Wells Fargo is our favorite bank for setting up deposit accounts for our plans.

All money should go through escrow - even deposits if they are not being held by a licensed broker that represents one of the parties to the transaction.

I've worked with providing only Performing Notes for the past six years and those that buy these notes are completely passive, besides watching their monthly deposits happen and receiving their 1099s each year.  

We had a 2 month deposit for them, so as part of the agreement, we made 1/2 of that deposit nonrefundable too.  

(If you invest the funds elsewhere, they might be deductible elsewhere but not on schedule E for that property)    My thought was to deposit the funds directly into a segregated account and then use the funds to pay any and every qualifying expense associated with the property until the account is depleted - possibly including loan payments, taxes, insurance, utilities, management.

This way every time a home gets listed you get at least an automatic email with the details.Investors and agents are a difficult match.

now if they had built an addition on the house w/ out permits you may run into an issue with the square footage not matching tax records but a roof... not likely.

bank account statements totaling the amount you are bidding,property deeds, etcthe deposit has to be cash

Does the lease state that the amount of the security deposit is $3000?  

I think our lawyer is just overly cautious - says that if the LLC want's to be shady they can shut down the operation and instruct for our deposit not to be released from escrow.In any case, appreciate all the advice - we agree with all your comments and that was our gut feel but always nice to hear some affirmation.