Tip of the Month - April, 2020
Source: Professional Property Management
Brownstone Publishers Inc.
Owners must be careful about where they keep the money residents give them as security deposits. A security deposit check is not like a rent check or other payment owners receive. Technically, the security deposit belongs to the resident, not you. Although, you hold it while the resident lives in your unit, it is not your money unless and until the resident moves out leaving unpaid rent or damage to the apartment.
Some states and cities have laws requiring owners to keep security deposits in separate bank accounts and not mix or "commingle" with personal or other business funds. If you violate these laws, you could lose the right to keep any security deposits; you could also end up having to pay penalties of up to two or three times the deposit plus attorney's fees. And even if there are no specific commingling laws where you live, you should still keep security deposits in a separate account. For example, if you pass on interest on security deposits to residents, commingling security deposits with other money will make it difficult to account for the interest on those deposits.
This web page was updated on 04/01/2020.