Tenant paid lease in full and property management is keeping it

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Tenant paid lease in full and property management is keeping it

Al Fenkner
Member since 2021 · 1 post · 1 vote

I have a renter who paid $17000 to my property manager to cover their remaining lease, but the property manager is holding the money rather than sending it to me.  I understand that they will need to retain their monthly fees and have money for minor repairs throughout the lease, but is it normal for them to hold onto it all and pay me rent in monthly installments?  Who gets to keep the interest on all of this money as it sits in the property manager's account?

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Scott M.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
5y

@Al Fenkner I know you may not like this answer but in this instance your property manager knows what they are doing, something to be grateful for. However, the reasoning you listed is wrong.

Fact is, it isn't your money until it is due.  The manager has a fiduciary reasonability to hold onto those funds until after the rent is due.  It needs to go into an escrow account and only after the rent is due on the 1st of each month should those funds be sent out. Its called prepaid rent.  Prepaid rent isn't paid before it is due, doesn't matter if it is 100 towards next moths rent or 17K for 12 months rent.  

This is 100% correct by the manager.  

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  • Andy EakesPro Member
    Property Manager · San Diego, CA · Member since 2020 · 205 posts · 162 votes
    5y

    Check your local laws. A lot of times agents are not allowed to keep client funds in an interest bearing account. Could even be a Fed law, but I am not sure. I would also look into reviews of the company and see if anyone else has had a similar experience. Seems like a silly question, but have you asked them to explain the reasoning behind this and what type of account they hold the money in? They should be able to clearly explain the reasoning. 

    Sounds like you just need to do a little homework and get on the same page with them. 

    1Reply
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Al Fenkner Actually most states require that to be kept in escrow until the money is earned (as in monthly rent), therefore will be sent to you monthly as normal. What if something happened to the tenant and they died, moved out, the list goes on and on.... any good real estate attorney would suggest that this money be kept in escrow, same with last months rent paid in advance, it is kept in escrow too until earned.

    We keep our escrow in a non interest bearing account, and the interest earned now in these accounts is pennies, so not worth doing anymore, plus more paperwork involved, because in Florida, we have to give tenants .75% of it!!

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    5y

    @Al Fenkner Look on the bright side you are not paying income tax till you get the money and the interest would be zilch!

    1Reply
  • Scott M.
    Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
    5y

    @Al Fenkner I know you may not like this answer but in this instance your property manager knows what they are doing, something to be grateful for. However, the reasoning you listed is wrong.

    Fact is, it isn't your money until it is due.  The manager has a fiduciary reasonability to hold onto those funds until after the rent is due.  It needs to go into an escrow account and only after the rent is due on the 1st of each month should those funds be sent out. Its called prepaid rent.  Prepaid rent isn't paid before it is due, doesn't matter if it is 100 towards next moths rent or 17K for 12 months rent.  

    This is 100% correct by the manager.  

    3Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    5y

    @Al Fenkner yep the other two PMCs are correct. It's not your money.... yet.

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