I am trying to understand the legal aspect of security deposits as it pertains to a trust account in North Carolina. Basically, the NC Statutes state this:
§ 42-50. Deposits from the tenant.
Security deposits from the tenant in residential dwelling units shall be deposited in a trust account with a licensed and federally insured depository institution lawfully doing business in this State or the landlord may, at his option, furnish a bond from an insurance company licensed to do business in North Carolina. The security deposits from the tenant may be held in a trust account outside of the State of North Carolina only if the landlord provides the tenant with an adequate bond in the amount of said deposits. The landlord or his agent shall notify the tenant within 30 days after the beginning of the lease term of the name and address of the bank or institution where his deposit is currently located or the name of the insurance company providing the bond. (1977, c. 914, s. 1; 2015-93, s. 2.)
What I am most interested in is the "Trust Account". I am not interested in furnishing a bond. Maybe this is a simple question but does this have to be set up through a service or could this just be my bank and I hold the money? Just trying to make sure I am doing things correctly as I am getting started. Thanks in advance. Shaun
@Shaun Palmer - from my understanding the English translation of the statute is this... You must keep the tenants security deposit at a bank that physically operates a branch office in the State of NC. If you want to put the deposit in a out of state/online bank, then you will have to furnish a bond. It can just be held in a savings account, no special account needed, but I always keep mine in an account separate from anything else.
That is my understanding as well but was hoping that someone could definitively say this is what is needed. I assume that you are keeping the deposits in a bank then?
Chris is correct. You don't have to file "Trust" documents in order to hold a tenant security deposit in trust. You simply have to have a dedicated account where only those deposit monies sit. You cannot commingle your money with the tenant deposit per the state of NC. Just tell your bank that you need a savings account that can be named Trust Account - Security Deposits.
Thanks Brian. That helps.
Yup. Brian is right. I simply went to Wells Fargo (Wachovia at the time) and asked for a trust account so I could hold deposits. They opened a new account, labeled it "trust" on the account and my checkbook, and that was it.
Having the account labelled "trust account" or "escrow account" is important, as is keeping funds separate from your own, as is the account being held at a NC bank. Those are the big three for security deposit accounts in NC.
Now, the next question is "Should I get a separate account for each deposit?" or "Is one account good to put everyone's deposit in?"
@Miguelito Fernandez did you find out if you need a separate account for each deposit?
@Jonathan Carter I looked in a lot of places and I realized that many laws and rules can be interpreted in different ways. What I ultimately decided on after speaking with many people in the business and bank customer representatives was to make a savings account for each deposit. Then, give each account a name that can identify who it belongs to. For example, the owner's name or the property's name (I picked this one). Having a separate savings account for each deposit is a better-organized way. You can make checking accounts for the deposits but I prefer Savings accounts because it produces more interest that the landlord can keep here in NC ;)
Cool, thanks. After searching more, I found a few BP post where people seemed to have one account for all deposits, and keep only deposits in there. Im thinking to do that
Awesome! I just make a separate account for each one because not all my properties are renting at the same rate but now that I'm thinking about it more, I might just follow you. Thanks for the reply!