Landlords, Keep the Security Deposit in the Bank or it May Cost You!
For a property owner renting out residential space, there are so many different laws and regulations that can get them in trouble, if not followed properly. If a renter is aware of these laws that they are ignoring, it can turn into an unpleasant situation to say the least. One tricky law that many people don’t know about surrounds the security deposits that, so many renters pay in the event they cause damage to the property.
Know the Facts!
1. The Security Deposit Is Still the Tenants
The security deposit collected by the landlord is still the tenant’s property until the landlord is authorized to use it. Because of this, the landlord is required to keep the money in a separate, interest-bearing Massachusetts bank account. When setting up the account the landlord must be sure they identify the money as not theirs and simply being held for the tenant. Within 30 days of depositing the security money, the landlord must inform the tenant of the specific bank name and location where the money is to be held.
2. The Tenant Owns the Deposits Interest Too
Did you know that when the landlord holds a security deposit from the renter for 1 year or longer, they are required to pay interest on that money? Since the security deposit is still the property of the tenant, the landlord must be sure to pay back the interest accrued from the bank. It is important to understand that this interest needs to be paid annually! So, if you have a 5-year tenant the interest needs to be paid to the renter on a yearly basis.
3. What if the Deposit Isn’t kept in the Bank?
The landlord must pay a rate of 5% per year on the deposit if it is not proven to be kept in a bank.
Yes…. that’s right.
From the view of the landlord, it is extremely important that they keep the security deposit money in the bank and keep track of the interest rate. That number will be far less than the 5% they would otherwise have to pay.
For example, if a renter pays a landlord a security deposit of $2,000, and the landlord chooses to keep it in a safe under their mattress the renter will be entitled to $100 after the first year. But, if the landlord held the money in the bank and only received .05% interest on that money during the year, the landlord would only pay $1 after the first year back to the renter.
That is a huge difference, isn’t it?
If 30 days after the first year, the renter has yet to receive the interest money, they can subtract what is owed to them from their following rental payment.
This is a very complex statute, with very strict requirements. A landlord failing to comply with these requirements can result in very serious consequences. Please let us know if you have any other questions about the Massachusetts security deposit law. Our team at Lamacchia Property Management ensures that every property we work follows these and other strict laws and regulations. Call us today for more information at 855-213-3410 or email is at email@example.com.