For security deposits, always cash the cheque and just hold it in a separate account designated for holding deposits. Make sure you note on the lease that the deposit is non-interest bearing.
I've never heard of someone not cashing the security deposit. The whole purpose of it is to give you security for situations just like this.
I've never rented to anyone that didn't have their first month and a full deposit either in cash or certified cheque or money order. No funds, no keys.
As for your dilemma, you can file a statement of claim against the person. I've never had to do it, but I've threatened it before. You can get the forms off the internet from the Court of Queen's Bench. Fill it out and swear it in front of a notary public and then take it to the Court of Queen's Bench and file it. The fee is $50 or $100 or something. Then a sheriff serves the document to the other guy and then... Ummm.... Like I said, I've never actually had to do it.
In the future, whenever renting to someone, always take two pieces of ID so that you're sure you've got the real name, and always, always cash the deposit cheque.
As for your horror story, pho, I've had a few like that over the years. The first two times I got burned by natives, so I decided not to rent to them anymore. The next two times were by white people, so it's not like you can racially profile your tenants.
Old, young, black, white, native, it doesn't matter. They're all good and they're all bad. Lots of ID, full deposit, regular drive bys. If you see the grass hasn't been mowed or you see any kind of red flag, give 24 hours notice to enter the premises to "check the furnace". If the house is getting trashed, you prepare for battle.
Landlording sucks, but equity gain is great. Too bad I don't have any of my own properties. I'm a pro at this for my family.
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