Escrow for security deposit
I am in the process of renting out my first property in Maryland. The law states i need to put the security deposit in an escrow account earning interest at 4%. How exactly do I do that?
I am in the process of renting out my first property in Maryland. The law states i need to put the security deposit in an escrow account earning interest at 4%. How exactly do I do that?
I think its going to be pretty hard to find a bank that will pay 4% on any kind of account (since interest rates dropped so low).
In Delaware the Landlord Tenant Code states that you must hold the deposit in an custodial account and all interest accrues to the tenant. It does not actually state the rate of interest to be paid. I would double check what you read to be sure that you really have to pay your tenant 4%, thats pretty good for the tenant since my money market fund is only paying 1.25%.
-Adam[ Edited by AdamR61 on Date 06/21/2003 ]
I'll bet there is a Landlord/Tenant book published in a state as large as Maryland. Check you library or book store. If you can't find it there check with your local apartment owners assoc. It is very dangerous to become a landlord without a firm understanding of the law.
ketesh,
Here is a link to the Maryland law. http://www.peoples-law.org/ltenant/legal%20info/md%20code-security%20deposits.htm
I am not a lawyer, but it looks like you are correct. Maryland requires landlords or residential properties to pay 4% on all security deposits over $50. The definition of security deposit even includes advance rents.
-Adam
Quote:I am in the process of renting out my first property in Maryland. The law states i need to put the security deposit in an escrow account earning interest at 4%. How exactly do I do that?
Ketesh,
I think you are interpreting the law incorrectly. The law does not require that your escrow account "earn" 4%, the law requires that you -- the landlord -- "pay" 4% simple interest (without compounding) on security deposit escrow accounts of $50 or more and accrue interest at 6 month intervals from the day the security deposit was given.
In implementation, this means that if your tenant's security deposit is $700, and the tenant vacates at the end of two years, you must credit the escrow account $14 for each full six month period of occupancy, or a total of $56 at the end of two years. If your security deposit increases whenever your rent increases, then your escrow account accruals must also reflect the increase.
Your local banker can help you open an interest bearing escrow account, but you may need to pay some of the accrued interest out of pocket.
Also, if your property is in Montgomery County, you may need to get a rental unit license from the county Department of Housing and Community Affairs. Cost is $55 per year for a Class I license, and $95 for a Class II license. Go to Montgomery County Division of Consumer Affairs for more details. Other local MD jurisdictions may also require a rental unit license, but Montgomery County is just one I am familiar with.