North Carolina - Security Deposit Trust Accounts

12 Replies

Hey BPer's

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.

Promotion
Marko Rubel
ATTENTION INVESTORS
Get Deals 100% Funded – No Credit, No Banks, No Job Verification
New Unlimited Funding® program for investors: low-interest, without banks or shark lenders.
Check availability

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.  

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.

@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!

Promotion
RentRedi
Smart Tech For The Smart Landlord
The Smart Way To Manage Your Rentals
Enjoy growing your portfolio without paying more for it. Unlimited units & easy-to-use apps.
Get Unlimited Units