You are correct, your least expensive legal option is small claims court. Your case would be against the neighbor, not the brother-in-law. Your agreement (if any, see below) was with the neighbor, not the brother in law. The neighbor should have given the money back to you and would be liable if the money did not make its way back to you through no fault of yours.
This would hinge on whether the court could determine that there was an actual agreement between you and the neighbor. As long as it was a clear understanding between you and your neighbor that the intent was for you to be remibursed by the refunded bail money, then you would have claim against the neighbor. If that was not the intent, then you would not have a claim.
Now, there is a possible way of skipping the neighbor and going after the brother-in-law solely. That would be to claim "unjust enrichment", which was his receiving the funds from the neighbor, which he knew were to be delivered to you and not doing so.
That would be more convenient for you because you could add your claims involving the rental payments. Thus, you could take care of all of your claims in one suit and not involve the neighbor as a party (though you would want them as a witness).
I would get an affidavit of the neighbor describing the facts of receiving the money and providing it to the brother-in-law with instructions to reimburse you. You could attach that affidavit to your small-claims complaint.
You need to make sure that the total of all our claims is less than $4,000. If the total exceeds that, then you either have to go to regular court or split your claims up.
Best of luck to you.
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If you subpoena the neighbor to testify at court, he/she could be found in contempt for failing to appear. Best course, is to ask first and try to get cooperation. After all, you helped the neighbor out by reimbursing them. If no cooperation, you could file suit and subpeona the neighbor to appear at a deposition or at trial to testify. You would need an attorney to help you with an affidavit and it would need to be notarized.
Yes, you need to act quickly to avoid losing your claim.
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