Tip #56

Don’t Give Your Bank Account Number to Your Tenants

Written on November 4, 2015 by , updated on December 9, 2016

Direct Bank DepositsFor many managers and landlords, they think that accepting rent through direct bank deposit at the bank is the easiest way to collect rent each month.

Little do they know the hidden dangers of giving their bank account info to a tenant, and telling them to “Go to my bank and make a deposit.”

Most experienced managers avoid giving out their bank account information by using a property management tool like Cozy. But if you are not open to the idea of online rent payments, then you could work out an arrangement with your tenant(s) and the bank and still have the money show up in your bank account – that is, until it doesn’t.

If not structured properly, direct deposits can be huge mistake.

But Direct Bank Deposits Are So Easy…

Direct deposits are easy, but it’s foolish to give out your bank account information. If you don’t take precautions, it will certainly come back to bite you.

You wouldn’t give out your bank account and routing number to a complete stranger; yet, many landlords do this with new, and possibly unscreened, tenants.

The common excuse is, “But your account info is on the bottom of every check you write!”  Yes, that’s true. But as a property manager, you rarely write a check to a tenant.

If you don’t use a third-party service, like Cozy, which hides your account number from a tenant, you could open yourself up to all kinds of issues.

The biggest issue is that you can’t stop them from depositing money. You’ve lost control.

Why Is This a problem?

By giving a tenant your account information, they could stop an eviction by depositing as little as $1 – thereby forcing you to start the eviction process over!

A tenant could thwart an eviction by depositing as little as $1.

If you have started the eviction process, your tenant could use your account number to deposit a partial payment to your bank account.

Accepting any amount during the eviction process could void your eviction thereby requiring you to start over! The deposit could be for any amount, even $1, for this to happen.

Tools like Cozy prevent this from happening because your bank account info is always hidden from the tenant. Best of all, you can prevent payments on leases when you are trying to evict tenants.

How This “Deposit Scheme” Works

If your tenant fails to pay the rent, you can evict them – but there’s a formal procedure you must follow.

States differ in the exact procedure, but they all require that you give your tenant a notice of the delinquency.

1. Tenant Intentionally Falls Behind on Rent

If your tenant is late with rent and you want them out, you typically issue a “pay rent or quit” notice, which gives the tenant between three and five days to pay the rent, depending on your jurisdiction.

2. Tenant Fail to Pay or Leave

If your tenant pays the rent within the pay-or-quit time frame, they get to stay. But tenants who are trying to put one over on you might refuse to vacate or make a payment. Then, you must file an unlawful detainer action (aka, an eviction case) with your local courts.

3. Tenant Waits and Then Deposits a Small Amount

The tenant then waits until he/she has been summoned, and then makes a small payment into your bank account.

After all, you gave the tenant the means to do so.

If you accept cash, checks, or money orders, you can simply refuse to accept the partial payment. But you don’t have that option if the tenant, like an aunt who slips unwanted money into your pocket, direct deposits the money into your account because they have all your bank information.

4. Your Eviction Is Cancelled, and You Must Start Over

By depositing money into your account, you’ve essentially accepted partial payment, and it usually will void the eviction proceedings. You have no choice but to send another “pay rent or quit” notice, and start the process over!

5. The Tenant Lives Rent-free For Another 2+ Months

The tenant then pretends like they didn’t know any better, but still won’t pay any significant amount. You must send the notice all over again, and re-file the eviction action with the courts.

Meanwhile, the tenant is living for free for multiple months, and you are forced to change your bank account number just so the tenant can’t “do it again.”

What You Should Do If It’s “Too Late”

If you’ve already made the mistake of giving your bank account and routing number to your tenant, here are some steps you can take if you think a tenant might be gaming you.

Remember, it’s always wise to talk to an attorney when you have a question about legality.

1. Check Your Bank Account Regularly for Any Deposits

Some banks are good about notifying you when a direct deposit has been made, but not all of them are. You can check your account daily, but that’s not ideal or convenient.

2. Notify Your Tenant of Their Noncompliance

If you’ve given a “notice to pay or quit,” and you receive the full rent amount, then the tenant gets to stay … until this happens again.

But if you received a partial payment, “Contact the tenant as soon as possible to let them know that [you] are not accepting the payment,” says Sydney Williams of Alabama Rental Managers.

As soon as you find out, send a letter to your tenant telling them that you reject the partial payment. Send this letter with tracking, and refund the money.

Open two-way communication is the key. Assume the worst, but verify.

Note: You might want to wait until the three-to-five-day period is over to send the letter with the money back in case your tenant pays the entire rent in two or more partial payments within the specified time.

3. Add a Clause to Your Lease

In order to protect you, add a clause that states something to this effect:

4. Place a “Note” on Your Bank Account

This advice comes from Danielle Watson of DealPoint Merrill, a Las Vegas property management firm. “The issue is that we cannot stop their end of the transaction credit but rather only put a ‘return to sender’ note on our bank account,” she says.

Check with your bank to see if it offers this option and how it works. Even at its best, it’s not ideal or guaranteed.

The Bottom Line

While the ease of use in direct deposit is great, it can be problematic for the eviction process and leave the landlord doing extra work with the banks and their accounting,” says Danielle Watson.

However, if you really love allowing your tenants with uncontrolled access to your bank account, by all means, have at it. There are certainly ways to beat the partial payment scheme.

The easiest way is to switch to online rent collection, which provides for an automatic direct deposit, without all the trips to the bank. Switch to Cozy for rent collection, and give it a try.  Your tenants will thank you.

Best of all, if you have to terminate a lease, or start an eviction, Cozy allows you to accept partial payments, but it also lets you “stop all payments” with the click of a button.

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28 CommentsLeave a Comment

  • Ron

    Just realized the stamp we use to endorse checks gives away our bank account number as it states the following: Pay to the Order of Bank of America,NA FOR DEPOSIT ONLY, Our Company Name, 123456789101 A tenant could log onto their account to look up when their check cleared & see a picture of both the front and back of their check with our endorsement & account number on the back!

  • Mark Povolotskiy

    How about shutting account down completely?

  • Mark Povolotskiy

    Hi Laura,
    That’s why we all need Cozy!

  • Tal Alon

    Here in Florida. I can just unplug the fuse in the outside unit of the AC and they will move out the next day! too hot! LOL

  • Evelyn

    Hello, I have tenants who every month is late with their rent. Every 2 months are calling me that one wants out of the lease and not the other. They are on a 2 year lease with only 1 year in. I am putting the property up for sale because I am just tired of being a landlord at this point. I gave tenants options the right to purchase or early termination with a month to month. Tenants have not paid this months rent, are telling me they don’t want to buy and will not allow any showings. How can I evict them? Or show proof that legally they have to allow showings. I know them being in a 2 year will limit the response on an offer but that was another option. However, I prefer them gone.

  • Mike Stewart

    This entire topic is ostensibly aimed at exposing the dangers of allowing tenants to deposit their rent in the landlord’s bank account. I was very interested in reading this once I spotted it. I’ve had tenants deposit rent into my bank account for over twenty years and was startled to discover (in reading the topic header) that all this time I’ve been courting disaster!

    Getting into the substance of the article, the author refers to multiple hazards but only came up with one, and that one applies only to the arcane possibility that the tenant could use it to interfere with the eviction process.

    The author must have been desperate for a topic that day.

    • Lucas Hall

      Thanks Mike,
      Here’s a few more:
      – Giving your account number to other scammers
      – Using your lease signature and your account numbers setup auto withdraws to other accounts
      – Using your account numbers to make online purchases via ACH.

      With their are online options of paying rent, and better tracking, why force your tenants to go to the bank? Or why risk giving them your account number?

      Even if you prefer this method, to me it just adds an unnecessary risk, with not a lot of benefit.

  • Nick

    My wife and I have been issued a few 10 day notices from our slumlords. We’ve payed on time or early every month.

    They gave us their business account number when we moved in. And we have deposited, but it goes unnoticed by the landlord(s).

  • Dave

    I have 3 tenants and we just use interact email transfer so all they have is my email addr which is how we stay in touch anyway since I am out of the country the majority of the year. They just set me up as a recipient and let me know the password to collect – works great :-)

  • Sandy

    My husband and I just purchase a home and we offer the tenants 5k cash for key pulse a free 60 days stay.
    Yet they refuse. We so we had no choice but to start a 60 days eviction for a new owner move in.
    Since they got the 60 days eviction notice on September 1st. They said they will not pay rent and that they will stay there and see us in court. What should we do? We can’t not afford to rent and pay for a moragtege for someone else staying for free.

  • Bradley

    Great insight. Wondering if the method I set up before reading this great article might still work. I set up separate deposit only accounts for each tenant. These accounts then transfer to my main account on the 5th of the month. Perhaps I can check with my bank to see if I can close a tenants’ account in the event a tenant is on a “pay or quit”. . . ?

    In the meantime I’m going to check out Cozy because automated payments are a hassle for my tenants at my current bank. They have to make a trip to my bank once a month.

  • tim

    This is entirely not true… An attempt to drive customers to Cozy, I suspect… If you operate with NO lease, I could see how this would be a problem. But everyone has a clause in their lease which states that partial payments are not accepted and any money deposited goes to pay rent, fees and charges in arrears first… Then a statement that you use direct deposit and that partial payments that are deposited are not counted as rent and eviction proceedings will ensue… etc… Just put the correct clauses in your lease and you are fine. Create a “payment” checking account where your tenants deposit, and sweep that money into your primary business account every month… place a note on that account that it is for deposit only

    • Donna

      But, remember, Tim, that landlord-tenant laws in your jurisdiction trump whatever is in your lease.

      • Tim

        Or they work as a default in the absence of a written agreement. If I evict someone and they make a payment by depositing money into my account, I only need to give the money back once at the hearing (If that). It doesn’t even matter if they choose not to accept it. They will be evicted and the magistrate will factor in that money and my effort to return it. The only downside to using a deposit account is the cash deposit charge that the banks levy. It is wonderful, however, in that I don’t have to pay a payment processor and it caters to tenants who don’t have online access to pay. It is the best solution for the small time landlord imo. Just pick a bank that has favorable fees and has locations in the rental areas.

  • Jason K.

    I agree with Mike Stewart in his earlier comments that “the author must have been desperate for a topic that day.” The article is a cleverly disguised advertising for a real estate website service. Our company has managed thousands of apartments for 50+ years. We stamp our account number on every check we deposit. We have never had any problems. Why? Because we properly screen our tenants. The author insults every professional property manager by implying that tenants are dangerous to the real estate business. The real fact of the matter is, POOR MANAGEMENT is dangerous to the business. Don’t blame the tenants, blame management. So called cool technologies will not solve the problem of poor management. Tools don’t solve stupidity.

  • IMNot Buyingthis-Scam

    This is a thinly veiled attempt at shilling. This website is OWNED by the Miraculous company that will save us from our horrible tenants. What a joke. Landlordology…by Cozy. Had they been upfront I may have been interested but this is all Tom Foolery. Cozy ads all over the place and a popup for Cozy. No ads for any other company than Cozy. FAKE news!

  • Larry

    Hey, great article. If a person only has 1 rental couldnt they just close the account the tenant was depositing to? I’m guessing the bank simply wouldnt take the depost from the tenant at that point. Could that be a solution?

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