HUD Handbook 4350.3 § 6-17

A.          Section 8 New Construction, Substantial Rehabilitation, and State Agency
                    properties are subject to two different sets of requirements depending on the
                    date the AHAP was signed. Additionally, Section 202 properties with Section 8
                    or PAC have additional requirements for allocating interest and maintaining
                    records. To further complicate the process, most states (and some counties and
                    municipalities) have laws regarding the investment of security deposits and
                    payments to the tenant of interest earned on the deposits, with which owners
                    must comply. In instances where laws conflict, owners should follow the
                    requirements that provide the greatest benefit to the tenant.

                    Owners must comply with any state and local laws regarding investment of
                    security deposits and distribution of any interest earned thereon. If state law is
                    silent, or if HUD regulations are more demanding, owners must comply with
                    HUD’s regulations. HUD requirements are discussed below.

                    In addition, interest to the tenants must be computed in accordance with state or
                    local law. When state or local law is silent, the actual rate earned on the security
                    deposits must be computed and credited to each tenant’s portion of the security
                    deposit.

        B.          The owner must place the security deposits into a segregated, interest-bearing
                    account. The balance of the account must equal the total amount collected from
                    all tenants then in occupancy, plus any accrued interest.

                    NOTE: For Section 202/8, Section 202 PRACs, and Section 811 PRACs, the
                    balance must equal the total amount collected from all tenants then in
                    occupancy, plus any accrued interest and less allowable administrative cost
                    adjustments.

                    NOTE: For Section 202/8, the allowable administrative costs may not exceed the
                    accrued interest allocated to the family’s balance for the year.

                    NOTE: Owners of the following properties are not subject to the revised Section
                    8 regulations. Subject to state and local requirements, these properties may
                    invest security deposits and deposit the interest into the property’s operating
                    account on a quarterly basis.

                          Section 8 New Construction with an AHAP executed before November 5,
                           1979.

                          Section 8 Substantial Rehabilitation with an AHAP executed before
                           February 20, 1980.

                          Section 8 State Agency with an AHAP executed before February 29,
                           1980.

C.          In addition to the other requirements listed in this section, Section 202 properties
                    with Section 8 or PAC are subject to the following:

                    1.     The owner must maintain a record of the amount in the segregated
                           interest-bearing account that is attributable to each tenant.

                    2.     The owner must allocate interest accrued on the tenant’s security deposit
                           on an annual basis and when a tenant vacates the unit.

                    3.     Unless prohibited by state or local law, the owner may deduct, from the
                           accrued interest attributable to the tenant for the year, the administrative
                           cost of computing the allocation of interest to the tenant’s security deposit
                           balance. The amount of the administrative cost must not exceed the
                           accrued interest allocated to the tenant’s balance for the year.

        D.          Although not a specific requirement for every program, it is in the owner’s best
                    interest to:

                    1.     Maintain a record of the amount in the security deposit account
                           attributable to each tenant; and

                    2.     Allocate interest to the tenant’s security deposit on an annual basis and
                           when a tenant vacates the unit.