Property management companies and security deposits

[Greg W.]

for the landlords who have hired property management companies, who holds the security deposits? I just recently hired a company and the owner wants me to transfer security deposit funds to her escrow acc. I told her I could hold deposits and get them to her in a timely manner, if needed. She seems to not be ok with this. Properties are in indiana. What are your thoughts?

Thanks

[Fred Heller]

PM's cannot legally deduct money from the security deposit to cover their fees. That is the tenant's money. Not the PM's and not the owner's. It must be held untouched in a trust account until the tenant moves out.

I'm not saying that it's never happened. But to do so would violate the real estate laws of most, if not all, states.

The danger of letting the owner hold on to the security deposit is that you can't guarantee that the owner won't dip into the money to pay other expenses. And where is that money being kept? If the owner puts it in their own savings account then that's a commingling of funds situation.

Of the three parties involved in the lease, I'm guessing the PM is the only one who is a real estate licensee. The real estate commission would come down pretty hard on the PM company if something hinky happened with the security deposit.