Pennsylvania Security Deposits

11 Replies

I'm buying my first 2 unit rental this week. A question is come up about the security deposits. The question is, do I need to keep each individual's security deposit separate, in separate accounts? I was talking to the bank, and they have two options. The first option is an umbrella account with individual accounts for each tenant. This option requires an LLC, which I do have.

The second option is a personal account and my understanding is that the tenants security deposits would be commingled. 

Can anybody tell me if commingling is allowed or if they must be separate.

The owner of the property that I'm buying does not have the security deposits in an interest-bearing escrow account. Can anyone venture an educated guess on whether I'll be responsible for the interest for the time that he owned the property?

Jeff,

you can commingle the tenants security deposits, just not with your own account, a separate account just for security deposits. it does not have to be an interest bearing account but i believe if the tenant is there for more than 2 years then you have to have it in an interest bearing account for them. i believe @Chris K. and @Steve Babiak would know a lot better about it.

Thanks Patrick. That brings up another question I've had also. It' not relevant for me now because both tenants have been in the house longer than 2 years but for the first 2 years, if I have in an interest bearing account, can I keep the interest or not. 

@Jeff Lehman just to be safe and for accounting purposes you should keep track of the interest and upon the tenant moving out disburse any interest to the tenant. Its such a small amount its almost rediculious to keep track of it but it is the law. 

@Jeff Lehman

I'm traveling today so I don't have the statute in front of me. But if you take a look at the relevant parts, it says something along the lines of "the landlord may charge an administrative fee" of some amount (1% a year I believe). Since it is unlikely that you can find an escrow account that gives you more than 1% interest a year, you generally don't have to worry about the interest portion. 

I personally would separate regardless of how many years the tenants have been with you. It's relatively easy to do and guards against crazy events. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Originally posted by @Jeff Lehman :

Thanks guys for all of the advice. I was able to find a bank that knew how to set up an account for the escrow.

 Mind sharing which bank/financial institution you used?  I've been asking a number of companies and they act like this is the first time they have ever heard of an escrow account for a tenant security deposit. 

Thank you in advance!

Originally posted by @Robert Ferrar :
Originally posted by @Jeff Lehman:

Thanks guys for all of the advice. I was able to find a bank that knew how to set up an account for the escrow.

 Mind sharing which bank/financial institution you used?  I've been asking a number of companies and they act like this is the first time they have ever heard of an escrow account for a tenant security deposit. 

Thank you in advance!

Most recently I used Wells Fargo. I have used others besides them in the past. I suggest you avoid TD based on my recent experience with them for this particular purpose - I continue to use TD for lots of other banking.

 

The Audubon location off of Egypt Road and others before that. You do have to ask the customer service reps at the desk about this - tellers likely have no clue. And if the CSR has no clue you try the next location - the last thing you want is to get messed up by those who have no clue but will use their phone in support to talk / walk them through. They all will use the phone in support and that is OK, just the clueless ones are to be avoided no matter what the name of the bank is. 

@Robert Ferrar I used Citizens Bank however it ultimately turned out to be a nightmare until I got it all sorted out. They told me that they knew what they were doing but then set up my accounts as a business checking accounts. They set up one account for each tenant but because they used a business checking account, there were monthly fees. It was about 2 or 3 months before I noticed the fees, I guess because I wasn't expecting them and was not looking for them. It took another month to to have it changed to the proper account. The guy who originally set up the accounts, ultimately had no clue what he was doing and was not even able to change them to the correct account. However when I called Citizen's 1 800 number, everything was fixed in about 5 minutes.

Good luck

As we stated before, just keep checking around until you find someone who knows what you're talking about.