6-17 Interest Earned on the Security Deposit

• A. Section 8 New Construction, Substantial Rehabilitation, and State Agency properties are subject to two different sets of requirements depending on the date the AHAP was signed. Additionally, Section 202 properties with Section 8 or PAC have additional requirements for allocating interest and maintaining records. To further complicate the process, most states (and some counties and municipalities) have laws regarding the investment of security deposits and payments to the tenant of interest earned on the deposits, with which owners must comply. In instances where laws conflict, owners should follow the requirements that provide the greatest benefit to the tenant.

Owners must comply with any state and local laws regarding investment of security deposits and distribution of any interest earned thereon. If state law is silent, or if HUD regulations are more demanding, owners must comply with HUD’s regulations. HUD requirements are discussed below.

In addition, interest to the tenants must be computed in accordance with state or local law. When state or local law is silent, the actual rate earned on the security deposits must be computed and credited to each tenant’s portion of the security deposit.

• B. The owner must place the security deposits into a segregated, interest-bearing account. The balance of the account must equal the total amount collected from all tenants then in occupancy, plus any accrued interest.

NOTE : For Section 202/8, Section 202 PRACs, and Section 811 PRACs, the balance must equal the total amount collected from all tenants then in occupancy, plus any accrued interest and less allowable administrative cost adjustments.

NOTE: For Section 202/8, the allowable administrative costs may not exceed the accrued interest allocated to the family’s balance for the year.

NOTE: Owners of the following properties are not subject to the revised Section 8 regulations. Subject to state and local requirements, these properties may invest security deposits and deposit the interest into the property’s operating account on a quarterly basis.

• Section 8 New Construction with an AHAP executed before November 5, 1979.

• Section 8 Substantial Rehabilitation with an AHAP executed before February 20, 1980.

• Section 8 State Agency with an AHAP executed before February 29, 1980.

HUD Occupancy Handbook Chapter 6: Lease Requirements and Leasing Activities

6/07

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Section 2: Security Deposits

4350.3 REV-1

• C. In addition to the other requirements listed in this section, Section 202 properties with Section 8 or PAC are subject to the following:

  1. The owner must maintain a record of the amount in the segregated interest-bearing account that is attributable to each tenant.

  2. The owner must allocate interest accrued on the tenant’s security deposit on an annual basis and when a tenant vacates the unit.

3. Unless prohibited by state or local law, the owner may deduct, from the accrued interest attributable to the tenant for the year, the administrative cost of computing the allocation of interest to the tenant’s security deposit balance. The amount of the administrative cost must not exceed the accrued interest allocated to the tenant’s balance for the year.

• D. Although not a specific requirement for every program, it is in the owner’s best interest to:

  1. Maintain a record of the amount in the security deposit account attributable to each tenant; and

  2. Allocate interest to the tenant’s security deposit on an annual basis and when a tenant vacates the unit.