A New York real estate broker is acting as a property manager for an owner. The broker collects security deposits from tenants. According to New York law, where must these security deposits be held?
- AIn a non-interest-bearing escrow account, kept separate from all other funds.
- BIn the broker's general operating account, provided proper records are kept.
- CIn a separate, interest-bearing escrow account in a New York bank, with interest accruing to the tenant.
- DIn an interest-bearing account, with the interest split between the landlord and the tenant.
Show answer & explanationAnswer & explanation
Correct answer: C. In a separate, interest-bearing escrow account in a New York bank, with interest accruing to the tenant.
New York law (General Obligations Law § 7-103) requires that security deposits for residential properties be held in an interest-bearing account, segregated from the landlord's or broker's operating funds, and the interest, less a 1% administrative fee, belongs to the tenant. This ensures the protection of tenant funds.
Why the other options are wrong
- A. The account must be interest-bearing for residential properties in New York to benefit the tenant.
- B. Mingling security deposits with operating funds is strictly prohibited and a serious violation.
- D. The interest, less a small administrative fee, belongs to the tenant, not split with the landlord.
NY Security Deposit Handling
In New York, residential security deposits must be held in a separate, interest-bearing escrow account in a New York bank, with the interest (less a 1% administrative fee) belonging to the tenant.
- Separate account required.
- Must be interest-bearing.
- Interest accrues to tenant (less fee).
Memory trick: Security deposits for NY tenants earn interest in a separate bank, like a locked treasure chest.