How Should You Handle a Security Deposit Upon the Transfer of a New Property or Property Manager?
You have negotiated a hard bargain on your newest rental property purchase. There have been days and nights of endless due diligence, crunching the numbers, working with contractors to estimate repairs, pouring over lead and inspection reports and you finally have a signed P&S and a closing date.
In your due diligence you have uncovered that the Seller is currently holding Security Deposits for their residents and you have never had to deal with these before. You want to do the right thing, but not sure what to do next.
In this post we will address what to do when handling Security Deposits for a property that you are buying. This is also useful information if you are transferring the property manager, or the management of the property you currently own as well. It can get pretty sticky dealing with a transfer between property managers. Let’s face it; someone is getting a new job and enthusiastic about the opportunity to serve, and someone else is getting fired. Not always the most pleasant of circumstances to find yourself in.
Regardless, this is the time to put those egos on the shelf, dot the “I’s”, cross the “T’s” and get down to the brass tacks. Time is of the essence because you need to close out the accounts from the Seller, or previous manager, verify through an estoppel agreement with each resident holding a deposit, get everything in writing, and open up those new accounts within the timeframe mandated by the statue. Piece of cake, right?! Let’s roll up our sleeves and get started.
Disclaimer: Before we continue, we must state that this information is for educational purposes only, although these are the steps required under MGL 186 ss15B, 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.
Here is a sample checklist for all of the moving parts when accounting for the Security Deposits for a new acquisition or change in Prmanagement agency:
- During due diligence, determine whether or not there are Security Deposits
- If there are deposits, send out an estoppel agreement which identifies, rents paid, move in dates, last month rents paid, security deposits, who pays utilities, and a host of other details to verify everyone agrees on the details
- At the closing table, or upon the transfer of keys from the previous manager, you should receive a check to account for all of the balances being transferred to the new owner or manager
- Within thirty 30 days of receiving Security Deposits from the previous owner or manager, deposit those funds into an escrow account in a Massachusetts chartered bank
- Within forty-five 45 days of receiving Security Deposits from the previous owner or manager, deposit those funds into an escrow account in a Massachusetts chartered bank
- If the previous owner or property manager has not provided you with a copy of a Statement of Condition, give the resident a new Statement of Condition for each resident with a Security Deposit
- Within fifteen 15 days of giving the resident a new Statement of Condition form, collect all of the Statement of Condition forms from all of the residents holding Security Deposits
- If the resident has submitted a list of repairs or damages with the Statement of Condition form to the landlord or new manager within fifteen 15 days of receiving the Statement of Condition form, return a copy of the Statement of Condition to acknowledge your consent or disagreement with the list of damages
- If damages do exist as indicated by the resident, make repairs immediately
- On the annual anniversary of the date the Security Deposit was placed into the escrow account, give the resident an Annual Security Deposit Interest Statement with a check for the accumulated interest from the escrow account
- In the future, any time there is an increase in the rent, send to the resident a Demand for Increase of Security Deposit request
Once this has all been set up and the escrow account have been established, you can now proceed as you would normally handling the Security Deposits, increases, and annual interest payments. We hope you have found these resources useful in your rental property business and can sleep easier at night knowing you have properly handled the Security Deposits.
Be on the look out for more informational posts and reports to assist you in running a profitable rental property business. 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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