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Rent Escrow: What is it, and is it Avoidable?

rent escrow marylandRent Escrow; we’d be lying if we said we haven’t heard this term thrown around quite a bit in the Property Management industry. If you’re new to being an owner of a rental property, this may be something you’ve never heard of before. In this blog post, we’re going to talk about rent escrow: what its purpose is, the process for filing a rent escrow, and what happens once an escrow has been filed. We’ll also discuss steps homeowners can take to ensure their tenants are not left in a position to want to file a rent escrow.

First things first, what is Rent Escrow? In the state of Maryland, landlords are required to make repairs and eliminate conditions that are a serious threat to the life, health, or safety of their tenants. If your tenant has reported items inside or outside of the property that need to be addressed, and you have failed to correct those items, the tenant can then file a petition with the local court house to place their rent into an escrow account. Some items that warrant the opening of a rent escrow include, but are not limited to: lack of heat, lack of hot water, electrical issues, rodent infestation, lead paint hazards, and the presence of mold. If a judge feels an escrow is warranted, they will rule in favor of the tenant, having them place all rent into an escrow account, until the appropriate repairs have been made.

In Baltimore City, once a tenant goes to the court house and fills out the required paperwork, a City Inspector will then be assigned to visit the property to complete an inspection. During this inspection, the inspector will notate any and all outstanding maintenance items. While all items may not qualify as a threat to the life, health, or safety of the tenant, the inspector will note any maintenance defects he or she finds. The inspector will then list how many threats are present. The total number of threats is what the judge is going to review, and what you, as a landlord, are required to correct.

After the inspectors initial visit, the next step is the first court hearing. For some landlords, there is only one court hearing, for others, there may be multiple. During the first hearing, the judge will review the inspector’s notes, and ask the landlord and tenant if the items have been corrected. If all items have been addressed, then typically the hearing is dismissed, and there is no need to move forward with opening a rent escrow at that time. If all or any items are still needing to be addressed, the judge will ask the landlord how long they need to correct the outstanding items. Based on the landlord’s response, a second inspection will be scheduled, followed by a second court hearing. If items are needing to be addressed during the first court hearing, the judge will most likely grant the escrow, and the tenant is to begin paying rent into the escrow account, until all outstanding items have been corrected.

At the second court hearing, all threats reported by the tenant and inspector should be addressed at this time. We also recommend that any maintenance defects, that are non-threats be addressed as well. The judge will then review the inspector’s notes from the second inspection to see what, if any items are left outstanding. Keep in mind, if the inspector finds any new maintenance defects or threats that differ from their initial inspection, they will make note of those items, and you will be required to correct those items, in addition to the initial items reported. If all items have been addressed, and there is nothing left outstanding, the next step will be disbursement of funds. However, if there are items needing to be corrected, this process will continue until all threats are addressed properly.

During the disbursement of funds, the judge will review the timeline for correcting the repairs. The judge will take into consideration how long it took to correct all items, from the time the issues were reported by the tenant. In most cases, the judge will abate a portion of rent, giving the tenant a refund of some of the money that was paid into the escrow. The landlord would then get the remaining funds. In other cases, the judge does not see a need to abate any rent, and all funds are disbursed to the landlord.

In Baltimore County, the process for rent escrow is very similar to Baltimore City. However, Baltimore County does not have an assigned inspector visit the property. Rather, the tenant is responsible for proving any maintenance issues to the court. Many tenants do this by providing photos or videos as evidence. The landlord would then be required to either disprove what the tenant is stating or prove to the court that all items have been addressed.

The best way to avoid having your tenant file a petition for rent escrow, is to ensure any maintenance items reported by the tenant are addressed properly and in a timely manner. By doing so, you are left with a happy tenant, who doesn’t feel the need to seek help from an outside source, to have items repaired in the home. It is important to keep in mind that as a landlord, your tenants do have rights, and there are laws that require landlords to take care of outstanding maintenance items as needed.

That being said, there are still times home owners find themselves having to attend a rent escrow hearing, and defend themselves, even after attempting to correct any maintenance issues reported by their tenant. Unfortunately, there is nothing that stops a tenant from filing a petition to place their rent into escrow. While you cannot completely avoid the possibility of a rent escrow hearing, working with a professional management company like Bay Property Management Group will help make the process a bit easier to navigate.

As a third-party management company, we keep record of any and all maintenance requests submitted by our tenants. All tenants have the option to go directly on to their tenant portal to submit and track the progress of each maintenance request submitted. We also work with a team of professional vendors, who keep record of all work performed. It is our company policy to require before and after photos of all maintenance jobs, so having photo documentation is never an issue for us! Finally, we are a team of management professionals, with years of experience. Preparing for and presenting our case in court, is certainly a task that we can handle with confidence.

If you’d like to learn more about our management services, and how we can make your life a bit easier, give us a call today!