Breaking Up with Property Manager Frustrations

[Sally Alcala]

After way too much frustration, I decided to switch property managers, but the process has been a nightmare. The old property management company said they needed 45 days to close out my account. They did send me the final rental payments early, but they’re still holding onto the tenant deposits.

Two weeks ago, I asked when and how they would send me the deposits. They said they would "look into it." I followed up six days ago since I hadn't heard anything, and this time I got no response. Today, I emailed and called again. They reminded me that they have 45 days to wrap things up (there are 5 days left now) and mentioned they’re "looking into the legalities" of giving me the deposits. Apparently, they think they might have to return the deposits directly to the tenants, which makes no sense to me. The tenants are still under lease, so why would they get their deposits back?

They also said they might have to send the deposits to my new property manager. Again, this doesn’t make sense because my new manager has already said they want me to hold onto the deposits.

On top of that, they’re now claiming that I legally need to open a separate account to hold the deposits. I've never heard of any such legal requirement, and at this point, I feel like they’re making things up. This whole situation just confirms how bad this company is, and I can't wait to be done with them.

Here’s my question: What should I do if they miss the 45-day deadline? I’m thinking about consulting a lawyer to get a letter sent, as it feels like they’re inventing laws. Also, are there any legal requirements that they must return the deposits to the tenants during the lease? They’re arguing that the deposits belong to the tenants, but I’ve always understood that the deposits are mine until the tenants move out and the unit is inspected.

Any advice would be much appreciated. I’m beyond frustrated at this point.

[Theresa Harris]

Let them transfer it to the new PM and then they (new PM) can give it to you to hold or they can hold it. The old PM is probably dragging their heals at this point to get to 45 days. If you don't get it by day 45, wait a day and then tell them you are going to talk to your lawyers.  You can also talk to the realtor's board and find out what the rules are for PM.  The PM normally is accountable to the board and complaints go to them.

[Joe Norman]

I'd give the current PMC the benefit of the doubt and assume they are just trying to do this by the books as opposed to dragging their feet, but otherwise agree with @Theresa Harris. Tell the current PMC to transfer the SD to the new PMC, that way they have a record of handing it off to a licensee (assuming PMCs are required to be licensed in your state) and are covered in case of a Real Estate Commission inquiry. They in the new PMC wants you to hold it they can deal with you on that directly.

I'm wondering why your new PMC won't hold the deposit though, have you asked them?

[Nathan Gesner]

Quote from @Sally Alcala:

First, this is what happens when you deal with a low-quality property manager. They clearly don't know the law and need to spend 45 days figuring out how to handle a security deposit. That's ridiculous.

Second, they have 45 days. Don't continually harass them with phone calls or emails. Give them your instructions and then allow them the room to breath and figure themselves out.

Third, the 45-day window is expiring soon. If you don't have the money in your hands on day 46, I would call them and demand they transfer the funds immediately to the new PM or you will file a complaint with the state: https://www.dre.ca.gov/consumers/filecomplaint.html

That should motivate them to move immediately. Your new PM can hold the funds or transfer them to you.

As a side note, I'm concerned that your new PM wants you to hold the deposit. That's a red flag that your new PM doesn't know what they are doing.

[Adam Bartomeo]

If you switched PM's then your new PM should be handling all of this. Some of what they are saying is correct, like having a separate bank account to hold security. Most state require you to have a bank account in that state. It sounds like they are stalling for some reason. It also sounds like you really need to do your research on tenant laws.

[Drew Sygit]

@Sally Alcala security deposits (SD) must be handled very carefully to comply with all statutes!

Per our attorneys, when we transfer SDs we require:
1) Explicit written directions from owner on where to transfer, including name, mailing address and/or ACH payment info.
2) Owner MUST sign a Hold Harmless Agreement, so we will be relieved of all legalities regarding SD after transfer.

If an owner refuses to cooperate with our requirements, we will refund the SDs to tenants and send owner proof.

Otherwise, we can send to owner of their new PMC.

NOTE: we also are concerned about your new PMC allowing you to hold SDs!
NOT an industry norm and a sign they don't really know what they are doing as this opens them to several liability issues.

[Sally Alcala]

Thanks for all the feedback. My new property manager (PM) is now involved, and I’m hopeful this will be resolved soon.

Over the past year, I've encountered numerous issues with this company. Before that, I was generally happy with their service. They’re a large PM company, operating in about half of the U.S. states, but lately, the local turnover has become a real problem. They've replaced accounting staff and managers several times. One of the former managers even stole tenants' money order rent payments, rented to friends and family who didn’t meet the minimum requirements, and managed some owners' properties on the side without authorization.

I’ve tried to be patient, waiting for them to get things back on track, but the situation has only worsened. The supervisor they assigned to this branch frequently cites non-existent laws, delays owner payments, and the list goes on. Given their size, I’m sure the broker of record has little oversight over the staff. After digging into state requirements, I’m starting to think some of their practices may not even comply with Department of Real Estate laws. At this point, I’m eager to cut ties with them completely.

I did interview several other PMs before choosing a new one. Interestingly, they weren’t the only ones who don’t hold deposits. For me, it’s not a big deal. I’ve always held deposits for my other properties. To clarify for anyone curious, in California, PMs must keep a separate account for deposits, but owners aren’t required to do so. I confirmed this with the DRE and CAR, and it seems the rules haven’t changed.

[Kevin Epp]

New property manager should be handling all this. At most, keeping you Cc'd on all coordinating emails and asking you for more information when required.

Sounds like you're spun up on the legal requirements for security deposits in your state (needs to be in their own trust account). If a PM does not do this, it's a red flag. Up to you if you're comfortable with it.

Deadlines are there for a reason. No need to hound them (unless, according to you, they have already betrayed trust on this). Once the deadline passes, start with the requisite escalation of legal/regulatory avenues to get them to comply.

Hopefully the next PMC is more professional. Best of luck.