Managing Your Security Deposits Can Be a Real Balancing Act
Of the two scenarios for receiving a Security Deposit for a rental property, this version is the most straight forward situation. In our resident move-in kits, we have over 50+ pages of documents and forms to be filled out in order to properly and legally accept a Security Deposit from the resident. Along with the checklist, there are a few other details required to keep the rental legal.
For example, I am sure with all of your rentals you have supplied the blue booklet from the EPA “How to Protect Your Family from Lead in Your Home”, which by the way is required by law. A Massachusetts “Property Transfer Lead Paint Notification Form” must also accompany that booklet. The good news is that you can easily Google both of these documents and download them in both English and Spanish. The bad news is that you may have never heard this before and have already rented to residents without them. You must have these documents in place BEFORE the term of the rental agreement starts. An extreme scenario is you end up standing before a judge on an unrelated issue, this regulation rears its ugly head, and all-of-a-sudden you find yourself owing your resident back rent for every dime they ever paid for rent because of your negligence. Don’t do that. Download the forms and make them part of your operations today.
So let’s just assume that you have done everything right up to this moment that the resident is signing the lease. Your EPA and Lead Docs are all set signed and dated, and now; you are ready to take the Security Deposit. What do you do next? Below you will see our checklist for taking a Security Deposit from a new resident.
Disclaimer: Before we continue, we must state that this information is for educational purposes only, although these are the steps required under MGL 185 Section 15B, we are not attorneys, nor are we engaged in rendering legal advise. We strongly urge you to seek legal counsel if you are unsure about these steps or have legitimate legal questions that you feel must be addressed before proceeding. We further advise you, those rental properties, as with all other types of financial institutional investment strategies pose serious risk of losing some or all of your investment.
New Resident Security Deposit Checklist
If you are the landlord or property manager of a property and have accepted a new resident; the following checklist outline the steps you need to take to receive a Security Deposit. We are picking up this scenario with the following assumptions:
- You have properly pre-screened the resident and accepted their application
- The apartment is in clean, ready-to-move-in condition
- The apartment meets all state building and sanitary codes
- You are ready to read the lease, get signatures, and take deposits
The Beginning of the Residency
Here is the checklist for taking a Security Deposit from a New Resident:
- Provide your new resident with the EPA blue book: Protect Your Family From Lead in Your Home
- Provide your new resident a signed copy of the Property Transfer Lead Paint Notification Form
- Accept the full amount of the Security Deposit from your new resident
- Immediately give your new resident a written Receipt for Security Deposit
- Within 10 days of receiving the full Security Deposit, give your new resident a Statement of Condition for the apartment they moved into
- Within 15 days of giving your new resident the Statement of Condition, collect back the signed Statement of Condition from your new resident
- If your new resident has submitted a list of damages with the Statement of Condition to the landlord within 15 days of receiving the Statement of Condition, return a copy to your new resident with your consent or disagreement of the apartment conditions
- If damages do exist as indicated, repair immediately
- Within 30 days of receiving the Security Deposit your new resident, deposit the funds into an escrow account in a Massachusetts Chartered Bank.
- Be sure to within 30 Days, supply your new resident with the bank, branch, address, date opened, and the account number of the newly opened Security Deposit escrow account
The laws do allow for 10 days to submit the Statement of Condition after receiving the Security Deposit. There is also a time allowance for 15 days after that date to receive the Statement of Condition back. Finally, you will have up to 30 days to supply all of the escrow account information to your new resident. However, it is our firm position that if you are going to take a Security Deposit at all, to have all of your paperwork, forms, Statement of Condition all prepared for signatures at the lease-signing event. You do not want to miss a step, date, or detail here at all. If you come prepared, then the only thing you need to do after the lease signing is to open the escrow account and get the account info to your new resident. Please do not wait 30 days to do this. Be proactive and the new tenancy off on the right foot.
Handling Security Deposits During the Residency
- Before the last day of the term of the rental agreement; either pay the resident the annual interest accrued, or give them a written receipt for a deduction in the next month’s rent in the amount of the interest due
- If there is rental increase, be sure to supply a written request to increase the Security Deposit amount accordingly and promptly deposit that money into the escrow account
- The Security Deposit may never accede the total amount of one-month’s rent
In our next posts we will walk you through the checklists for the return of Security Deposit with existing residents. In the meantime, please take advantage of our Free Report for Landlords on the “Top 10 Tip To Find The Best Property Manager”. A good property manager can help to manage your property and keep your apartments rented. A great property manager can propel your rental business and help you to grow your rental portfolio and enhance your business operations. Find out how.
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Belaire Property Management
Regional Property Manager
(978) 448-0669 office
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