Is commingling a concern when returning a security deposit to a tenant?

Question

As a landlord when I have new tenants, I have been careful about receiving a security deposit as a separate form of payment from any rent and depositing the security deposit in a separate holding/escrow account. Now I have tenants moving out and need to return the security deposit to the tenants. Previously, I have had tenants who are local and they are able to meet me to receive a cashier's check. Our bank is only willing to release the funds specifically in the form of a cashier's check. Now, I'm renting to people who are corporate travelers and meeting up is not an option after they check out. I don't like the idea of mailing a cashier's check.

So my question is this: Have I been overthinking the commingling legal requirements? I've almost always heard of landlords getting in trouble on the front end of this. I have never heard of an issue with commingling on the back end. Do the same commingling requirements apply? The easiest way for me to get the tenant their security deposit back would be to transfer the security deposit into my business checking account and then send them a check. Any issues doing it this way? How are you all handling this situation? I have searched BP, googled it, etc and have found nothing about this particular issue.

Nathan Gesner · Answer

Yes, you are overthinking it. The security deposit can be received on the same payment as the rent income and it can be placed in the same bank account. It can even be held in your personal banking account, though this is not recommended simply because you don't want to spend it and it's easier to track if it is held separately. if the bank will only allow you to pull funds using a cashier's check, then you need to consider looking for a different bank that operates like an ordinary checking account.EDIT: you don't say what state this is in, so please check your state laws. You may be in a state that has specific requirements for private landlords.

Katie Hawn · Answer

I really appreciate you sharing the details on ZDeposit - precisely what I'm looking for. That'll be my strategy moving forward, even with my local LTRs. Thanks SO much!!

David M. · Answer

@Katie HawnMaybe.... it depends.. I see in your profile your zipcode traces back to TN. Not sure if you property is there...But, it really does depend on what your State requires for the handling of security deposits. In NJ, it just has to be an interest bearing account. Since my personal checking account is interest bearing, I can effectively co-mingle, as several NJ lawyers have told me. I know landlords in other states have to have it in a separate account..What is the concern about snail mailing a cashier's check?It depends on your legal requirements, but if you aren't supposed to commingle, then transferring the funds into your account, then sending it out would "appear" to me as commingling...Good luck.

Richard F. · Answer

Aloha,I don't see any problem with mailing the Certified Check, via Certified Mail, Return Receipt Requested. We routinely mail SD checks in that manner. Save the green card when returned into the Tenant file for your proof they received it.

Andrew Freed · Answer

@Nathan Gesner - In MA, the security has to be held in a separate account, escrowed and you are required to provide that information to the tenant. Lastly, you are required to issue the tenant a yearly interest payment. I wish I was in your state lol. ZDeposit is a free website to escrow security deposits and complies with state laws. That is what I use and they automate the process. It makes my job easy!

Katie Hawn · Answer

Thank you for sharing your process! :)

Katie Hawn · Answer

Hey David!You're right - I am in Nashville, TN!I have had someone lose a cashier's check, and I like to foolproof things. (I have kids, and sometimes tenants can be a lot like kids. LOL) I know you can stop payment on a check. A cashier's check is like cash, and I'd prefer not to either be out the money or to pay additional fees for the shipping with tracking. (If it were lost, getting an attorney would be more expensive than paying another deposit. Say what you will, in court, landlords are usually not touted as the heroes of the day.) Agreed - Even though I've never heard anyone give a cautionary tale about commingling on the back end of the tenancy, it appears a lot like commingling to me too. This tenant is very wonderful, as most thankfully are, and I don't anticipate any issues. But it's best to get the policies right for when that very special individual comes along. Thanks for your response!