How to Open an Escrow Account for Rent

If you're one of the more than 44 million Americans who rent their homes, you likely have a landlord to call when things go wrong. Unfortunately, some landlords are more attentive than others in addressing their tenants' problems, sometimes leading to uncomfortable—or even dangerous—living situations.

If your landlord fails to make necessary repairs in a timely manner, a legal arrangement called rent escrow could allow you to withhold your monthly payments until the work is completed. Here is what you need to know.

Key Takeaways

• Rent escrow is a legal process that allows you to make your rent payments to a third party, rather than to your landlord, if your landlord has failed to make necessary repairs.
• In general, the repairs must involve a problem that has made the property unsafe or uninhabitable.
  
• Once the repairs have been completed, the court will decide how much of the escrowed money will go to the landlord.

What Is Rent Escrow?

Rent escrow is a legal process that allows tenants to temporarily make their rent payments to a third party rather than to their landlord. After providing proper notice to the landlord and receiving approval from a judge, the renter begins withholding their rent by depositing it into a court-ordered escrow account.

This process, also commonly known as rent withholding, can address many different issues that could arise with a rental property. Though laws differ from state to state, the one common factor is whether the landlord has been able to maintain a habitable property. Issues like exposed wiring, mold formation on the walls, or a pest infestation could affect your living conditions enough to warrant withholding rent.

While you are withholding your rent, the landlord is given time to fix the problem. Occasionally, the landlord can ask the judge for access to some of the withheld funds to pay for repairs. Eventually, a judge will hear your case and make a determination based on the particular issue, whether your requests were warranted, and whether the landlord reasonably fulfilled your request for repairs.

Depending on the severity of the situation and how long it took for the issue to be resolved, the judge could rule in your favor and award you some or all of the withheld rent. In most cases, the withheld funds are remitted to the landlord once the repairs are complete, minus any court or inspection fees.

Still, there are some instances where a judge can side with the landlord. If that happens, you could end up being evicted.

How Does Rent Escrow Work?

As a renter in the United States, you're typically afforded certain protections against predatory actions or negligence by your landlord. Though these tenant's rights vary based on where you live, rent escrow hinges on the notion that you deserve to live in a habitable property. As such, landlords are required to keep their properties in line with local structural, health, and safety regulations. If your landlord fails to meet those requirements, rent escrow can help you force the issue.

If the rental property in which you're living requires any immediate repairs, or if a health concern crops up, it's up to you to notify your landlord of the situation. Also, you should document exactly what's wrong with the property, since that evidence, or testimony from an expert, could be used in the eventual court hearing.

After receiving notice from a tenant about any major issues on a property, a landlord has anywhere from 14 to 30 days to address the problem, depending on local regulations. Failure to do so within the allotted time effectively opens the doors to beginning the rent escrow process at your local court. If your application is approved by a judge, then you will begin making your payments into an escrow account.

While your landlord works on the repairs, you should continue making your monthly rent payments into the escrow account. That shows both your landlord and the court that you are upholding your end of the lease.

Eventually, the court will finish its investigation into the issues that prompted you to begin withholding rent. After considering any evidence that either side has presented, the judge will determine how the escrow will be disbursed and what will happen to your lease.

What's Required to Withhold Rent in Escrow

Just because you're experiencing a problem doesn't mean that you will qualify for rent withholding. Along with having to reach out to your landlord about the problem in writing, most municipalities require that the issue be serious enough that it could negatively affect your health or make your home uninhabitable.

Though the process differs by state, these are some common requirements for your case to be successful:

• You can't be responsible for the damage. If you or a guest caused the damage that's made your home unlivable, then you can't withhold your rent. Your lease should explain what your responsibilities are in that case.
• Your rent must be up to date. You'll have to be current with your rent payments when you file your application to withhold your rent if you want it to be approved by the court. Failing to pay on time can also lead to eviction.
• You'll need to provide paperwork. In most instances, the court will require a completed rent-withholding application, as well as a number of supporting documents, such as the lease, copies of your identification, and any bills that you've paid related to the situation.
• Your landlord must know that you're withholding rent. If you're approved to begin the rent escrow process, then you're required to inform your landlord in writing. That should include the reason why you initiated the process, where the money is being held in escrow, and how much is in the account.

Rent Escrow vs. Repair and Deduct and Other Methods

Fewer than a dozen U.S. states lack a rent-withholding statute. If you're in a state, like Georgia, Idaho, or Texas, that doesn't have one, or if you don't want to go the rent escrow route for other reasons, then you may have an alternative course of action called "repair and deduct."

In this case, you would arrange for the repairs yourself and deduct the amount that you paid to complete them from your monthly rent. In some states, you can make the repairs yourself, while paying your rent as usual, and then sue the landlord for your repair costs.

To learn more about the law where you live, a good place to start is the U.S. Department of Housing and Urban Development's state-by-state guide to tenant rights.

FAQs

Can I Legally Withhold Rent from My Landlord?

Laws vary from state to state, but if you apply to a court and are approved, then you may be able to use a process called rent escrow. In rent escrow, you continue to make your monthly rent payments, but instead of going to your landlord, they go into an escrow account maintained by a third party. Once the landlord has fixed the problems, the landlord may receive all or a portion of that money.

Who Is Eligible for Rent Escrow?

Generally, for a court to approve an application for rent escrow, the problems with the rental property must be serious enough to involve a potential health risk or make the property uninhabitable. Examples could include insect infestation, mold growth, or exposed electrical wiring. Note that while most states have rent escrow laws, a small number do not.

What Happens If I Just Don't Pay My Rent?

In a worst-case scenario, your landlord can file an eviction suit to remove you from your home as well as sue you for the unpaid rent.

How to Open an Escrow Account for Rent

Source: https://www.investopedia.com/the-how-and-when-of-putting-rent-in-escrow-5198550

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