I have several duplex in Michigan which I usually place the tenant's security deposit into an Interest bearing savings account (getting very little interest at today's rates). In Michigan I could not find anything in the law that states I need to return security deposit with interest.
Question: I just resigned 2 of my tenants to 24 month leases. Is there any law prohibiting me from using these security deposits ($900/renter) in a 2-year CD or higher bearing interest vehicle? Goal is to get higher return over 24 month period.
Security deposits in Michigan are handled differently than earnest deposits for buying real estate. You have two choices on how you can handle them:
1). Place the deposits in a bank account that you use solely for security deposits and nothing else, i.e. deposits go in and go out as needed.
2). Place the deposits in a bank account that you use for many things, i.e. maintenance, buying other property, etc. If you do this, you must "bond" (purchase an insurance policy) the deposits.
Here's the language in the law:
(1) The security deposit shall be deposited in a regulated financial institution. A landlord may use the moneys so deposited for any purposes he desires if he deposits with the secretary of state a cash bond or surety bond written by a surety company licensed to do business in this state and acceptable to the attorney general to secure the entire deposits up to $50,000.00 and 25% of any amount exceeding $50,000.00. The attorney general may find a bond unacceptable based only upon reasonable criteria relating to the sufficiency of the bond, and shall notify the landlord in writing of his reasons for the unacceptability of the bond.
(2) The bond shall be for the benefit of persons making security deposits with the landlord. A person for whose benefit the bond is written or his legal representative may bring an action in the district, common pleas or municipal court where the landlord resides or does business for collection on the bond.
Also, you do not have to pay the tenant the interest earned on the deposits.
Perfect. Thanks for including the Law Section.
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