PA Rental Security Deposit Escrow
PA Landlord Tenant Law states:
68 P.S. § 250.511b
§ 250.511b. Interest on escrow funds held more than two years
Currentness
(a) Except as otherwise provided in this section, all funds over one hundred dollars ($100) deposited with a lessor to secure the execution of a rental agreement on residential property in accordance with section 511.11 and pursuant to any lease newly executed or reexecuted after the effective date of this act shall be deposited in an escrow account of an institution regulated by the Federal Reserve Board, the Federal Home Loan Bank Board, Comptroller of the Currency, or the Pennsylvania Department of Banking. When any funds are deposited in any escrow account, interest-bearing or noninterest-bearing, the lessor shall thereupon notify in writing each of the tenants making any such deposit, giving the name and address of the banking institution in which such deposits are held, and the amount of such deposits.
(b) Whenever any money is required to be deposited in an interest-bearing escrow savings account, in accordance with section 511.1, then the lessor shall be entitled to receive as administrative expenses, a sum equivalent to one per cent per annum upon the security money so deposited, which shall be in lieu of all other administrative and custodial expenses. The balance of the interest paid shall be the money of the tenant making the deposit and will be paid to said tenant annually upon the anniversary date of the commencement of his lease.
(c) The provisions of this section shall apply only after the second anniversary of the deposit of escrow funds.
Does this mean: Q1. Escrow accounts are only needed for deposits over $100 AND if kept over 2 years? (i.e. if your lease is only 1yr, then you technically do not need to deposit it in an escrow account?) Q2. You do not need a specific escrow account per lease/tenant? Can you have one account and place deposits there? Q3. You do not need to give the escrow account number to the tenant (just the name and address of the bank)? These questions are to educate myself and minimize unnecessary steps, if any to streamline operations. Again, not saying I would do this, just trying to understand what is required.
IANAL - talk to one specifically for your situation.
Personally I open an escrow for every tenant, its really quite simple. My bank(s) (using two at the moment, transitioning) both offer this and its no charge. I put them into interest bearing accounts and reconcile it monthly in Quickbooks... that's actually harder than opening the accounts (Quickbooks).
As we have a master LLC holding company for each sub-LLC (one per property) it does create a little administrative crap, mostly for the bank to set it up - however its a great way to stay in good graces with the law, and I spell it out for ALL tenants that this is how its done (surprisingly many landlords are unaware of this in PA). It also take any temptation away to co-mingle funds, and really helps keep the books squeaky clean - again, just how we run our shop.
Good luck
Percy,
Q1. While it may be the case based on the legal wording (it seems a bit gray to me(, I think it provides best coverage to just have at least one escrow account to keep the funds isolated from operating expenses and your personal money.
Q2. Right now I just have one escrow account for all security deposits and (Q3) I have seen no requirement to provide account number, just bank name and address. Imagine having a 100+ unit property and needing an individual escrow account for each unit, would be an administrative pain.
This is how I do it. I believe that I am abiding by the law but I would encourage you to consult a local real estate attorney.
Q1: Kind of. It is my interpretation that the law requires you to hold the security deposit (of >$100) in a separate escrow account. Even if your lease term is a year your tenant may stay for multiple terms (we hope)! So we always put the funds in there.
Q2: You do not need separate accounts for each tenant, but you do need to account for each tenants funds. We keep a log with our escrow account checkbook and update it because we feel that is easier than opening a new account for each tenant and then closing that account every time a tenant moves out.
Q3: You are just required to provide them with the bank name and address. Which in my opinion is stupid. The only thing it does for them is tells them you are following the law, but regardless of what financial institution it is held at they cannot access it. Where our lease discusses security deposits we have a section telling the tenant where the security deposit is being held so we don't have to provide notice after the fact. Again, trying to streamline things on our end.
Hi @Percy N.:
Q1. Escrow accounts are only needed for deposits over $100 AND if kept over 2 years? (i.e. if your lease is only 1yr, then you technically do not need to deposit it in an escrow account?)
Yes --- the duty to place the security deposit into the escrow account occurs on the second anniversary of the deposit. So let's say the tenant provides you with the security deposit on January 1, 2017. Your duty to place the deposit into the escrow account starts on January 1, 2019. Such duty only exists if the security deposit is only $100 higher.
But as a practical matter, I would just start from day 1 so that you don't have to keep track of the dates.
Q2. You do not need a specific escrow account per lease/tenant? Can you have one account and place deposits there?
I haven't read any case law that requires you to have more than a single account. I also don't see anything in the statute itself that requires you to have multiple accounts. So I would say it's most likely safe to place the money into a single account.
The only limitation I can think of is if the bank requires you to have separate account for each tenant. On a more practical note, if the bank allows you to create a new account for free at no cost, it might be worth to create a new account each time for bookkeeping purposes.
Q3. You do not need to give the escrow account number to the tenant (just the name and address of the bank)?
No need to give the account number. Just the name and the address.
Some other items to note.
The law technically requires you to keep track of the interest gained on the account. As a practical matter, this does not end up mattering much if the annual interest rate paid on the account is less than 1% since the landlord is allowed to keep up to 1% of the security deposit for administrative expenses. So it typically washes out.
Most banks have the ability to do a master escrow account, with sub accounts for each tenant, that you (the landlord) control.
New Jersey also has the requirement to place security deposits in escrow. Is there any local or regional bank that is highly recommended for this? They all do it, but is there a bank that makes things easier with things like online upload of tenant's w-9, phone deposits, things like that?. And maybe send annual notices to tenants? I'm mean specifically for a
Tenant's Security Deposit Trust Fund Escrow Account
and not a regular checking or savings account?
@Eric E. - I think you know what bank Id refer you to, however they dont necessarily operate in your market. I also used Americn Bank of the Lehigh Valley... that might be a logistical headache for you as they only have a single 'brick n mortar' location.