There are many ways in which landlords can cross the line and get into 
serious trouble with their tenants, but perhaps the easiest is by misappropriating their security deposit. The security deposit belongs to the tenant, not the landlord. Period. End of story.
Yes, the landlord may be entitled to retain the security deposit at a later time, but only after jumping through several very important technical hurdles. Until then, hands off!
The Massachusetts statute governing residential security deposits is chapter 186, section 15B. It is long and confusing. Nevertheless, the statute carries heavy penalties. A landlord who mishandles a tenant’s deposit, even by mistake, may be obligated to reimburse the tenant for three times the deposit, plus attorney’s fees, plus any court costs incurred.
The basic principal is to avoid any co-mingling of the security deposit with other money. The trouble often begins when the landlord first receives the deposit. In essence, the landlord becomes a trustee of the tenant’s money. Since the deposit must be kept separate from other money, the tenant should not give a single check that combines the security deposit with any other payments. The security deposit should be paid with a separate check or money order. Payment should be made directly to the security deposit account and not to the landlord. Accepting cash for the security deposit is ill-advised since there is no way to distinguish between cash belonging to the landlord and that of the tenant. It doesn’t matter that the cash is later deposited in a separate account – the violation has already occurred.
Once accepted, the money must be placed in a separate bank account that is properly labeled as a security deposit account. In the event that the landlord becomes subject to claims of creditors, the tenants’ money must be held in an account that is clearly identified as escrow funds that do not belong to the landlord. The money may be placed in an account with other security deposits as long as the account is properly labeled and contains none of the landlord’s money.
Another common mistake by landlords is keeping any last month’s rent in the same account as the security deposit. Unlike the security deposit, last month’s rent is money that does belong to the landlord – it is simply rent that was paid in advance. So putting it in the same account with the security deposit would result in co-mingling and would be a violation of the statute.
The security deposit needs to stay in the account until the end of the tenancy. The only exception is if the tenant does not pay the rent. Here is another trap for the unwary landlord. The landlord may not deduct rent from the security deposit if the tenant has withheld paying rent for a valid reason. However, tenants often do not tell the landlord immediately why they are withholding their rent. So a landlord who is quick to withdraw funds from the account without verifying the reason for the lack of payment may be in for a nasty surprise later.
Of course, the primary purpose of the deposit is to protect the landlord in case of unpaid rent or damage beyond reasonable wear and tear. In order for the landlord to apply the security deposit, he or she must have taken several other important steps designed to protect the tenants before the deposit can be applied. These include providing a statutory “Statement of Condition” and detailed receipt at the outset of the tenancy, notification of the bank account where the money is held, paying annual interest, and providing a sworn statement itemizing any damages that are being claimed, together with evidence of the repair or cleaning costs.
The bottom line for any residential landlord is to consult an attorney to be certain you understand your rights and obligations before accepting a security deposit. The modest cost for this advice will pale in comparison to the penalties that may be faced after the damage is done.
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Nice article, Michael
So all those threats I heard from my landlord decades ago in Boston were idle!
Makes me want to go back and have that moving out party on his roof as I threatened
I’d be curious to hear what people’s experiences are these days as we are temporarily renting after years of owning. When we last rented in California, it was common practice to require tenants to pay for carpet cleaning and to “nickel and dime” tenants when they moved out–deducting various items from the security deposit. In one case, we didn’t leave the kitchen “clean enough” so they deducted some amount to clean the fridge. My wife was in law school at the time, so that was particularly irksome.
My understanding is that if the landlord must return the security deposit within 30 days of the end of the lease. If the landlord has not returned it after that period and if the tenant has provided his new mailing address, can the tenant immediately go through legal proceedings? What is the penalty that the landlord has to pay? Also, if the landlord has not put the money in any type of escrow account, then do the penalties add up? Is the penalty 3x the security deposit for misappropriation of the security deposit and then more monetary penalties are added for failing to return the deposit within 30 days of the end of the lease?
in the middle of getting my security deposit back which i just found out my landlord did not put the security into a seperate bank account he wants to write me a personal check and it says on it final transaction between lanldlord and tenat.instead of security deposit.who do i contact the state or a lawer
We are in Washington State and provide Property Management for about 350 owners, acting as Landlords via a Contract and POA. – We are also Tenant Advocates at http://www.Allexperts.com where we have tenants email us about JUST this kind of problem. This was a great article Michael. You nailed it.
I am researching what the Penalty is for mishandling of tenant deposits, so I can show owners who bring their properties to me with tenants in place but do not seem to have their deposit. – There are some good Landlords out there, who do care.