PM is keeping security deposits rather than charging monthly fee

[Marshall Hooper]

I'm looking into buying a portfolio of duplexes and when I asked what the PM fee was, the owner told me that the PM keeps the security deposits as her compensation instead of charging him a monthly fee. He also said she keeps the late fees as well, but she disputed this. 

She told me she does this because the owner keeps her husband busy with maintenance work (lots of patch jobs we found out)

When I asked her if this was legal to keep the security deposits rather than keep them in Escrow (we are in TX) she said yes, because the deposits are advertised as "non-refundable".

This is an arrangement that I've never heard of before. I'm curious if anyone else has heard of this?

[Jerry Puckett]

Originally posted by @Marshall Hooper:

I'm looking into buying a portfolio of duplexes and when I asked what the PM fee was, the owner told me that the PM keeps the security deposits as her compensation instead of charging him a monthly fee.

This being Texas and the "Wild wild West", you're going to see all kinds of hokey mom and pop side deals like that. You dot have to participate.

A "non refundable deposit" is a contradiction in terms. In most cases, landlords have no intention of ever giving a "non refundable" deposit back. (hence the phrase "non refundable" ). Even Business friendly Texas would have a hard time with that when the tennant pushes the issue.

Texas law (Section 92.006(a) of the Texas Property Code) voids lease agreement provisions that attempt to give away tenant rights regarding security deposits found in the statutes; thus, it is a little unclear if a "non refundable deposit" is actually enforceable. It would be an uphill battle to say the least.

I know you are certainly not intending to keep this PM or that arrangement, so in negotiating, say it with your contract. 

Paragraph 9B(5) of the "1 to4 Residential Trec Contract" states:

If you are not using the trec, borrow this language and write it in as a special provision, or use it as part of an "Exhibit 1" along with some language to empower it. 

Hope that helps!!