NC Attorney General charges Ware Investments with security deposit violations

Security deposits are supposed to go into a trust account. They are also supposed to be returned to tenants after they vacate a clean property. Neither happened at Ware Investments LLC according to a suit filed by the North Carolina Attorney General.

NC Attorney General Roy Cooper released a statement today to announce the lawsuit filed in Orange County Superior Court. The suit was originally filed on July 22, 2013.

The defendant is Ware Investments, LLC and its principal, James Ware Kelley III. His company is a holding company that manages several rental properties in Orange and Durham Counties. The company reportedly specializes in renting to students. The University of North Carolina and Duke Universities are only 12 miles apart in this area.

State law requires that security deposits be held in a separate trust account during the entirety of the lease. They cannot be co-mingled with rent payments, operating funds or personal funds. When the leases concluded, Kelley refused to return many of these security deposits and failed to provide an itemized list of charges that were drawn from those security deposits.

Interestingly, Kelley’s company previously filed Chapter 11 bankruptcy in the Middle District of North Carolina. One reason may have been to avoid having to return security deposits owed to former tenants. That filing was dismissed since he failed to comply with rules established by the Court.

Several attorneys have also filed suit against Kelley’s company for violations of the North Carolina Tenant Security Deposit Act. Attorneys at Carolina Student Legal Services assisted many students with their lawsuits against Ware Investments.

It is not illegal for a landlord to withhold all or a portion of a security deposit. Those funds are there to protect the landlord should any damages exceed reasonable wear and tear. If the landlord must draw from the deposit, then they are required to itemize those charges and provide evidence upon request, including receipts if applicable. If damages exceed that of the security deposit, then the landlord may pursue the remaining charges through collections or in court.

According to the charges, Kelly apparently failed to itemize any charges, choosing instead to retain the security deposits. Since he regularly co-mingled the deposits with operating funds and personal funds, he was in violation of the North Carolina Tenant Security Deposit Act.

The Attorney General has requested that all outstanding security deposits owed by the firm be returned to tenants. Additionally, Cooper has asked for a $5,000 civil penalty be charged for each violation. They are asking to recover investigative and legal costs by the AG’s office as well.