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AGO 1984 No. 18 - August 03, 1984
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Ken Eikenberry | 1981-1992 | Attorney General of Washington

LANDLORD AND TENANT ‑- REAL ESTATE ‑- INTEREST ‑- MAINTENANCE OF SECURITY DEPOSITS ‑- ASSIGNMENT OF INTEREST TO PROPERTY MANAGER

 Owners of residential income properties may assign their entitlement (under RCW 59.18.270) to interest on a trust bank account containing damage or security deposits to the real estate broker managing the property who has been designated as the representative of the owner; however, in order to avoid a violation of RCW 18.85.310, the interest moneys must not be initially deposited into the trust account but must, instead, be immediately credited to the real estate broker's own separate account.

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                                                                  August 3, 1984 

Honorable Bob McCaslin
St. Sen., 4th District
1003 South Pines Road
Spokane, WA 99206

Cite as:  AGO 1984 No. 18                                                                                                                

 Dear Sir:

             By letter previously acknowledged you requested our opinion on the following question:

             "May a real estate broker, who is managing residential income property under a property management agreement, and who receives funds or moneys to hold in trust as a damage or security deposit from the tenant who is entitled to reside in the residential income property, be designated in the written property management agreement by the owner of the residential income property as the entity to receive the interest on such trust account deposit under RCW 59.18.270, or other provisions of state law, notwithstanding the provisions of WAC 308-124E‑011(1) (c)?"

             We answer the foregoing question in the affirmative for the reasons set forth in our analysis.

                                                                      ANALYSIS

             We should, at the outset, make an important preliminary point  [[Orig. Op. Page 2]] concerning the ownership of interest on damage and security deposits under chapter 59.18 RCW, the Residential Landlord and Tenant Act.  RCW 59.18.270 provides, in relevant part, as follows:

            "All moneys paid to the landlord by the tenant as a deposit as security for performance of the tenant's obligations in a lease or rental agreement shall promptly be deposited by the landlord in a trust account, maintained by the landlord for the purpose of holding such security deposits for tenants of the landlord, in a bank, savings and loan association, mutual savings bank, or licensed escrow agent located in Washington.  Unless otherwise agreed in writing, the landlord shall be entitled to receipt of interest paid on such trust account deposits. . . ."  (Emphasis supplied)

             The above underscored portion of the statute, however, was not a part of the original law.  Rather, it was added, in 1975, by § 1, chapter 233, Laws of 1975, 1st Ex. Sess.  Prior to the enactment of that amendment, this office had ruled that interest earned on a security deposit belonged to the tenant‑-and not the owner of the property (i.e., landlord)‑-in the absence of a provision in the rental agreement specifying to the contrary.  See, AGO 1974 No. 11, copy enclosed.

             RCW 59.18.270 now expressly provides, however, that the landlord is the owner of interest on security and damage deposits in the absence of an agreement, in writing, to the contrary between the landlord and the tenant.  Your question, in turn, assumes the absence of such a provision.  We are thus dealing, in this opinion, only with interest owned by the landlord (i.e., the owner of the property) vis-a-vis the tenant.

                         What is there involved, in turn, is a different legal relationship,i.e., that which exists between the property owner (landlord) and a real estate broker who is managing subject property on behalf of the property owner.  The question posed, in essence, is whether the property owner may assign his or her interest accruals to the real estate broker‑-presumably as a part of the broker's compensation for services rendered.

            As a general rule, moneys due are assignable in the absence of some specific statute or regulation to the contrary.  See,School Dist. No. 15, Snohomish County v. Peoples National Bank of Washington, 13 Wn.2d 230, 124 P.2d 947 (1942).  There is, in turn, nothing in chapter 59.18 RCW or in any other statute which our  [[Orig. Op. Page 3]] research has disclosed which would prohibit a landlord who, under RCW 59.18.270 as amended, is entitled thereto from assigning interest earned on damage or security deposits to a real estate broker serving as property manager or, for that matter, to anyone else.

                         There is, however, also an administrative regulation here to be considered.  We have reference to WAC 308-124E‑011(1)(c), cited in your question, the pertinent language of which reads as follows:

             "(1) Bank accounts shall be designated as trust accounts in the firm name of the real estate broker as licensed.  Trust bank accounts shall be noninterest-bearing demand deposit accounts, except as follows:

             ". . .

             "(c) Interest-bearing trust bank accounts containing only damage or security deposits received from tenants of residential income properties managed by the broker for an individual owner may be established by the broker when directed by written management agreement, and the interest on such trust bank accounts may be paid to the owner (landlord), if the broker is by written agreement designated as 'representative of the landlord' under the provisions of RCW 59.18.270, Residential Landlord-Tenant Act."

             This administrative regulation was adopted by the director of Licensing, in 1982, under the authority granted by RCW 18.85.040.  And, from your letter, some confusion appears to have arisen because of the regulation's internal reference to RCW 59.18.270, supra.  There is, however, nothing in the regulation which purports to prohibit the landlord (or property owner) from assigning his or her right to interest earned on a security deposit to the real estate broker serving as property manager.  Rather, as we read it, the proper role of that portion of the regulation which refers to RCW 59.18.270 is simply to distinguish between those situations (now normal because of the 1975 amendment) where the subject interest is owned by the landlord and those where the tenant, by written agreement with the landlord, remains entitled to receive the interest accruals.  Only where the owner (landlord), as opposed to the tenant, is entitled to the interest may the real estate broker properly pay that interest to the owner‑-assuming that the real estate broker has initially received the interest as "representative of the landlord."

            [[Orig. Op. Page 4]]

            We therefore answer your question, as above stated, in the affirmative.  A real estate broker, who is managing residential income property under a property management agreement, and who receives funds or moneys to hold in trust as a damage or security deposit from the tenant residing in the residential income property, may be designated in the written property management agreement by the property owner as the entity to receive the owner's interest on such trust account deposit under RCW 59.18.270.  Nothing in that statute, or in WAC 308-124E‑011(1)(c), supra, should be read to the contrary.

             In so concluding, however, we should also make note of RCW 18.85.310 which requires real estate brokers to keep funds owned by them separate and apart from the client's trust fund.  The relevant language of that statute reads as follows:

             ". . .

             "Every real estate broker shall also keep separate real estate fund accounts in a recognized Washington state depositary authorized to receive funds in which shall be kept separate and apart and physically segregated from licensee broker's own funds, all funds or moneys of clients which are being held by such licensee broker pending the closing of a real estate sale or transaction, or which have been collected for said client and are being held for disbursement for or to said client . . .

             "Any violation by a real estate broker of any of the provisions of this section, . . . shall be grounds for revocation of the licenses issued to the broker."

             That provision, however, poses only a practical and not a legal problem insofar as your present question is concerned.  An assignment of moneys due extinguishes the assignor's right and interest in the moneys due and the assignee, by virtue of the assignment, obtains the assignor's right and interest in those moneys‑-unless the assignment is a partial assignment of the assignor's right and interest in moneys due.  See,Morse Electro Products Corp. v. Beneficial Industrial Loan Co., 90 Wn.2d 195, 579 P.2d 1341 (1978); Paullus v. Fowler, 59 Wn.2d 204, 367 P.2d 130 (1961); Stover v. Winston Bros Co., 185 Wash. 416, 55 P.2d 821 (1936), app. dism. 299 U.S. 508, 81 L.Ed 376, 57 S.Ct. 44 (1936); Washington State Bar Ass'n v. Merchants Rating & Adjusting Co., 183 Wash. 611, 49 P.2d 26 (1935); National Surety Co. v. American Savings Bank & Trust Co., 101 Wash. 213, 172  [d[Orig. Op. Page 5]] Pac. 264 (1918); Yamamoto v. Puget Sound Lumber Co., 84 Wash. 411, 146 Pac. 861 (1915); see also,Salem Trust Co. v. Manufacturers' Finance Company, 264 U.S. 182, 68 L.Ed 628, 44 S.Ct. 266 (1923).  Thus, if a written assignment of interest due has been executed by the property owner, assigning the interest due on the trust funds to the real estate broker serving as property manager, and the interest is then nevertheless deposited by the bank in the client's trust fund account, the broker's funds will have become commingled with the client's funds.  But, as above noted, such commingling is expressly prohibited by RCW 18.85.310.

             This problem, however, seems solvable.  For if the real estate broker has arranged with the bank to have the interest depositedas it accrues into an account of his or her own, separate, apart and physically segregated from the trust fund account, the prohibited commingling would then not occur.  We merely point the problem out, in responding to your request, in order to make sure that those in the business who are involved are aware, and prepared to deal with it as aforesaid.

             We trust that the foregoing will be of assistance to you.

 Very truly yours,
KENNETH O. EIKENBERRY
Attorney General 

JOYCE R. DOLLIVER
Assistant Attorney General

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