The Worst Mistake a Landlord Can Make

by Michael S. Kraft on May 6, 2010

in landlord and tenant,last month's rent,security deposit

There are many ways in which landlords can cross the line and get into Mishandling security deposits creates traps for landlordsserious 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.

Are you a landlord or tenant? Do you have questions about housing or real estate investment? I would love to hear from you. Please click below to let me know any comments or concerns.

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{ 324 comments… read them below or add one }

sabine February 15, 2014 at 4:08 pm

Hi I live in MA and I had a tenant from hell I evicted him in court and sent him a letter before the judgement entered to me informing him about the date of the inspection and I mentioned the damages he caused to the apt and informed him that I will deduct the security to repair the damages he cause to the apt so he did not answer my letter, after that the judge entered to me the two jugements the first he evict the tenant and reward to me money for the damages which is the same amount of the security deposit and the second he dismissed the couter claim made by the tenant and give him nothing, do I still have to return him the security deposit by 30 days after he moved out or I don’t have to???because he is suing me now for this reason asking for damage treble amount of the security deposit and Atty fees.
Thank you,
PS: he trashed the apt before he left and destroyed the furniture and did not gave me the keys

sabine February 15, 2014 at 4:16 pm

Hi I live in MA and I had a tenant from hell I evicted him in court and sent him a letter before the judgement entered to me informing him about the date of the inspection and I mentioned the damages he caused to the apt and informed him that I will deduct the security to repair the damages he cause to the apt so he did not answer my letter, after that the judge entered to me the two jugements the first he evict the tenant and reward to me money for the damages which is the same amount of the security deposit and the second he dismissed the couter claim made by the tenant and give him nothing, do I still have to return him the security deposit by 30 days after he moved out or I don’t have to???because he is suing me now for this reason asking for damage treble amount of the security deposit and Atty fees.
Thank you,
PS: he trashed the apt before he left and destroyed the furniture and did not gave me the keys.

Yiani April 15, 2014 at 5:12 pm

Hi,
I live in Virginia, and I have a new tenant in MA who gave me
a security deposit, how can I open an account from here without travelling all the way back to MA, to setup a new escrow account for the tenants security deposit?
-Yiani

Rosie Leiser May 18, 2014 at 12:43 pm

Hi! I have a house in PA that hasn’t sold.
We are now looking to rent it. I currently live in Ny.
We have an interested couple with bad credit.
530 and 560. They would like to eventually
Buy it when there credit gets better. My question
Is, can I create an escrow acct and ask for additional
Funds to be kept in there incase they don’t pay there
Rent. What would you advise? We arent in the
Position to let it sit and wait for the perfect
Tenants.
Thank you, Rosie

nikia June 2, 2014 at 11:20 pm

My family have fallen behind in our utilities and a late rent fee for a couple of months. We received 2 notices from the landlord saying we need to pay. I had originally told them that I can make payments on them but then found out that I wasn’t able to do that at the time. But by the time I got a second notice, we paid off the remaining balance and we are once again current with our apartment. Can they refuse to let us renew our lease in a couple of months because of this? We are in Oregon.

cristie June 26, 2014 at 1:38 am

My daughters husband got a promotion that moved them 5 hours from home. She signed a lease and gave a deposit to a private renter last week. They hauled most of their stuff up and stored it in the garage for the last two days. The landlord helped them unload it. Today they said good by packed up their 2 small children and drove 5 hours to their new home. The gate was locked and the landlord wouldnt answer the phone.when they finally got his attention he told them they were late and he changed his mind about renting to them and refused them the keys.they were to pay the rent when they arrived and they had it but he refused it. He made a scene and even put his hands on my son and got out of control.my children called the cops and were told they could pick up their belongings in the morning but he couldnt make the landlord give the deposit back..my kids are left homeless and scared in a strange town..we do t know what to do.

jenn June 28, 2014 at 6:23 pm

Cristie,

I don’t think the attorney responds to questions here, there are so many that itwould take up way too much time. But I felt very sorry hearing about what happened to your “kids” (no matter how old they get, they’re always our kids). I know how worrisome it must be for you, especially being so far away from them. But I have to say, mom to mom, you know you raised your daughter well…both she and her capable husband will get through this unscathed and probably a little wiser. YOU need to count your blessings! That landlord sounds like he has some serious psychological problems . your kids dodged a bullet by learning what he is really like before moving in. Having a ruthless landlord can put a lot of stress and strain on a family, and on a marriage. The police will standby while they retrieve their belongings, and your daughter will simply have to file a suit in small claims court for the return of their deposit. Depending on the laws in her state, she may be able to also claim damages for the unexpected expenses that came from the incident, like mo ey for a hotel room, having to rent the moving truck for extra days, etc. MAKE SURE SHE GETS A COPY OF THE POLICE REPORT, and that it mentions the landlord’s physical assault against your son-in-law. That will be valuable in court.
In the meantime, take a breath, monks…I know we can’t help worrying, it’s our job as moms to worry! But temper it with gratitude that your kids and grandkids won’t be renting from that lunatic. Good luck, and please post again when they settle in if you can, since I will no doubt be wondering how they made out. It’s truly a blessing in disguise, you can bet on that.

Michael S. Kraft June 29, 2014 at 5:58 pm

Jenn,

Because of the sensitive nature of legal advice, I do try to respond personally and privately to everyone who posts an issue here (subject to my own busy schedule). Thank you for your contribution.

Michael Kraft

chayleah July 6, 2014 at 8:54 am

When renewing our lease we knew that there was a possibility of a relocation due to job. The landlord gave us a standard MA lease which she signed before she sent it to us. In the term of tenancy clause, for early termination we crossed out “liable for the balance of the rent for the remainder of term” and wrote in “2 month break lease fee and forfeit last month’s rent”. My husband and I initialed and dated the change. Our landlord received the lease and asked about the change. We told her that if we leave early she will basically get 3 months rent. She agreed verbally.

In her email today she said-

“I understand it was such short notice for you but you have to understand that we have a signed lease until April 2015{including a 2 month break the lease clause. I will be in the house sometime between the 7 and 14th. I am going to put the hose up for sale but it is not such a good tie as it would of been in the spring because it is a big house and a family would have already been settled in to start school. We will have to come to some kind of an agreement with the lease.”

Is this email enough to prove that she accepted the break lease fee despite not initialing the change on the lease? If she is selling and not re-renting does her responsibility to mitigate damages still apply or could we have to pay rent until she sells the house?

Kim July 14, 2014 at 12:11 pm

I have a strange question. I have a unit that has a tenancy at will for the last 9 years that we never set up a security deposit for. Can I now send the tenant a request to pay a security after 9 years? We are afraid we will be stuck with repairs beyond normal wear and tear. This tenant has had plumbing issues over the years, that have been due to negligence ( not all of them) , but with each did not give us proper notification. And then they turned to a larger problem. I know we should have done this at the beginning of the tenancy, but we were too nice and did not make the tenant ome up within.

Kim July 14, 2014 at 12:17 pm

I live in ma and have a tenant that we never set up a security deposit for and thus no statement of condition. It’s a tenancy at will for the last 9 years. Can I now request tenant to pay a security? We are fearful to end up with repairs beyond normal wear and tear. Tenants unit has had plumbing issues most but not all due to negligence and further compounded by delayed notification to us, resulting in structural issues to unit below. I would love to know the answer to this as we do not have extra funds to consult with an attorney and I do not want to proceed illegally.
Thank you!

Jamie July 21, 2014 at 11:36 pm

I emailed my landlord on June 2nd and said we had applied for a home loan and if the loan was approved, we would be vacating on July 13th and if not, then we would like to remain in the unit for another year. The landlord emailed back and said that’s great news for you, let me know when you know for sure. I emailed her on June 16th telling her that our loan was officially approved and we were going to be out by July 13th. We are on a month to month agreement and must give a 20 day notice. Is my intention to vacate with the home purchase process sufficient? She is saying now that she is keeping our $1100 deposit because we owe $1200 for July rent. I turned keys in on July 13th and did a walk thru with her. There was also never a move in or move out check list. What are my rights?

Joseph Nagel July 22, 2014 at 2:51 am

I live in Michigan, i am renting to own in a trailer park. I havent missed rent once in 7 months but I just lost my job and cant make rent. I already got an eviction notice, and im wondering is it legal for them to ask for a 2400 dollar “holding” deposit and if so, can I get it back or use it to pay my rent. also in the trailer park where i live everyone else gets a bill every month since the water bill is added to rent I have never gotten one, though I call every month to find out how much i owe so it isnt late, and asmk them to please send me a bill and all the ones they havent sent from before. they say they will and it never shows up. we couldnt even find out how much we owed before they sent us the eviction. i have a 3 year old daughter and i need help…..

Alec Fuhrman July 24, 2014 at 10:22 pm

Hi, I live in NJ and have a question about security deposit. I’m renting a house, my 2nd year lease term expires in august. Up until June of this year, I’ve been getting monthly statements from the bank where my security deposit (in the amount of $5400) is held. According to the last statement, the landlord withdrew $5100 from that account without notifying me. My attempts to contact the landlord regarding this were unsuccessful. When I tried to call the bank, they refused to provide me with the information I requested claiming that I’m not authorized.
I’m building a new house and my plan was to move out of this rental at the end of this term but, unfortunately, things didn’t work out the way I planned and I need another 2-3 months before I can move into the new house. I tried to ask for 3 month extension of the lease, landlord refused. Instead, she offered month-to-month with significant rent increase. I agreed to the month-to-month, tried to negotiate the rent. In her last letter, she withdrew her offer and gave me the notice to vacate the property at the end of the lease which is several weeks from now. During all of these communications (in written form), I consistently requested her to provide me with the confirmation that all of my security deposit and 7% interest (according to NJ tenant law) were returned to the escrow account. All of my requests were ignored.
Given all of the above, could you please give me an idea as to what my rights are at this point? The landlord clearly broke the law, first when she took the money from my escrow account without notifying me and used it unlawfully for still unknown period of time. Second, when the notice regarding renewal of lease was sent less than 90 days before expiration of the lease. Third, when she withdrew the offer to renew/extend the lease in the middle of negotiation without having any valid reason for it. Can I hold her responsible for any of the above? Thank you.

Alec Fuhrman July 24, 2014 at 10:27 pm

Hi, I live in NJ and have a question about security deposit. I’m renting a house, my 2nd year lease term expires in august. Up until June of this year, I’ve been getting monthly statements from the bank where my security deposit (in the amount of $5400) is held. According to the last statement, the landlord withdrew $5100 from that account without notifying me. My attempts to contact the landlord regarding this were unsuccessful. When I tried to call the bank, they refused to provide me with the information I requested claiming that I’m not authorized.
I’m building a new house and my plan was to move out of this rental at the end of this term but, unfortunately, things didn’t work out the way I planned and I need another 2-3 months before I can move into the new house. I tried to ask for 3 month extension of the lease, landlord refused. Instead, she offered month-to-month with significant rent increase. I agreed to the month-to-month, tried to negotiate the rent. In her last letter, she withdrew her offer and gave me the notice to vacate the property at the end of the lease which is several weeks from now. During all of these communications (in written form), I consistently requested her to provide me with the confirmation that all of my security deposit and 7% interest (according to NJ tenant law) were returned to the escrow account. All of my requests were ignored.
Given all of the above, could you please give me an idea as to what my rights are at this point? The landlord clearly broke the law, first when she took the money from my escrow account without notifying me and used it unlawfully for still unknown period of time. Second, when the notice regarding renewal of lease was sent less than 90 days before expiration of the lease. Third, when she withdrew the offer to renew/extend the lease in the middle of negotiation without having any valid reason for it. Can I hold her responsible for any of the above? Thank you..

Pam July 29, 2014 at 12:04 pm

Atty Kraft,

My daughter is a student at Oklahoma State (we live in CT), she signed a lease for an apartment with 2 roommates and each had to pay a separate security deposit to the landlord. My daughter’s lease is effective August 1, while her roommates were effective June 1 and June 15 respectively. At the end of June my daughter found a replacement student roommate and no longer wished to move in to the home. The new student roommate has signed her lease effective August 1 and the landlord is now requiring my daughter to pay a $300 release of lease fee prior to allowing the new roommate to move-in. He also “assigned” her security deposit to the remaining tenants and has a release of lease form indicating this and that she owes an additional $300 fee. Is this lawful? Can he keep her deposit AND charge a release of lease fee prior to the commencement of her lease and given the fact that he has ZERO damages since my daughter found a suitable replacement tenant who has already signed her lease? The new tenant paid $370 for her deposit and the landlord credited it to the “release of lease fee” and “assigned” my daughter’s deposit to the entire balance. Should he not accept the new deposit from the new tenant and return my daughter’s? Furthermore, can he charge a release of lease fee prior to the commencement of the lease and in the event where he has NO damages? Thank you for your time and advice.

Jen P July 30, 2014 at 11:56 pm

Question,
I gave a deposit of $950 on June 26th to initiate tenancy. But on July 9th, I back out due that property manager told me I could park my car in front of his garage door in the alley behind building since I would not get parking spot, but I later found out alley parking it’s illegal in California. I didn’t get a receipt neither have I signed the rental lease. I was due to move in August 1st. I asked for partial deposit refund, meaning the $950 minus the days the unit was held. But landlord refuses and now claims the money was a holding deposit, he never told me that, he just asked for a $950 deposit that same way he’s asking now on his online ad. He told me if I decided to bring them to small claims he would sue me for the 1 yrs. lease or the time it took to rent the unit, he said it could take up to five months, I find the hard to believe since building it’s less than a mile away from a community college and on a main blvd. I only filled out a rental application 2 days before I handed him the $950 deposit. And he says landlord can hold me accountable to the lease from the fact of me filling out the rental application. Can they sue me? And do I have a chance in small claims in getting the partial deposit back? Thank you for your time and advice.

Maxine Tunno August 6, 2014 at 1:56 am

If a husband and wife are tenants under a lease in North Carolina must the security deposit refund be made payable to both. The parties are separating and the wife returned to her home state. The landlord is going to return the entire deposit to the wife even though the husband set and signed the rental lease and paid the deposit before the wife joined the husband. The two copies of the lease husband has does not contain wife’s signature. Landlord claims wife signed his copy of the lease after joining husband but husband was not given a copy. Is it legal for the landlord to return the deposit to the wife only? Thank you.

Ross Lennat August 6, 2014 at 11:01 pm

In Missouri it says a landlord cannot demand a deposit more then the combined 1st and last months rent. I’m confused on 1 thing, You see these big rental companies charging A LOT more to get in. for example, the house nextdoor to me is for rent. 1250/month. To get in you have to have a deposit of 2500 and you have to pay 2 months rent for a total of 5000.00 to get in. Is that a work around of the current law or just flat out illegal? On top of that they want a 300 separate deposit to cover keys & locks and 200 deposit to cover Garage door codes/remotes, and lastly a 500 deposit to cover appliance repair. It really seems like a scam to me.

ANF August 7, 2014 at 4:02 pm

I need some advice at a renter. It’s a lot to explain mad I don’t want all my information on here. Can you please contact me ASAP and go over something’s with me?

Judy August 15, 2014 at 9:58 am

I live in Texas and moved out of rental home on July 26th and did a walk-through with the landlord’s realtor on August 2nd. The lease ended July 31st. On the August 2nd walk-through, we received our entire security deposit back. Now the landlord is sending me pictures of things she wants fixed (crack in tile and holes in walls) and it has been almost two weeks since the walk-through. Are we still liable for those things if they weren’t mentioned during our walk-through?

Samuel Compton August 15, 2014 at 9:51 pm

Im from W.V., I was curious that if a tenant has tried to contact the landlord multiple time to pay rent and the landlord does not answer their calls for months, is the landlord allowed to sue or kick out their tenants?

Haviva August 16, 2014 at 5:11 pm

I have a rear unit attached to my house which I rent out. A renter gave me first, and 1/2 the security deposit. Then, a week later, before even moving in, she suddenly said her mother was ill, and needed to break the lease. We had to go on another long, drawn out search for a new renter. We immediately placed an ad and found someone suitable, but they could not move in until 3 weeks later. What do I owe back to the person who broke the lease? Thank you.

Michael S. Kraft August 18, 2014 at 8:25 pm

Judy, I tried sending you a direct response, but the email provided bounced back. Michael Kraft

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