Security Deposit Collection – Common Mistakes & How to Avoid Them

Security Deposit Collection – Common Mistakes & How to Avoid Them

Most landlords make honest mistakes when collecting and accounting for a tenant security deposit.  In this blog I will outline the most common mistakes, how to avoid them, and how to make it right if you have made an error.

Mistake #1: You did not use the proper forms.

Not only do you need to use the proper forms as prescribed by MA law (a receipt and Statement of Condition), they need to have very specific information contained within them and they even have certain font requirements!  The GBREB form that Sloane Realty Group uses meets all these tedious requirements.

  (c) Any lessor of residential real property, or his agent, who accepts a security deposit from a tenant or prospective tenant shall, upon receipt of such security deposit, or within ten days after commencement of the tenancy, whichever is later, furnish to such tenant or prospective tenant a separate written statement of the present condition of the premises to be leased or rented. Such written statement shall also contain a comprehensive listing of any damage then existing in the premises, including, but not limited to, any violations of the state sanitary or state building codes certified by a local board of health or building official or adjudicated by a court and then existing in the premises. Such statement shall be signed by the lessor or his agent and contain the following notice in twelve-point bold-face type at the top of the first page thereof:

  “This is a statement of the condition of the premises you have leased or rented. You should read it carefully in order to see if it is correct. If it is correct you must sign it. This will show that you agree that the list is correct and complete. If it is not correct, you must attach a separate signed list of any damage which you believe exists in the premises. This statement must be returned to the lessor or his agent within fifteen days after you receive this list or within fifteen days after you move in, whichever i later. If you do not return this list, within the specified time period, a court may later view your failure to return the list as your agreement that the list is complete and correct in any suit which you may bring to recover the security deposit.”


Mistake #2: You did use the proper forms, but you didn’t fill them out or sign them correctly.

On the Apartment Condition Statement, you or your agent MUST sign the form before giving it to the tenant, and prior to move-in.  The tenant is responsible for counter-signing the form within 15 days of receipt and sending it back to you, however if you do not sign it FIRST and PRIOR TO MOVE-IN, you are not entitled to withhold any security deposit funds.  (Note: you technically have 10 days after the tenant moves in to give them this form but that makes no sense because they could have already damaged the apartment.)

You also must give a proper receipt to the tenant!  It must have the following information on the receipt: “…indicating the amount of such security deposit, the name of the person receiving it and, in the case of an agent, the name of the lessor for whom such security deposit is received, the date on which it is received, and a description of the premises [the address]  leased or rented. Said receipt shall be signed by the person receiving the security deposit.”

This is the first page of the Rent and Security Deposit Receipt form that Sloane Realty Group provides all our landlords with.

Mistake #3: You did not inform the tenant of the account and bank in which their deposit was held; this is assuming you did not make the mistake of tossing the security deposit into just any old account.

You must inform the tenant, in writing, of the name of the bank in which their deposit is being held, the address of the bank branch, and the account number within 30 days of receipt.  If you opened the account via mail (such as with DCU, for example), use the main bank branch
or address you mailed the deposit to.  This bank also must have a physical address in Massachusetts.  So if you use Bank of America, you can not go into a BOA in another state and open the account.  It must be at a MA BOA branch… are you ready to hire me yet 😉
We use this GBREB form (shown here is page 2 of 2), or in some cases banks provide us with a form that has all the required information included on it and is mailed directly to the tenant.  I always fill out the portion of the form anyways just to play it safe and to have the info on the receipt in one place.

M.G.L., ch. 186, § 15B has got you covered here!

  (3) (a) Any security deposit received by such lessor shall be held in a separate, interest-bearing account in a bank, located within the commonwealth under such terms as will place such deposit beyond the claim of creditors of the lessor, including a foreclosing mortgagee or trustee in bankruptcy, and as will provide for its transfer to a subsequent owner of said property. A receipt shall be given to the tenant within thirty days after such deposit is received by the lessor which receipt shall indicate the name and location of the bank in which the security deposit has been deposited and the amount and account number of said deposit. Failure to comply with this paragraph shall entitle the tenant to immediate return of the security deposit.

 

There are many more mistakes that you can make, however since I care about you getting some sleep at night I will stop here.  In the case of failing to comply with mistake #3, you must immediately return the deposit to the tenants, as stated above under MGL.  For other violations the tenant SHALL BE awarded damages, not COULD BE… SHALL BE.  And it is a costly mistake to make.

  (6) The lessor shall forfeit his right to retain any portion of the security deposit for any reason, or, in any action by a tenant to recover a security deposit, to counterclaim for any damage to the premises if he:

(a) fails to deposit such funds in an account as required by subsection (3);

(b) fails to furnish to the tenant within thirty days after the termination of the occupancy the itemized list of damages, if any, in compliance with the provisions of this section;

(c) uses in any lease signed by the tenant any provision which conflicts with any provision of this section and attempts to enforce such provision or attempts to obtain from the tenant or prospective tenant a waiver of any provision of this section;

(d) fails to transfer such security deposit to his successor in interest or to otherwise comply with the provisions of subsection (5) after he has succeeded to an interest in residential real property; or,

(e) fails to return to the tenant the security deposit or balance thereof to which the tenant is entitled after deducting therefrom any sums in accordance with the provisions of this section, together with any interest thereon, within thirty days after termination of the tenancy.

(7) If the lessor or his agent fails to comply with clauses (a), (d), or (e) of subsection 6, the tenant shall be awarded damages in an amount equal to three times the amount of such security deposit or balance thereof to which the tenant is entitled plus interest at the rate of five per cent from the date when such payment became due, together with court costs and reasonable attorney’s fees.

Now, there is no need to panic if you think you have made any of these errors.  You should refund the deposit, plus interest, as soon as possible to the tenant because you are not entitled to withhold any of the funds.  I am not an attorney so my blog should not be substituted for legal advice, but if you need an attorney please contact us for a referral.

As always, please feel free to reach out to inquire about our professional property management services and how we can assist you in establishing a proper tenant security deposit account and comply with all MA laws.

The MA Security Deposit Law may be found here:  M.G.L., ch. 186, § 15B

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Shannon McCullough

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