Property management companies and security deposits

9 Replies

for the landlords who have hired property management companies, who holds the security deposits? I just recently hired a company and the owner wants me to transfer security deposit funds to her escrow acc. I told her I could hold deposits and get them to her in a timely manner, if needed. She seems to not be ok with this. Properties are in indiana. What are your thoughts?

Thanks

The property manager should be the one holding the security deposit in an escrow account. 

Since you already had the tenant in place, honestly, I'd hold onto it if I was you.  Ultimately, you're responsible to return the tenant's deposit.  PMCs like to have your funds so they can deduct their fees against it, should you fail to pay.  Can't really blame them, but it goes both ways.  You want to make sure that money is there when the tenant moves out.

So, if it was me, I'd hold firm that I was going to hold onto the security deposit, and offer to sign an agreement that you will not hold them liable for the responsibility to return it.  Then, if you can't find any PM to accept that, re-think it.  But, I bet they'll accept it, even if they don't like it.

two different opinions. Hopefully I can get some more..

PM's cannot legally deduct money from the security deposit to cover their fees. That is the tenant's money. Not the PM's and not the owner's. It must be held untouched in a trust account until the tenant moves out.

I'm not saying that it's never happened. But to do so would violate the real estate laws of most, if not all, states.

The danger of letting the owner hold on to the security deposit is that you can't guarantee that the owner won't dip into the money to pay other expenses. And where is that money being kept? If the owner puts it in their own savings account then that's a commingling of funds situation.

Of the three parties involved in the lease, I'm guessing the PM is the only one who is a real estate licensee. The real estate commission would come down pretty hard on the PM company if something hinky happened with the security deposit.

I own a PM company, and I keep every single security deposit in my trust account. I don't know that I would really care if an owner kept it in his own trust account, but for simplicity sakes, I would prefer to keep them all if I'm going to keep one, just to not confuse things later. I like to do things the same way across the board because if I make exceptions or do things differently for one person, I may not remember I did so a year from now. 

I will start with this cavout I self-manage.

That begin said, if you hire a manager, let them do their job. That INCLUDES holding the security deposit and following the rules to the T!

If you want to hold the security deposit and deal with those laws. Than just self manage!

Take advantage of the expert you are paying for OR save you money and do it yourself!

There may be some variation by state(?) and I don't know Indiana, but (in the areas I that I do know something about) a licensed PM is required to escrow security deposits. That's probably the case here, and is probably why they are not OK with your proposal to  keep the deposits yourself; it may well put them in violation of their license. This is actually a good sign, IMO. You want a PM who is a stickler for details, especially about legal matters.

Greg, if you want to find out why Kim didn't want you to hold trust funds in regards to your properties and apartments you might wan to perform an audit on your books over there. More specifically around and before Christmas time last year. 

Also, Kim Hampton is NOT licensed as a managing broker in Indiana. I would also find it very difficult as she has a felony conviction that would bar her from receiving such licensing.