Security deposits in the residential arena can be tricky. The law is complex and includes mandatory triple damage penalties and legal fees against violating landlords. For this reason, you should carefully consider whether a security deposit makes sense, keeping in mind that taking only last month’s rent from your tenant is far simpler and less risky. Before you take a residential security deposit, be sure you understand all your obligations and are prepared to meet them meticulously.
Generally, the law requires that security deposits be placed in an escrow account appropriately labeled so that your creditors will be aware it is not your funds in the account. The tenant must be given a receipt showing the amount of the deposit, the landlord’s name, the address of the premises, and the name of the bank and the account number where it is being held. The tenant must also receive a written statement describing the condition of the premises. The tenant can add any damaged conditions that exist. Landlords must pay tenants interest on the deposit each year and keep records of the deposit which will be available to the tenant. They must account for the deposit and return any portion due to the tenant within 30 days of the end of the tenancy.
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