When the landlord agrees on a new tenant after conducting a credit & criminal check, he/she will accept the security deposit. Some landlords fail to collect a security deposit and I feel that is a huge mistake. The security deposit is used only for damages to the rental afterthey have totally vacated. The landlord has a certain amount of time to send out the security deposit letter concerning the deposit to the former tenant. In all states whenthe landlord fails to send the security deposit letter within the timeframe set forth in the statute, the former tenant can sue the landlord for double the deposit and court costs.
STATUTES VARY FROM STATE TO STATE
After studying all the 50 states I realized that there are many variations in the security deposit laws. Most states fall under the category that doesn‘t demand the landlord to hold the deposit in a separate account and yield yearly interest on the deposit. Even if your state doesn‘t require you to hold the deposit in a separate account, it is not good business to commingle the deposit with your funds. The security deposit is viewed by the courts as the tenants and we are holding it for damages after they vacate. I have few examples of the states I feel have the tighter security deposit laws.
1) Kentucky: The landlord must disclose to the tenant where the security deposit is being held and the account number. The security deposit cannot commingle with the landlord‘s personal account. Lease may not legally state that a tenant agrees to waive any of his rights under the Landlord/Tenant Act 3 (Landlord/Tenant Act KRS 383.590).
2) Kansas: All security deposits shall be held by the landlord in a bank, credit union or savings in an interest-bearing account. Any interest earned shall be theproperty of the landlord.
3) Maine: Landlord must disclose to tenant in writing the name of the banking institution and account number where the deposit is held. Landlord cannot commingle the security deposit with their personal funds.Landlord must provide to the potential tenant a Residential Energy Disclosure Statement before a tenant or lessee enters in a rental agreement or pays a deposit.
4) Michigan: Landlord must place deposits in a regulated financial institution and may use the deposits as long as the landlord deposits with the Secretary of State a cash or surety bond. Within 14 days of tenant‘s taking possession, landlord must provide in writing the name and address of financial institution where deposit is held. Tenant has to notify landlord within 4 days after termination of occupancy of forwarding address. If tenant to provide forwarding address, landlord is relieved of sending deposit. Must be boldface print in lease.
5) Minnesota: Landlord must pay 1% simple non-compounded interest per year (deposits collected before 8/1/03 earn 3%) Before collecting rent or security deposit, landlord must provide a copy of all outstanding inspection orders for which a citation has been issued, pertaining to the rental unit, specifying code violation that threatens the health and safety of the tenant.
STATE‘S WITH EXTREME SECURITY DEPOSIT LAWS
6) New Hampshire: Landlord must inform tenant that if he/she finds any conditions in the rental in need of repair, tenant may note on security deposit receipt. Landlord who holds the security deposit for a year or longer may pay interest at a rate equal to the rate period on a regular savings in the New Hampshire Bank. If a landlord commingles security deposits in a single account, the landlord must pay interest earned to each tenant. A tenant may request the accrued interest every three years, 30 days before that year‘s tenancy expires. The landlord must comply with the request within 15 days of the expiration of that year‘s tenancy.
7) Pennsylvania: Landlord that requires over $100 security deposit must deposit it in a federally or state regulated institution and give the tenant the name and address of the banking institution and amount of the deposit. Instead of placing deposits in a separate account, landlord may purchase a bond issued by a bonding company authorized to do business in the state. Tenant who occupies rental unit for two or more years is entitled to interest beginning with the 25th month of occupancy. Landlord may pay interest (minus 1% fee) at the end of the third and subsequent years of the tenancy.
TIPS FOR COLLECTING THE SECURITY DEPOSIT
Never use the security deposit for rent. The deposit is for damages and owed rent when they move out not when they are living there. If the tenant is down to asking to use the deposit for rent I would suggest serving the quit or pay notice for the back rent. When accepting money from the new tenant, be sure to credit it first to all the security then the rent. Never let the tenant talk you into working the deposit out. This means the landlord will chasing the deposit for eternity. We can‘t serve a notice for non-payment of security deposit so they are on control.