The Trainer — February 2014
Handling Security Deposit Interest; Preventing CO Poisoning
In this month’s feature, we told you which sites HUD says must pay interest on security deposits and how to comply if you’re one of them. If you don’t follow the rules, HUD could charge you with serious offenses, such as “equity skimming” and “misappropriation of funds.” Disregarding the rules will result in fines and court-awarded damages—sometimes double or triple the amount of interest you owe—along with attorney’s fees and court costs.
In our article on reducing the risk of carbon monoxide (CO) poisoning at your site, we explained how to warn residents of the effects CO can have on their health, tell them the symptoms of CO poisoning, and give them tips for preventing a dangerous buildup of CO in their units.
If your state or local laws regarding security deposits and whether they must go into interest-bearing accounts conflict with HUD rules, you must always follow:
a. The state or local law.
b. The HUD rule.
c. Whichever rule is most beneficial to the resident.
The balance in the site’s security deposit account may not exceed the FDIC insurance limit. True or false?
If your site is required to pay interest on security deposits, you must do so only at move-out. True or false?
If your site isn’t required to pay residents interest on their security deposits, your site can still put the money in interest-bearing accounts and keep any interest earned. True or false?
Which of the following activities increase the risk of carbon monoxide poisoning in residents’ units?
a. Using indoor space heaters.
b. Using the gas range or oven to heat the unit.
c. Using an outdoor charcoal or gas grill indoors.
d. Using gas camp stoves indoors.
e. All of the above.
One of the first signs of dangerous CO levels in a unit is a strong smell of gas. True or false?
ANSWERS & EXPLANATIONS
Correct answer: c
According to the Handbook, whichever rule is most beneficial to the resident is the one that prevails. Owners must comply with any state and local laws regarding investment of security deposits and distribution of any interest earned thereon. And if state law is silent, or if HUD regulations are more demanding, owners must comply with HUD’s regulations [Handbook 4350.3, par. 6-17(A)].
Correct answer: a
True. If you collect more than the FDIC limit in security deposit funds at a particular site, you will have to open security deposit accounts at more than one bank to ensure that the account balances remain below the FDIC limits. Also, because the security deposit account balance is constantly changing as residents move in and out throughout the year, you must remain watchful and make sure that the balance doesn’t go over the FDIC limit at any time [Handbook 4381.5, par. 6.47; Handbook 4370.2, par. 2-9].
Correct answer: b
False. If your state law requires you to pay households the interest periodically as it accrues during the tenancy (for instance, annually), then follow the state law on when to pay the interest. Note that HUD requires Section 202/8 and Section 202 PAC sites to keep a record of the amount of interest attributable to each resident and allocate this interest to the resident’s security deposit balance annually, even if state law doesn’t require these sites to pay the interest annually [Handbook 4350.3, par. 6-17(C)].
Correct answer: a
True. You may decide to place security deposits in interest-bearing accounts even if you don’t have to pay interest on security deposits to residents. That’s because HUD rules require all sites to keep security deposits in a separate bank account from operating funds. So it’s a good idea to place them in interest-bearing accounts so you can earn—and keep—interest on the deposits. HUD says sites that aren’t required to pay security deposit interest to households should deposit the interest earned into the site operating account each quarter.
Correct answer: e
All of these activities can cause CO to build up inside residents’ units.
Correct answer: b
False. Carbon monoxide is an odorless, colorless, and tasteless gas. Symptoms of CO poisoning include headache, fatigue, shortness of breath, nausea, and dizziness.