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Where do I “hold” a security deposit?

Seattle, WA |

I’m renting out my cabin and I’m sorta new to this whole rental thing, but I heard that you can’t hold a security deposit in your bank account; it has to be a separate account? Is this true? Where should I keep my tenants security deposit then?

Attorney Answers 3

Posted

You should check whether your rental falls under the WA Residential Landlord-Tenant Act. Your cabin rental may not fall under the RLTA.

If your rental falls under the RLTA, you should review the statutes to see what the laws require of you (and the tenant). The statutes are at http://apps.leg.wa.gov/rcw/default.aspx?cite=59.18 .

RCW 59.18.270 (Moneys paid as deposit or security for performance by tenant — Deposit by landlord in trust account — Receipt — Remedies under foreclosure — Claims) provides: "All moneys paid to the landlord by the tenant as a deposit as security for performance of the tenant's obligations in a lease or rental agreement shall promptly be deposited by the landlord in a trust account, maintained by the landlord for the purpose of holding such security deposits for tenants of the landlord, in a financial institution as defined by RCW 30.22.041 or licensed escrow agent located in Washington. Unless otherwise agreed in writing, the landlord shall be entitled to receipt of interest paid on such trust account deposits. The landlord shall provide the tenant with a written receipt for the deposit and shall provide written notice of the name and address and location of the depository and any subsequent change thereof. If during a tenancy the status of landlord is transferred to another, any sums in the deposit trust account affected by such transfer shall simultaneously be transferred to an equivalent trust account of the successor landlord, and the successor landlord shall promptly notify the tenant of the transfer and of the name, address, and location of the new depository. If, during the tenancy, the tenant's dwelling unit is foreclosed upon and the tenant's deposit is not transferred to the successor after the foreclosure sale or other transfer of the property from the foreclosed-upon owner to a successor, the foreclosed-upon owner shall promptly refund the full deposit to the tenant immediately after the foreclosure sale or transfer. If the foreclosed-upon owner does not either immediately refund the full deposit to the tenant or transfer the deposit to the successor, the foreclosed-upon owner is liable to the tenant for damages up to two times the amount of the deposit. In any action brought by the tenant to recover the deposit, the prevailing party is entitled to recover the costs of suit or arbitration, including reasonable attorneys' fees. The tenant's claim to any moneys paid under this section shall be prior to that of any creditor of the landlord, including a trustee in bankruptcy or receiver, even if such moneys are commingled."

A "trust" account for a landlord is simply an account that has only money that the landlord has not earned from the tenant.

If your rental does not fall under the RLTA, there is actually no law that requires that deposit money be kept separate from your other money. How the deposit money is kept would then be a matter of contract between you and the tenant.

You should review your specific facts with your attorney to find out your legal options.

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Posted

The deposit statutes are at RCW 59 18 260, 270 and 280. Mr Nguyen gave you a great answer about where to keep a security deposit, but before you take a security deposit you have to have a writing detailing the condition of the property at the beginning of the tenancy, signed and dated by both parties, so that you can compare it to the condition of the place at the end of the tenancy. This walk through checklist should be attached to your rental agreement, and you have to give the tenant a signed copy.

The rules about returning deposits (or keeping them) are in RCW 59 18 280. Lots of times landlords get a rental agreement off the internet that is basically unenforceable under Washington law - sometimes they are written in CA for a CA residential tenancy; once I saw one that said it was goverened by the laws of the Commonwealth of Pennsylvania.

This is a problem because RCW 59 18 230 says that contract terms that are inconsistent with the RLTA are unenforceable, but you don't know that, and chances are your tenant doesn't know that either. For example - in other states it may be perfectly OK to collect a deposit without a checklist, but that isn't true here, no matter what your contract says.

Also, Seattle has even stricter laws regarding tenancies, *IF* the tenancy is located within the City of Seattle. You said "cabin" which suggests the rental property is not in the City. The best money you could possibly spend would be to hire an attorney for one hour to review your contract and give you an opinion regarding its enforceability, which could save you a lot of grief. In Seattle, Evan Loeffler, Randy Redford, Mike Walsh, Ryan Weatherstone - in no particular order - each is good, each could give you solid value and potentially save you a lot of grief in the long run.

Elizabeth Powell

Using Avvo does not form an attorney client relationship.

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Posted

Mr. Nguyen and Ms. Powell have provided terrific answers regarding deposits. A trust account is simply a separate bank account for the purpose of your rental. Lawyers have trust accounts where they keep clients funds and they are simply separate checking or savings accounts.

What are the repercussions for not following this rule . . . depends. There is no case law on the matter because these issues are usually so small that it is not worth it to litigate it up to an appeals court. An argument could be made that the full amount of the deposit plus 12% interest be returned to the tenant if the funds were not properly collect or placed in a separate trust. But like many issues under the RLTA, the statute is silent as to any particular remedy.

Hope that helps,
Ryan J. Weatherstone
www.knutson-weatherstone.com
Serving King, Pierce, Snohomish

This answer is for informational purposes only and should not be construed to establish an attorney client relationship. Before taking any legal action, it is always advisable to discuss your specific situation with an attorney.

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