Questions on Collecting Rent in Massachusetts

8 Replies

Hello everybody, I'm looking at real estate investing here in Massachusetts and I have questions for the rent payment and move-in costs. Is it legal to request a Deposit to Hold in Massachusetts? How do you collect the security deposit and the first month's (and last month's) rent? What do you use to collect rent? Is a grace period required in Massachusetts?

Hey @Makhwarand Khan  

I collect a $100 non refundable deposit (i would refund it if the background check DQ'd them, but haven't had to cross that bridge yet)  at the showing to lock it up.  I use Cozy for background and credit checks, I take the cost off the first months rent if they are approved.  It could be argued that it is an unlawful application fee.  I collect first months rent and security deposit when the lease is signed (ideally ASAP after the showing and background check) and don't require pre-payment of last month's rent.  I am currently using Cozy for rent on 1 unit to try it out.  It works fine, but on another unit I have the tenants pay me electronically though BOA and its instant, instead of waiting the 5 days for the Cozy payment to process.  Make sure you keep each unit's security deposit in a separate interest bearing account and that return of the sec deposit includes any accrued interest.

@Matt Leonard

Great system you have in place! 

The key is if you collect a security deposit- make sure it is a separate interest bearing account- 

Cozy is great- I also use it for rent collection and they also have background and credit checks 

There is an interesting discussion on "Deposit to Hold in Massachusetts" on the MA Law Forum:

https://www.malawforum.com/content/can-i-recover-d...

In a nutshell, there does not seem to be a specific MA law governing "Deposits to Hold." There ARE specific laws governing collecting "Last Month Rent" and "Security Deposits." If you don't follow the letter of the law (actually in the case of Security Deposits, it is the FONT of the law!), you can land yourself in trouble. I highly recommend reading How to be a Landlord written by a Newton, MA lawyer:

http://www.attorneyross.com/landlord.pdf

I use Lease Runner to create my Massachusetts leases & accompanying documents which are then signed online by me and my tenant. It costs $25 per completed bundled lease  (i.e., the lease and any other accompanying documents, such as Disclosure of Information on Lead-Based Paint) but it is so worth it. I have carefully gone through the documents Lease Runner has created for Massachusetts and been very impressed with their ability to cover the Massachusetts laws in detail. The only issue that isn't perfect is that they allow you to bundle the "MA Security Deposit Disclosure" and "MA Statement of Present Condition" with the lease when both of these documents need to be completed after the lease is signed not at the time the lease is signed. But having the Lease Runner documents available allows me to use them as templates for my own documents that I provide the tenant at the appropriate time. 

And finally, I use Cozy.co to collect Security Deposit, Last Month Rent and monthly rents. I make sure that the Security Deposit and Last Month Rent requests are clearly distinguished. Given what happened with eRentPayment last month, I'm a bit more cautious about such online payment services but for now I'm staying with Cozy.co but monitoring it carefully.

@Matt Leonard and @Carolyn Fuller thank you for these insights.  I have been referring back to this thread several times in anticipation of getting my first renters.  From what I can tell from other websites, holding deposits and background check fees are illegal in Massachusetts.  Although, commercial multifamilies seem to be allowed to use them, so I don't know what's up with that.  

From Mass Legal Help online: "When landlords rent apartments to new tenants, sometimes they try to get more money than just the rent. They may try to tack on extra fees such as "holding deposits," "rental fees," "pet fees," or "application fees." These extra charges are illegal."

https://www.masslegalhelp.org/housing/lt1-chapter-...

I have seen the same information on other legally-oriented MA websites.  Cozy doesn't even seem to have an option for the landlord to pay the background and credit check fee.  I would think, though, that if you used Matt's strategy of refunding any holding deposits or background check fees off the first month's rent, that would be a viable workaround.  I would be 95% of tenants aren't savvy enough to know all this, but it really is just a google search away.  

What do you all think?

@Steven Burke I don't charge application or background check fees so I haven't researched their legality. We got advice from a lawyer on the security deposit. 

At first, we did not collect security deposits because we thought staying within Massachusetts laws, was more complex than it was worth. But one of our rentals is fully furnished with expensive furnishings. We discovered a tenant was leaving the designer wooden end table purchased at Design Within Reach (what a misnomer!) out on the balcony. We decided it was worth requiring a security deposit in the hopes that tenants would think twice before treating our furnishings that way.

The law is not all that difficult to follow. It took me less than 10 minutes to open an escrow account yesterday at TD Bank. This is the bank that the lawyer recommended. It is free and they make it pretty darn easy even though we don't do any other banking with them. They call these accounts Tenant/Landlord accounts. Here is what I had to do to open the account:

1- Had tenant fill out a W9 and send me his birthdate.

2- Gave the tenant a standard receipt when he gave me the security deposit (my name as recipient, amount of security deposit which can not be more than one month's rent, date received, address (aka description) of rental property)

3- Once the security deposit was deposited, I took the W9, copy of the lease and the tenant's birthdate into TD Bank along with my ID. As I said, it took less than 10 minutes for the guy to set up the account. 

4- Fill out and give to the tenant: a Security Deposit Certification which will include the tenant's name, landlord's name, date, premises (address of rental property), lease start date, security deposit amount, name of bank, address for bank, account number, along with the legal blurb about security deposits. I can give you a blank copy of this certification if you can't find it online.

5- When the tenant moves in, give them a statement of condition, detailing the current condition of the apartment. The Massachusetts law is very particular about this document - down to the font size!!! I can also send you a blank statement that has the correct wording and font size of the legal blurb at the top of the form if you can't find it online. The tenant has 15 days to sign the statement with any addendum they wish to add.

6- Schedule a walk-through with the tenant before they move out. 

7- Assuming all went well, close out the escrow account and send the deposit amount plus the interest to the tenant.

For this particular expensively furnished apartment, managing the security deposit is worth it. We have another rental, for which we do not think a security deposit serves any purpose. The furnishings are not all that expensive to replace and we live right above the rental so tenants tend to treat it better. 

The big advice we got from our lawyer was to avoid nickeling-and-diming our tenants. For instance, we make it clear to tenants up front that we don't charge for day-to-day wear and tear, including broken dishes, etc. The security deposit is for irresponsible negligent behavior only. The fact that we require it, will hopefully prevent such negligence. Replacing anything from DWR hurts!

One further comment on the interest that is earned by the security deposit (it has to be in an interest bearing account in MA). It is payable to the tenant on the anniversary of the tenancy. So you must take it out of the account and send it to them, even if it is only 50 CENTS. The other choice is to have them deduct it from the rent and you take it from the bank. You can NOT just let it accumulate, even if the tenant says that to do that.

Also the security deposit must be returned within 30 days of the end of the tenancy along with a list of any damages that you are taking deductions for, if any.

@Carolyn Fuller that is all very detailed and very helpful information, thank you!  I have learned a lot of really valuable information in the two posts in this thread alone!  I'll have to go read your other posts to see what other nuggets of wisdom you've been providing.  I also appreciate the offer for the forms.  I've been having good luck finding what I need so far, but I'll let you know if I hit any walls.  Thank you!

@Steven Burke : Great article in the Boston Globe today. They go over what fees a Massachusetts landlord can legally charge and what they can't charge:

The City of Boston website tells prospective tenants to “know your rights.” It lists examples of things landlords can’t charge for, including an “application fee” and a “credit check fee.” A handbook on tenants’ rights put out by the Massachusetts Law Reform Institute says the same thing. And a 2014 court ruling explicitly deems illegal a landlord’s attempt to impose any extra charges, whether labeled as “application,” “amenities,” or “community” fees.

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