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B-114860, MAR 20, 1975

B-114860 Mar 20, 1975
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SECURITY DEPOSITS COLLECTED FROM TENANTS BY HUD PROPERTY MANAGER CONTRACTORS.: THIS DECISION TO THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT (HUD) IS IN RESPONSE TO LETTER DATED JANUARY 7. HAVE BEEN ACQUIRED BY HUD UPON DEFAULT OF THE MORTGAGEES. HUD BELIEVES THAT IN ORDER TO DISCHARGE ITS MANAGEMENT RESPONSIBILITIES PROPERLY IT SHOULD INSTITUTE A POLICY OF COLLECTING SECURITY DEPOSITS FROM ITS TENANTS WHEN LEASES ARE RENEWED. IT IS PROPOSED. THE HUD LETTER ALSO INDICATES THAT THE IMPLEMENTATION OF A POLICY PERTAINING TO SECURITY DEPOSITS AND INTEREST PAYMENTS IS DEFERRED PENDING RESOLUTION OF THE FOLLOWING TWO SPECIFIC LEGAL QUESTIONS: "FIRST. READS: "EVERY PERSON WHO SHALL HAVE MONEYS OF THE UNITED STATES IN HIS HANDS OR POSSESSION.

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B-114860, MAR 20, 1975

HUD MAY ESTABLISH A POLICY AUTHORIZING ITS PROPERTY MANAGER CONTRACTORS TO REQUIRE IN HUD HOUSING LEASES THAT TENANT MAKE "SECURITY DEPOSIT" IN APPROPRIATELY CONDITIONED INTEREST BEARING ESCROW ACCOUNT IN FEDERALLY INSURED BANK WITH THE DEPOSIT AND INTEREST BEING RETURNABLE TO TENANT AT EXPIRATION OF LEASE WITHOUT DEFAULT, OR FORFEITURE OF SUCH ACCOUNT IF DEFAULT OCCURS.

SECURITY DEPOSITS COLLECTED FROM TENANTS BY HUD PROPERTY MANAGER CONTRACTORS.:

THIS DECISION TO THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT (HUD) IS IN RESPONSE TO LETTER DATED JANUARY 7, 1975, FROM THE DEPUTY GENERAL COUNSEL OF HUD CONCERNING THE APPLICABILITY OF FEDERAL STATUTES TO FUNDS COLLECTED BY HUD AS SECURITY DEPOSITS FROM TENANTS IN HUD (GOVERNMENT) OWNED MULTIFAMILY PROJECTS.

THE HUD LETTER STATES THAT A NUMBER OF MULTIFAMILY PROJECTS ORIGINALLY COVERED BY MORTGAGES INSURED UNDER THE NATIONAL HOUSING ACT (12 U.S.C. SEC. 1701 ET SEQ.), HAVE BEEN ACQUIRED BY HUD UPON DEFAULT OF THE MORTGAGEES. HUD BELIEVES THAT IN ORDER TO DISCHARGE ITS MANAGEMENT RESPONSIBILITIES PROPERLY IT SHOULD INSTITUTE A POLICY OF COLLECTING SECURITY DEPOSITS FROM ITS TENANTS WHEN LEASES ARE RENEWED.

IT IS PROPOSED, AS A CONDITION TO RENEWAL OF EACH LEASE, THAT THE TENANT PAY AN AMOUNT EQUAL TO 1-MONTH'S RENT AS SECURITY DEPOSIT. THIS SUM WOULD BE PAID TO THE "PROPERTY MANAGER" FIRM WITH WHICH HUD HAS CONTRACTED TO MANAGE THE PARTICULAR PROPERTY. THE PROPERTY MANAGER FIRM WOULD BE REQUIRED TO DEPOSIT SAID FUNDS IN AN INTEREST BEARING SPECIAL SECURITY DEPOSIT ACCOUNT IN A FINANCIAL INSTITUTION INSURED BY AN INSTRUMENTALITY OF THE UNITED STATES. THESE DEPOSITS WOULD BE "DEEMED" TO BE HELD IN ESCROW FOR BENEFIT OF THE TENANT UNDER TERMS OF THE LEASE AND AS SECURITY TO THE GOVERNMENT FOR FULL PERFORMANCE OF THE LEASE TERMS.

SHOULD THE LEASE TERMS BE VIOLATED AN APPROPRIATE AMOUNT FROM SAID SPECIAL ACCOUNT WOULD BE TRANSFERRED BY THE PROPERTY MANAGER TO THE REGULAR HUD PROJECT ACCOUNT. CONVERSELY, SHOULD THE TENANT VACATE THE PREMISES WITH NO OUTSTANDING DEFAULTS UNDER HIS LEASE THE SECURITY DEPOSIT WOULD BE RETURNED TO HIM PLUS EARNED INTEREST BUT LESS DEDUCTIONS FOR ADMINISTRATIVE EXPENSES.

THE HUD LETTER ALSO INDICATES THAT THE IMPLEMENTATION OF A POLICY PERTAINING TO SECURITY DEPOSITS AND INTEREST PAYMENTS IS DEFERRED PENDING RESOLUTION OF THE FOLLOWING TWO SPECIFIC LEGAL QUESTIONS:

"FIRST, DO THE SECURITY DEPOSITS CONSTITUTE MONEYS OF THE UNITED STATES WHICH MUST BE PAID TO THE TREASURER OF THE UNITED STATES WITHOUT DELAY IN ACCORDANCE WITH 31 U.S.C. SECS. 495 AND 484?"

AND

"SECOND, MAY HUD LAWFULLY PAY TO THE TENANTS THE INTEREST RECEIVED ON THESE FUNDS?"

AS REGARDS THE FIRST QUESTION SECTION 484 OF TITLE 31 U.S.C. READS AS FOLLOWS:

"THE GROSS AMOUNT OF ALL MONEYS RECEIVED FROM WHATEVER SOURCE FOR THE USE OF THE UNITED STATES, EXCEPT AS OTHERWISE PROVIDED IN SECTION 487 OF THIS TITLE, SHALL BE PAID BY THE OFFICER OR AGENT RECEIVING THE SAME INTO THE TREASURY, AT AS EARLY A DAY AS PRACTICABLE, WITHOUT ANY ABATEMENT OR DEDUCTION ON ACCOUNT OF SALARY, FEES, COSTS, CHARGES, EXPENSES, OR CLAIM OF ANY DESCRIPTION WHATEVER. BUT NOTHING HEREIN SHALL AFFECT ANY PROVISION RELATING TO THE REVENUES OF THE UNITED STATES POSTAL SERVICE."

SECTION 495 OF TITLE 31 U.S.C. READS:

"EVERY PERSON WHO SHALL HAVE MONEYS OF THE UNITED STATES IN HIS HANDS OR POSSESSION, AND DISBURSING OFFICERS HAVING MONEYS IN THEIR POSSESSION NOT REQUIRED FOR CURRENT EXPENDITURE, SHALL PAY THE SAME TO THE TREASURER, OR SOME PUBLIC DEPOSITARY OF THE UNITED STATES, WITHOUT DELAY, AND IN ALL CASES WITHIN THIRTY DAYS OF THEIR RECEIPT. AND THE TREASURER OR THE PUBLIC DEPOSITARY SHALL ISSUE DUPLICATE RECEIPTS FOR THE MONEYS SO PAID, TRANSMITTING FORTHWITH THE ORIGINAL TO THE SECRETARY OF THE TREASURY, AND DELIVERING THE DUPLICATE TO THE DEPOSITOR: PROVIDED, THAT POSTAL REVENUES AND DEBTS DUE TO THE UNITED STATES POSTAL SERVICE SHALL BE PAID INTO THE TREASURY IN THE MANNER REQUIRED BY LAW."

IT HAS CONSISTENTLY BEEN HELD BY THIS OFFICE THAT MONEYS COLLECTED BY OR ON BEHALF OF ANY GOVERNMENT ACTIVITY ARE SUBJECT TO THE PROVISIONS OF SECTION 3617, REVISED STATUTES, 31 U.S.C. SEC. 484 AND SECTION 3621, REVISED STATUTES, 31 U.S.C. SEC. 495 AND ACCORDINGLY ARE FOR PROMPT DEPOSIT IN THE TREASURY UNLESS A DIFFERENT DISPOSITION IS OTHERWISE PROVIDED BY STATUTE. 52 COMP. GEN. 34 (1972), 52 ID. 125 (1972), 42 ID. 289 (1962), 40 ID. 81 (1960), 35 ID. 113 (1955), AND 35 ID. 436 (1956).

THE NATIONAL HOUSING ACT HAS BEEN EXAMINED TO DETERMINE WHETHER ANY OF ITS PROVISIONS MIGHT SUPPORT A DIFFERENT CONCLUSION REGARDING THE DISPOSITION OF SECURITY DEPOSITS MADE BY TENANTS IN HUD RENTAL PROPERTIES UNDER THE ADMINISTRATIVE CONTROL OF HUD "PROPERTY MANAGER CONTRACTORS." SECTION 1713(1) OF TITLE 12, U.S.C. (SECTION 207(1) OF THE NATIONAL HOUSING ACT) READS AS FOLLOWS:

"NOTWITHSTANDING ANY OTHER PROVISIONS OF LAW RELATING TO THE ACQUISITION, HANDLING, OR DISPOSAL OF REAL AND OTHER PROPERTY BY THE UNITED STATES, THE SECRETARY SHALL ALSO HAVE POWER, FOR THE PROTECTION OF THE INTERESTS OF THE GENERAL INSURANCE FUND, TO PAY OUT OF THE GENERAL INSURANCE FUND ALL EXPENSES OR CHARGES IN CONNECTION WITH, AND TO DEAL WITH, COMPLETE, RECONSTRUCT, RENT, RENOVATE, MODERNIZE, INSURE, MAKE CONTRACTS FOR THE MANAGEMENT OF, OR ESTABLISH SUITABLE AGENCIES FOR THE MANAGEMENT OF, OR SELL FOR CASH OR CREDIT OR LEASE IN HIS DISCRETION, ANY PROPERTY ACQUIRED BY HIM UNDER THIS SECTION, AND NOTWITHSTANDING ANY OTHER PROVISION OF LAW, THE SECRETARY SHALL ALSO HAVE POWER TO PURSUE TO FINAL COLLECTION BY WAY OF COMPROMISE OR OTHERWISE ALL CLAIMS ASSIGNED AND TRANSFERRED TO HIM IN CONNECTION WITH THE ASSIGNMENT, TRANSFER, AND DELIVERY PROVIDED FOR IN THIS SECTION, AND AT ANY TIME, UPON DEFAULT, TO FORECLOSE ON ANY PROPERTY SECURED BY ANY MORTGAGE ASSIGNED AND TRANSFERRED TO OR HELD BY HIM: PROVIDED, THAT SECTION 5 OF TITLE 41 SHALL NOT BE CONSTRUED TO APPLY TO ANY CONTRACT FOR HAZARD INSURANCE, OR TO ANY PURCHASE OR CONTRACT FOR SERVICES OR SUPPLIES ON ACCOUNT OF SUCH PROPERTY IF THE AMOUNT THEREOF DOES NOT EXCEED $1,000."

PURSUANT TO THIS BROAD AUTHORITY THE SECRETARY HAS ELECTED TO ESTABLISH MANAGEMENT CONTRACTS WITH PRIVATE CONTRACTORS FOR THE DISCHARGE OF THE HUD RESPONSIBILITIES AS DESCRIBED IN THE PROPOSED NEW POLICY OF THE AGENCY. IT APPEARS THAT THE PROPERTY MANAGEMENT CONTRACTS ARE STRUCTURED TO PERMIT THE ADMINISTRATIVE MANAGEMENT OF THESE RENTAL PROPERTIES IN THE SAME MANNER AND UNDER THE SAME TYPE OF GENERAL CONDITIONS AS PERTAIN TO PROPERTY MANAGEMENT COMPANIES IN THE PRIVATE SECTOR. IN THE PRIVATE SECTOR IT IS APPARENTLY COMMON PRACTICE FOR TENANT SECURITY DEPOSITS TO BE REQUIRED AS A CONDITION OF A LEASE. SUCH DEPOSITS REMAIN THE PROPERTY OF THE TENANT UNTIL THE LEASE IS BREACHED AT WHICH TIME THE PROPERTY MANAGER (LANDLORD) BECOMES ENTITLED TO ALL OR SOME PART OF THE SECURITY DEPOSIT. IT ALSO APPEARS TO BE THE USUAL PRACTICE FOR SECURITY DEPOSITS TO BE HELD IN AN ESCROW ACCOUNT PENDING FULFILLMENT OF THE LEASE. WHILE IT MAY NOT BE COMMON PRACTICE TO PROVIDE FOR TENANTS TO RECEIVE ANY INTEREST EARNED ON SUCH ESCROW SECURITY DEPOSITS, THIS WE FEEL IS PROPERLY A MATTER FOR AGREEMENT BETWEEN THE PARTIES FOR INCORPORATION INTO THE LEASE AGREEMENT. AFTER REVIEWING THE MATTER WE ARE OF THE OPINION THAT HUD MAY PROPERLY INCLUDE A PROVISION IN ITS PROPERTY MANAGER CONTRACTS WHICH ESTABLISH A SECURITY DEPOSIT PROCEDURE WHEREBY THE DEPOSITS REMAIN THE TENANTS PROPERTY, WITH THE RIGHT TO ANY INTEREST EARNED IN THE TENANT. IN CASE OF A BREACH OF THE LEASE, IT WOULD BE ASSUMED THAT THE MONEY WOULD BE PAYABLE TO THE PROPERTY MANAGER AND THUS BECOME A PART OF THE REGULAR FUNDS TO BE PROCESSED IN THE NORMAL MANNER. IN THIS WAY, ONCE THE TERMS OF THE MANAGEMENT CONTRACT HAVE BEEN PROPERLY STRUCTURED, THE SECURITY DEPOSITS AND INTEREST WOULD NOT BECOME "MONEYS OF THE UNITED STATES" AS THAT TERM IS USED AND UNDERSTOOD IN 31 U.S.C. SEC. 484 AND SEC. 495 UNTIL A BREACH BY THE TENANT CALLED FOR FORFEITURE OF HIS ESCROWED SECURITY DEPOSIT.

THE SPECIFIC QUESTIONS PRESENTED ARE ANSWERED ACCORDINGLY.

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