PSI New Jersey Real Estate State Practice Exam

Which of the following is TRUE about the treatment of tenant security deposits in New Jersey?

1. They must be held in a separate account

2. They may be used by the landlord for any purpose

3. They are considered the property of the landlord

4. They can be kept in a personal bank account

The correct answer is: They must be held in a separate account

In New Jersey, tenant security deposits must be held in a separate account, which is a crucial requirement aimed at protecting tenants' funds. This stipulation ensures that the security deposit remains distinct from the landlord's personal or operational funds, minimizing the risk of it being used for unauthorized purposes or being misappropriated. Landlords are mandated to place these deposits in either an interest-bearing account or a regular account at a financial institution within the state, and they must inform tenants about the location and account type where the security deposit is held. This transparency fosters trust between landlords and tenants and is a vital consumer protection measure in the state's real estate practices. The other options do not reflect the legal framework concerning tenant security deposits in New Jersey. For instance, landlords cannot use the deposits for any purpose; they are intended solely to cover damages or unpaid rent. Moreover, security deposits do not belong to the landlord; they are considered the tenant's property held in trust. Finally, keeping the security deposit in a personal bank account contradicts the legal requirement for separate management of such funds.