how the bonds work compared to renters’ insurance; [ii] legal battles in other states over whether security-deposit laws regulate the bonds; and [iii] the legislative history of Minn. Stat. § 504B.178 and whether it regulates the bonds.
My conclusion about Minnesota is that probably section 504B.178 does not regulate the bonds but it is an open question. The field is ripe for new legislation protecting tenants.
The essay is available in Word and in PDF. The Word version includes hyperlinks to cited materials, including nine appendices. The appendices include materials from Ohio and Maryland litigation, legislative-history from 1973 when Minn. Stat. § 504B.178 was first enacted, and the Model Residential Landlord-Tenant Code, the model for the original Minn. Stat. § 504B.178. The appendices are also gathered here (a large 54,419 KB file).
Birnberg Minnesota Legislative Newsletter 