What must property managers do to avoid legal repercussions related to tenant security deposits?

To avoid legal repercussions related to tenant security deposits, property managers must store all funds in a trust account. A trust account is specifically designated to hold security deposits that belong to tenants, ensuring that these funds are kept separate from the property manager's personal or business funds. This separation is crucial for compliance with legal requirements, as many jurisdictions, including South Dakota, have specific laws governing how security deposits must be handled.

By using a trust account, property managers demonstrate accountability and transparency, minimizing the risk of misappropriation of tenant funds, which can lead to disputes and legal actions. Additionally, keeping tenant security deposits in a trust account often comes with requirements on how those funds are handled, including interest accrual and proper accounting, further protecting both the tenants and the property managers.

On the other hand, mixing funds with personal accounts or using a regular checking account can expose property managers to claims of mishandling tenant funds and may violate state laws governing security deposits, potentially leading to legal issues. Keeping cash on hand also poses a risk of loss and does not provide the transparency required by law.