Interest on Tenant Security Deposits to Tenants

By
Services for Real Estate Pros with RE/MAX Kai Lani

Thank Heaven for the Hawaii Association of Realtors Legislative Committee.   They were recently successful in getting Senate Bill 2802 deferred.   This bill would have required that Property Managers pay the tenant 6% interest on all security deposit money held on behalf of the tenant at the time the tenant vacaters the property.   At present Property Managers are unable to co-mingle any company funds with these security depsits, thus virtually precluding the Property Manager from earning interest on such funds from the Bank or other holder of the funds.   The logic here is that once interest would be paid by the bank and credited to the Property Manager Account, these funds that would accrue to the Property Manager would be intermingled with the tenant funds, and this is against the law.   To view the Hawaii Senate Bill, click on the following link.   SB2802_.htm SB2802 Status

Jerry Bangerter, RA Property Manager, RE/MAX Kai Lani, 25 Kaneohe Bay Drive #109, Kailua, Hawaii 96734  (808) 237-5333.  

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Rainmaker
1,180,838
David Spencer
Keller Williams Northland - Kansas City, MO
Show Me real estate in Kansas City

Illinois requires interest on security deposits to paid to tenants who live in a complex of 25 or more units and held for a minimum of 6 months.

Security deposits are held in a special account for these deposits and receive pass-book rates. Illinois law requires that a broker maintain one non-interest bearing account for escrow funds. A broker may have more than one escrow account. 

Feb 09, 2008 09:06 AM #1
Rainer
85,510
Lance Winslow
The Car Wash Guy - Malibu, CA
Thats nuts 6% and so what would happen if the interests rates keep going down? It's a good thing that noise got defeated, sounds pretty outrageous if you ask me. I am ot surprised that it didn't fly, and I guess I am not surprised that someone brought up the issue either, we seem to be seeing more of these types of consumer regulations trying to be forced onto the scene. Lance
Feb 09, 2008 09:21 AM #2
Rainmaker
1,251,153
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

In VA - licensed PMs can have client trust/escrow accounts in money market sweep accounts that use FDIC insured banks....there is a popular one created by M-L.  This interest can accrue to the PM.

Feb 09, 2008 12:12 PM #3
Rainer
17,201
Jerry Bangerter
RE/MAX Kai Lani - Honolulu, HI

David, Lance and Wallace;  It's great to see what other states are doing.   If Hawaii were to adopt a law similar to Illinois, it would hardly apply to anyone as most of our units are single condos or homes owned by out of state investors, and that's why our legislature sees gold in them thar hills -- taxation without representation!   They love  to tax the tourists and out of state investors!   

At interest rates of 6%, the landlords would already be subsidizing the tenants because the best we can do is about 2% interest income on the kind of accounts we are able to use to invest this kind of money.   But the big issue is that we can't collect the interest any way due to the way the law is worded.   Hawaii is big in the class warfare issue, and Lance is surely correct.  It is amazing that the bill is on hold at this time and that it didn't simply get rubber stamped and put into law. 

Lucky in Virgina.   Better be careful or some enterprising legislature will try to sweep the interest thru to the tenants, or perhaps even the state government.   

Jerry 

Feb 09, 2008 07:59 PM #4
Rainer
37,002
Manhattan Kansas Property Management Homes For Rent
BCL Properties-Manhattan, KS - Manhattan, KS
That sounds like a crazy idea!  Your in the property management business not banking! Do you make tenants rents monthly rents increase by 6% over the term of the lease?!
Mar 28, 2008 01:50 PM #5
Rainer
17,201
Jerry Bangerter
RE/MAX Kai Lani - Honolulu, HI
Michelle,  What a fantastic idea.   Now back to reality!   Sometimes I can't even make an annual increase in rent stick if it is over 5%.   This is really a competitive business.   Jerry
Mar 28, 2008 01:57 PM #6
Rainmaker
254,432
Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management

6% is better that any current CD.  Where do they come up with this  stuff?

Apr 12, 2008 05:44 PM #7
Rainmaker
1,251,153
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

J * VA does have a security deposit interest at 1% above the Fed Discount rate as of Jan 1 for leases 13 mos....FORTUNATELY, my property owner/clients do not fall under the trigger # of units that requires the payment of these funds.

I do this on purpose so that I do not have to mess with this convoluted calculation. 

 

Apr 13, 2008 09:55 AM #8
Rainer
32,295
Megan Kelly
Nancy Chandler Associates - Norfolk, VA
In VA the interest goes to the PM as long as the tenant is in residency for less than 13 months. If they are in residence for 13 months or more, there is a yearly interest rate that has to be paid to the tenant when they get their deposit back. BUT...if the tenant owes money at move out, over and above the deposit, the interest can be forfeited to the owner/PM to cover expenses.
Apr 17, 2008 02:22 PM #9
Rainer
35,324
Dan Woodworth
The Connection - Garden City, ID
Encouraging Communicator

Hi Jerry,

Thank you for your post!  I went to grade school at Kainalu and Aikahi Schools backin the '50's!

May 01, 2008 09:41 AM #10
Rainer
17,201
Jerry Bangerter
RE/MAX Kai Lani - Honolulu, HI

Yo Dan, sorry for the delay in getting a response on this.   Thanks for your note.   I hope you have been back since the '50's?   Lots of water over the wheel.  Our office is in Aikahi Park Shopping Center, right next to Safeway.   Aloha!   Jerry

May 18, 2008 06:58 PM #11
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