PM Banking Secrets & Trust Account Advice with Allison DiSarro | Peter Lohmann’s Podcast

What I refer to as a client trust, so to speak, is what a lot of you guys in your industry refer to as operating, right? It's like your operating funds for those properties, and then, which is rents, payables, property expenses, whatever. And then you have your security deposit. A lot of companies in your industry, it's a very common misconception, think that the only funds that need to be held in trust are security deposits. Really, the best rule of thumb, and this is why this matters on both levels, Anytime you're holding funds that don't belong to you, they must be held in trust, even if it's for 5 minutes, right? But that is— that happens all the time. I hear it all the time. People say, like, well, I don't have to hold that in trust. Well, you do, not just from a state perspective, from a federal perspective as well. So that would— that would matter for most.

Friends, welcome back to Peter Lohmann's podcast. I'm thrilled today to introduce introduce Alison DeSaro. Alison, welcome to the show.

Thank you. It's so nice to be on here with you.

Yeah, it's great to have you. So I know a lot of friends in the industry know who Alison is, but for those who don't, she's the Senior Vice President of Property Management Banking at Enterprise Bank Trust. And Enterprise is a name that's been in our industry for a long time. Prior to that, Seacoast Commerce Bank, if I remember correctly. So a lot of you may have seen their booth at trade shows or chatted with Alison. But I know a lot of listeners may not have made it out to conferences and may not be familiar with some of the options that we have when it comes to trust accounting and banking as property managers, which is your specialty, Alison. So I'm excited to dive into some of those topics. We're going to see what's new and noteworthy, what our options are as property managers. But before we do that, I'd love to just hear some about your background. How did you get into property management banking and just kind of bring us up to speed on your career?

Yeah, thank you. Well, I'd say it's— I'll try not to go too far down a rabbit hole, but yeah, so I started our property management banking division back in 2010. So now about almost 16 years ago, it was very early 2010. What I would say, actually, I'm going to stop there and say, I don't— we didn't actually necessarily start that division there, but that's when I started banking property management companies. So my background prior to that was always just in sales. I had worked for loosely for a financial, like a wealth management company in Massachusetts, doing more of like business development work with them. So I wouldn't even necessarily say that I had a clear path into banking, but once my husband and I had moved out to California, I had started with this bank. And to be quite frank, it was just at that point, you know, kind of like a business development role. You go out and you get what, what you can and I had had some prior experience well before, very loosely working with a broker in Massachusetts who did property management. So I had a good idea at least of like security deposits and how the money comes in and all of that. Very, very loose, but you know, basic understanding. And so as a business development officer at a bank, I think it's probably a lot harder to just cast the net and try and get what you can, right? So we were focused more on trying to find ways to get more of like what we refer to as like sticky deposits. At the bank because you can do more with sticky deposits. So I, through, you know, my predecessor who had also banked some property management companies for no reason other than we just, like any other bank, banked a property management company, I saw it kind of reminded me of all that. And I realized, okay, this is probably a good angle to go down from a business development perspective.

It's hard to think of deposits that are more sticky than, you know, trust account, you know, funds that property managers deal with because you've got deposits that come in there and stay for many years. And even when they leave, you know, normally that property gets leased right back up, more deposits come back in. And of course, we also have the maintenance reserve funds that are typically held in that same trust account. And those levels have just gone up and up and up over time. And add on to that, of course, all the rent is flowing in every month. And tends to sit around for about 30 days before it gets dispersed out to the property owner. So yeah, I mean, I can't think of another business that would have more cash just kind of piling up, sitting around in a bank in, you know, in liquid form like that.

Well, absolutely. And I mean, there are other businesses like that, but it's still more of like, it can sit there for a long time, but when that money goes out, like class action lawsuits for instance, right? Like that money might sit there for a very long time, but then once it goes out, the bank doesn't know what's coming coming in after that. It's all based off of those cases. And like IOLTA accounts are very similar to that. The problem with what I quickly realized of these types of accounts is that I could be like any other bank who just wanted to bank property management companies because they wanted the sticky deposits, right? And they could bank them for the same reason that another large bank down the street might bank them. But that wasn't really going to give us consistency and it really wasn't going to be it wasn't a guaranteed success for myself, which is now a much bigger team, but at that time it really was just myself to be able to get that business. So, I quickly realized really, like at that point, like I said, I only really have like the basic understanding of what the money was. Then I had to really figure out like, okay, what's the real need here and what's missing from a banking perspective and also what's the risk, right? And so, there's just so much more than just banking your trust accounts. And I tell that a lot. Like, of course, you know, I'm reached out to a lot by other banks who either want to get into it or want me to start it for them. And like, it's just so much more than just saying like, hey, we can just pay for these deposits, right? So I really— that's why I said in the beginning, probably we didn't really start that division in 2010. I just started, but we really took, I'd say, probably about 2 years to really figure out like not just from your industry perspective, but from our industry perspective, the risks, the procedures, what was needed, what was missing, the process, all of that. So anyway, that's when once we became very popular in that part of it on both sides, we then created a division, which I, I lead still to this day. It was then Seacoast Commerce Bank in California. We've been acquired since then by Enterprise Bank and Trust for this division specifically to just do what we've been doing. And, and, you know, we've been part of Enterprise now for about 5 years and I think it's only gotten better. We bank thousands of property management companies. We really do specialize in more than anything, the federal compliance of trust accounts, making sure that those accounts are not only set up correctly, but also managed correctly as well. So while like, for instance, your state rules are important to know, and you're certainly going to pass that if you're set up on what I refer to as like the federal level of protection. But at the end of the day, your state rules are really protecting your license, whereas like the federal rules of protection are really protecting your clients' funds. And that's really, that's where my real specialty is. I know all the states like the back of my hand, but at the end of the day, it's, it's pretty contradictory to what it really should be set up as.

Yeah. And I'm, I'm really excited to get into the details of the federal trust account compliance because this is an area that I'm actually not as as familiar with as I should be. And I think it's highly relevant for everybody listening. Before we do that, I want to set the stage a little bit. So unfortunately, Enterprise isn't available for me here in Ohio because Ohio says that I can't bank with a company unless they have a physical branch located within the state. And I know that's true for some other states as well. So how many states are you available in right now?

Oh, I wish I knew the exact number off the top of my head, but I'd say if I were to pick it out, I'd say it's about 35 states. Hopefully some more growth is coming. The growth usually comes by way of— usually it comes by that, that rule just being written away, right? But, and that has happened, or we put a branch there in that state for that specific reason. So for instance, we did that in Florida and Nevada.

It's just— oh, let's go!

What are we doing? Yeah, come on.

Yeah, so let's work together on this. I can bring a whole contingent from Ohio.

I know, it's like— and then watch, like, as soon as we do it in Ohio, then they'll lift the rule. It is a very, very, very, very antiquated rule, and in my opinion, it does nothing but harm you guys.

We could work on the rule too. I've got a bunch of friends at the Ohio Division of Real Estate.

Well, let's go. I mean, I've tried. Yeah, it really puts you guys at more risk than anything.

Yeah, I believe that. I believe, and we're going to talk about why. Okay, so great. So you're available in most states, but not all states rolling out, you know, onesies, twosies here. And is it possible too that like your bank could acquire another bank that has branches? So that could happen sort of all of a sudden.

Yeah. So that's, that's another way that we would do it. So Arizona, for instance, right? Like Arizona, you're required to have a brick and mortar branch, but we acquired, we were acquired and now we're in Arizona. Yeah, so that worked for us. So yeah, there's ways that we get there, but hopefully just these rules change soon because at the end of the day they're just putting you at risk.

And so for those who are listening and they're like, why is everyone talking about Enterprise Bank? Every, every trade show I go to, everyone I run into, they're always talking about Enterprise Bank. I'll kind of maybe briefly summarize. You can correct any errors. Yeah. So there's really two reasons. I think one is you have a product called analysis banking or earnings credits. Where, you know, most states don't allow you to earn interest on trust accounts. And so a different way that you can benefit in your banking relationship is that they can issue you earnings credits or analysis credits from essentially what would be interest on the account. They can't pay you that directly. Instead, you can use it to offset bills and invoices from accounting vendors, some software vendors, and some other things. So it's kind of— let's be real, it's a backdoor way to get interest. It's not interest. You can't say it's interest. You're never going to say it's interest. But basically that's what it is. And it lets— the net effect is the same. It offsets expenses for the property management company. So if you have 100 units, you're kind of like doing the math and you're like, who cares? Like, what's the big— you're talking like $100 a month. What's the big deal? Call me back when you have 700 doors and we can run the math again. And you'll be very interested to talk to Allison about how you can get set up in this program. The other reason that I know people bank with Enterprise has to do with the trust account compliance, so that if you were to get audited as a property management business owner, you can feel great that when these state auditors come in, they look through all your trust accounts, they look through all your reporting, they look through all of your FDIC insurance and everything else. It's all going to be ducks in a row and you're going to pass, or at least you're not going to have any issues with you know, the banking-specific items. Does that about sum it up?

About sums it up. Yes. You've actually done a very good job. Yeah. Thanks. Thank you.

So if you're wondering, that's why people get excited about banking because trust accounting is very central to what we do. And of course, the software that we use, our main core software, is built off of and around trust accounting and the actual trust bank account or bank accounts that underlie that software and the accounting that sits on top of it. Is very, very important, both from a compliance perspective as well as from the potential to, to earn credits and through, through different products.

Yeah, and I would say I actually really like what you said when you said the net effect is essentially the same as interest. You're right, I think that's, that's the better way to discuss the interest comparison. But at the end of the day, it's a little bit different in the sense that, of course, how you get it is different, all of that. Like you said, like, you know, we're going to set— we're going to pay it towards your third-party invoices instead of give it to you like cash. But I I think also it's important to know that one, it's not even interest on our books, right? So like on the bank's books, it's not interest. So it's not just about getting you past the rules, it's also for us as well. It's compliant for us as well. But because it's never touching your hands, it's now considered non-taxable income, right? So it also creates the value a little bit higher as well, because now you're not paying taxes on that interest.

Interest income actually is taxed at a pretty— it's taxed differently than other income from the business as well. Yeah. So it's very helpful from that perspective.

Yeah. And then, you know, there's probably a deeper dive into this, but really like, this is what I tell people all the time. Like there are not only what you're getting out of it is really important, but also like how are we implementing it is really important. So you'll You see like, you know, right now, for instance, the last couple of years, rates have been higher than normal, right? Or Fed funds, I should say. And so because of that, this is just how banks work. Banks are going out and saying like, hey, we're going to do this too, right? We're going to do this too because they can take advantage of the interest rates right now. Even though it's not an interest rate, they can still take advantage of that in the industry in order to put it into this. And, you know, because they'd never done it before, at first there's always the question of like longevity, right? Like how long are you going to be doing this? Is this just based off of rates and the fact that you need deposits? But also more importantly, it's like, how do you know how to implement it? And that's the harder part. A lot of the banks haven't figured out how to implement it, not only logistically, but also compliantly. And again, when I talk about compliance, I'm talking about not only like your compliance, but how are the banks financial institutions compliance as well. And so a lot of times they'll just say like, hey, we'll give you what's called direct pay, right? Which is actually something you— a lot of like the HOA industry gets direct pay is essentially like instead of you receiving the credits via us paying a LeadSimple or Rentvine or Netfolio invoice, whatever it might be, you're going to actually receive it almost like interest, right? Like a check is cut out to you. But A, that's just because they can't implement it logistically. But also B, that means that the trust account isn't actually really truly set up correctly anyway, because from a litigation standpoint on true trust accounts with banks, we actually can't really be paying you interest on that, right? So we shouldn't be direct paying. So there is reasons why we can't do that. So again, it's not just about keeping you guys in compliance and working it around for you guys and your state rules, because like you said, there are states that do allow you to earn interest, but that's because the state's allowing you to earn interest. But really, from a litigation standpoint, federally, you really shouldn't be earning interest on those.

Okay. Interesting. And the bank being in compliance is important. I hear from time to time horror stories from property managers who will get on Facebook one day and just be like, My bank with one day notice is closing all of our trust accounts for no reason. And they're just like, come pick up your check. Your account is closed. Like, I see that like a couple of times a year. And it's horrifying to think about that because the idea of trying to switch banks with one or two days notice and get all my trust accounts set up and all my software switched over, that is nightmare-inducing. And so if your bank doesn't specialize in trust accounting for property managers, they may just decide one day that it's too risky or they're non-compliant or whatever other reason, which I, I'll be honest, because I don't bank with you guys, it makes me nervous thinking about it.

Oh yeah, right. I would say you don't bank with us. Yeah, yeah, you're right.

I won't say who I bank with, but you know, they could flip that switch one day and I, I'll be really, you know, in a tough way. Today's podcast is sponsored by Second Nature. So listen, renters today can order dinner from their watch, get groceries in an hour, and track every Amazon package to the minute. But in property management, we're still sending residents a stack of PDFs and calling it onboarding. That's why Second Nature just launched the industry's first resident experience platform. It's a modern guided onboarding experience for residents. Instead of confusion and endless emails, they get a clear step-by-step walkthrough of everything they need to know— their lease terms, move-in tasks, and resident benefits. All of this is powered by Maestro, the industry's first tool for composing personalized resident onboarding workflows. It lets property managers customize experience based on property type, market, or resident profile, and even push portfolio-wide lease updates in just a few clicks. For property managers, this all means fewer questions, less admin chaos, and a better first impression that drives renewals and retention. This isn't another nice-to-have tool. It's a total rethinking of the resident journey. It bridges the gap between what renters expect and what they actually experience. Bottom line is happier residents stay longer, pay on time, and make your life easier. To see how it works, Check out secondnature.com and learn more about their new resident experience platform. Thanks again to Second Nature for sponsoring this episode. So back to the credits for a second. I'm curious, how do you set like the earnings rate like that the prop— like any individual property manager gets?

Okay, so this is actually, I'm very happy you answered that. You asked this question because this I think is like the number one message I try to always get across. Especially in the last couple years, like the crazy rate environment, right, that we've all been in. So because back to my earlier comment, like you'll, you will come across a bank for sure. I could list off a few right now that are saying like, oh, we'll do this as well, right? Obviously I've just been around longer, so I've seen like the ins and outs that maybe even the management company industry hasn't really been privy to. But I feel like now in the last couple years, more transparent.

But I love— I just love the idea that you're like a seasoned old veteran. You're just like watching the newcomers come and go because, you know, you look youthful. So this idea that you're like sitting on a rock stroking your beard or something like, yeah, you're gonna know, we'll see if you're still here in 5 years.

I know, I know. But listen, like, I learned a lot. And like, just where I'm at today and, you know, 16 years of doing this, where I'm at today is not where I was even, you know, 10 years ago, right? So it's like, it's— I've just seen it all happen. And, and now I've realized like the trends behind it. But I love answering this question because it's the— like, to be very candid, that's like the number one— not the number one, probably one of the number one reasons why, like, when I'm so heavily recruited to go to another bank, why I wouldn't go. So it's not necessarily just because, like, you know, Of course, I love my job and there's no reason for me to ever leave my job. And I love my— I love, love, love, love working with enterprise. But like, you know, when, when you're recruited, there's usually like attractive offers. But at the end of the day, it doesn't— it all comes down to like, well, wait, can you do what I've built? And can you— and not necessarily like the process, because of course that's probably why they're wanting me to come work there, to teach them how to do it. It's not about that. It's more about like, the way— so for earnest credits is a great example, like the way that, that we do things and the way that we base our decisions around that. Is that something that you could do and sustain over this long period of time? Otherwise, at the end of the day, I'm in sales, right? So my hands are tied, then I can't do what I've been doing, right? So that's why I find this very interesting. So back to answer your question, so how do we do it? So most people, most companies, most people would think that we base it specifically off of Fed funds. I would say Fed funds plays about, if I were to pick a number, about 30% of the part in the decision. It really is a business, and I don't want to give too much away here, but so I'm going to try and talk about this from like a— simplify it from a 30,000-foot overview. But it is tied to Fed funds in the way that it will fluctuate up, you know, up and down a little bit with Fed funds. You have to assume that, right? But the way that we I guess, capitalize on the property management division is specifically through a very specific lending division that we have. We are very, very, very heavily involved in SBA lending. We are, for lack of a better word, a monster in that industry. Certainly, we are also a commercial bank that does, you know, loans of really any type and size usually, right? But from our SBA lending division, the way that we've run that is very, in my opinion, I'm not speaking for the bank, but in my opinion, very related to the way that we've run our property management division. So the deposits and the growth that we have in our property management division almost feeds that specifically. So it gives us more, it gives us less risk, first of all, but also gives us more to work with, right? Because we can kind of crank those out pretty quickly. So there's business decisions in regards to like the loan and deposit pipeline, of course, but Also, it's just more of like a business— how do I say this— like it's part of our business model. So we will not be, even with the lowest of the credit, you know, economic environment, we will not be a bank that says, hey, we're here today, gone tomorrow when it comes to the credits. I'll give you a perfect example without being able to get too granular on our business. Model, but you know, COVID hit, right? So COVID hit, every bank dropped their rates, whether they were interest rates, earnings credit rates, whatever they were, to effectively zero. I mean, Fed funds dropped to effective zero, right? Yep. Our lowest earnings credit rate at that time was in a 1.15 to 1.25% range.

Wow.

And that was pretty— it honestly wasn't that far of a drop at that time than what our standard was for the you know, 10 years prior to that because COVID was what, 2020? So it wasn't too far of a drop, but it was a drop, right? But it was the business decision was we still need our clients to be in the positive and well, at least the clients that were in the positive, right? Like we still need to make sure it's a beneficial program for them. We never changed our pricing. That's also really important to consider with analysis banking. You have a rate which is important, The rate is like smoke and mirrors. I'll be the first to tell you that. And this is, you know, I sell it on a daily basis, but the rate is smoke and mirrors. At the end of the day with analysis programs, the pricing is what matters more. I could give you— Peter.

Yeah, go ahead. Let me just share because I'll probably be able to explain it from my perspective as a PM operator. Yeah. So what we're used to as just people existing in America is free banking. So everyone is used to free banking. The, and so But let me clue you in a little bit. In business banking, once your needs become sophisticated beyond just like a free checking account at Chase or whatever, if you have a sufficient volume of transactions or checks or debits or users or needs with regard to ACH blocks or other things, eventually you will be forced into some type of a paid banking product typically. And they were there. They will charge you. Like fractions of a dollar for every specific thing that you do— writing a check, cashing a check, deposits, transactions, transfers, whatever. And banks price this all differently. And so what ends up happening is as you get bigger, you actually end up paying to bank, which again is strange because we're not used to it from the consumer side. And so the, the product that you're talking about there's like two sides to it. There's like the prices that are charged for the banking actions that are taken throughout the month. And then there's the earnings credits, which offsets those charges. Typically, you know, for larger accounts, more than pays for it. What's left over is these credits you can use for invoices and stuff. So I think what you're saying is like, yeah, the, the rate is one thing, but look at the other side of that equation, which is what you're being charged for all the activities with the bank account.

Because the net is all that matters. Right? Like at the end of the day, the net is all that matters. So like I could give you, sure, I could give you a 10% rate today, but that then I'm going to increase your fees on that analysis program, you know, 100x, right? So it's so because it's at the end, it's just the net. So that's what's really important to select. Back to that COVID scenario, we, we stayed above, but we also never, we've never changed our fees. Wow. Um, we have done things by way of like tiers and things like that, but we've never— those fees have never increased, nor have we added fees. We've actually taken away something that we charged for. So again, I can't get too granular about how we come up with the business model just because it's obviously a public forum, but it is part of our business model to not base it specifically on Fed funds. And we also, the second point that I would make is that we are not going to be, nor have we ever been, which is, I think that's why I think the, you know, the 16 years longevity matters because it's like, okay, look at the history, right? We've been in low markets, high markets, average markets, just to show you that we're not going to be the bank that gets away from this because the way that we run our division is very much like its own entity. So essentially, like, if we get away from it, then this is a big part of our business model. If we get away from it, we're essentially closing that entity, if that makes sense.

Yeah. So reading between the lines a little bit, it sounds like the rate fluctuates depending on both obviously the Fed funds rate, also the bank's appetite for lending products. So if they feel like there's a huge demand for loan products and lending products outside, even outside of the property management division, you may increase the rate to encourage more money to stick around. That way you have more money to lend out. And also it sounds like the bank— your, your bank tends to be fairly conservative in setting the rate. In other words, you're probably not going to be the highest, but you're also not going to be the lowest. And you're setting it up so that it's sustainable, so that the bank is going to be a going concern regardless of the economic climate, so that customers can feel comfortable that after they go through all the work to set everything up and transfer everything over, you're not just going to yank them around on the rate or the fees or just close the division in 18 months, right?

Like bait and switch them. I mean, I'll tell you, prior to— I couldn't even tell you the exact date like that, you know, Fed funds started going quickly up. So like in the last— at this point, what, 2.5 years, right? Prior to that, we adjusted over the So, at that point, I think it probably would've been like 13 years. Let's just say, let's just say it was 13 years, right? We only adjusted a handful of times. Okay. And it was always up, but then when COVID hit, we went low, right? And so then, but I kind of look at like these two rate environments as like two different worlds, so to speak. So, then like the mo— this one that we're in now, rates, as you, as I'm sure you remember, went up, up, up, up, up. So, like we went with that. But rates don't typically move that—

Yeah, that was unusual.

Fast and that quickly, right? So like, that's, that's kind of where I look at it, just like two different worlds. So we adjusted with that. We, we manage our balance sheet so incredibly well. I mean, you can read all about it anywhere you pull us up. We are very conservative in our lending and our banking, but we are— we manage the balance sheet so well that we don't need to be like, you know, like another community bank, for instance, that's like, hey, we're going to get deposits right now because we actually have a strong loan pipeline, and then back out because, you know, we're not making enough loans. We manage our— there are several other facets of the bank that they manage very, very, very, very well as a specialty. I'm— mine just happens to be property management.

Got it. Okay, let's dive into the trust account compliance because this is— I mean, you are in my opinion, one of the top experts in the world on property management trust account compliance. And it would be doing my listeners a disservice if I didn't give you a platform to share some of the specifics because people need to know now whether or not you choose to comply with every single one of these to the letter of the law is a business decision. But you should understand those risks before you make the business decision. You shouldn't just decide blindly that you're going to ignore these, some or all of these requirements. Now, obviously, I encourage you to be fully in compliance, Today's episode is brought to you by Rentvine. All right, let's talk software for a second. If you're managing properties and haven't checked out Rentvine yet, you're missing the platform that everyone's talking about. Hop into any Facebook group and you'll see raving reviews from some of the best in the industry. What makes them different? For starters, and something often overlooked, no upcharges for essential features. Support included, integrations included. That includes trust accounting, maintenance, leasing automation, owner and tenant portals, and a seriously open API that plays nice with all your existing tools. And it's all in one flat rate, simple pricing that doesn't scale up every time they add a feature. Can't tell you how many times I've seen it where you give a software provider an idea, they build it, turn around and charge you for it. Not with Rentvine. They have a raving fan base. One review I read said, Rentvine makes trust accounting so simple it feels like cheating. I mean, that's the dream. The platform was built by Dave and John, the same team behind Property Manager Websites, and they know this industry inside and out. That's the truth. As a property manager, I appreciate that Rentvine isn't trying to be the loudest software out there. They're the one that listens, and in this industry, that really stands out. Head to rentvine.com to see what property managers truly deserve. Thanks again to Rentvine for sponsoring this week's episode. Let's give a scenario. Let's pretend that I'm operating in California and I just have a— my trust account is just a business checking account at a national bank. Why don't we start with state? We don't spend too long specifically on California, but generally, in what ways am I out of compliance on the state level? And then I want to move to the federal level.

Okay. Again, going to try and answer this without giving away the whole thing here, right? Sure. So, okay. So how are you out of compliance with the state level? So there's things to consider when you're at the state level. State level is more about when it comes to even like the titling of the account, all of that. I will tell you, that's really where federal matters. The state, you could very, very easily go through a state audit and they could look at the titling and think that it's fine, it meets their standards and you could be fine while still not really being set up correctly. So certainly they want to have from the state level the verbiage of trust. So not going to meet really your, your compliance needs, but they want to have the verbiage of trust account. The corporate, again, because you say California, California is so strict, I'm trying to just make this more generic, but The broker, which is usually the corporate broker, so like the company, right, needs to be holding the funds in trust. Then the other things you need to think about when you're in state, the state compliance in the bank account is who's allowed to sign on those accounts, right? Like who is actually eligible to. California is the most strict, but most states say if you're in a licensed state, there are a couple states that don't even require a license. So it's kind of like the wild, wild west. But yeah, but are those— they want everyone to be a broker or licensed to the broker. So you can't just be like, I can't just throw another agent. They have to be tied to your license. California is actually a little different where they actually allow you to have an employee who's non-licensed sign, but you must be bonded. And again, I know this is California specific, but I do want to get this across. That is the hardest one to get as a company because you can get an insurance bond for that employee, but it has to be up to the amount that is available to that employee at any time. So basically, the best way to think about that is, you know, what's your amount before you send out owner draws, right? That's usually the highest amount of the month. So let's just say that that was $1 million. That employee would not only have to be bonded up to $1 million, but then as you grow, that bond amount has to increase, right? So I always say like, that's the hardest one, I would almost just vote against that. Don't even try because you'll quickly get out of compliance. And if you just so happen to be audited at that time, they will look at that and it's just hard to stay on top of. So that's California specific. But moving on beyond California, then you want to know, okay, from state compliance, are you allowed to be earning interest? Are you not? You'll— you should be careful with— certainly not in the business of bashing other banks, but I think this is more like public knowledge of just in general, like Wells Fargo, for instance, right? Like years and years and years ago was getting in trouble for just like adding certain bank account products. And a lot of that was interest, right? So, and it's funny because it's like 0.0001% interest. So it's like nothing, but at the end of the day, now you're out of compliance. So that's something you want to think about. You also want to know in your specific state if you're able to include security deposits in that account in your client trust, or if you need to separate them. Some states allow you to combine, some states require that you separate. I'm going to separate there. On that note, I think one of the most important things that you guys should know, just overall— but this, this is important for state as well, but this, this really tracks on both levels— what I refer to as a client trust, so to speak, is what a lot of you guys in your industry refer to as operating, right? It's like you're operating funds for it, for those properties, and then, which is rents, payables, Property expenses, whatever. And then you have your security deposit. A lot of companies in your industry, it's a very common misconception, think that the only funds that need to be held in trust are security deposits. Really, the best rule of thumb, and this is why this matters on both levels, anytime you're holding funds that don't belong to you, they must be held in trust. Even if it's for 5 minutes, right? But that is, that happens all the time. I hear it all the time. People say like, well, I don't have to hold that in trust. Well, you do, not just from a state perspective, from a federal perspective as well. So that would, that would matter for most. Then usually your funds, right? So like if you, Peter, like own your own investment properties, your company is managing them, right? They still need to be separate. So that's more about making sure the bank accounts are set up and structured correctly from your licensing point of view. Now, from the federal point of view, now, this is— there's two ways, two reasons why I'd say I don't really, like, love to get too much into this. Because A, of course, it's my job, right? But then also B, it's so— it is so granular that I have found in the past that I almost talk about this too much, that then people take it and think they know it and they implement it So incorrectly because there's so much more— there's nuance, I'm sure. Yeah, that goes on behind it that even I don't have involvement in, right? Like, obviously I know what needs to happen, but that's part of our legal and compliance division, right? So, but really at the end of the day, if I were to simplify this for a company, because I can't really teach every bank how to do it, what I would actually say is I would say to you or a company, you should be asking your bank very specific questions.. And this is not— this has nothing to do with what your auditor says is okay, not okay. You should be asking your bank and you should be asking your bank's legal and compliance department, not your branch manager, right? Mm-hmm. Go directly, ask for in writing, always reference the account numbers. Don't say my trust account, right? Because if you ask these specific questions that I'm about to tell you, and you say my trust account without looking at and reviewing the account, that the word trust means something different to most bankers, right? So they're going to answer this a different way. So I would always just reference the bank account number, go specifically to an— you want it from like an executive member in the compliance or legal department. And you should be asking a couple of questions. One, based off of account number 1234, which is your trust account, or— and of course, if you have several trust accounts, list those. How much would you consider this account insured for? Is this account insured for $250,000 because under my tax ID number I have that much at the bank, or is it insured per beneficiary within this bank account? That's really going to help you understand the FDIC perspective, right? The FDIC insurance. At the end of the day, this is all going to tell you whether or not the account's truly set up correctly or not and being managed correctly. But it's— it is going to— this one specifically is going to impact the FDIC insurance. But then it's going to segue into the next part of it, which is more than anything what happens to your industry more than anything else. I mean, what I mean by that is you've heard me talk probably for like a decade now about FDIC insurance, right? Very important. I will be the first to say, because I'm very candid, that like it's happening, but that doesn't mean it's going to impact you. The FDIC is not going to guarantee those funds, but if history has shown itself anything, they're likely going to backstop those funds if your bank goes under, right? They just won't guarantee it. It matters though. But what actually does impact you and your industry more than anything is what I refer to as like governing entity liens, lawsuits, any type of garnishment where a governing entity is ordering your bank to freeze those funds. So the question that I would ask within this request is based off of these account numbers, if you were to receive a lien or a lien order to freeze assets under my company's tax ID number ending in blah, blah, blah, 1234, would these specific accounts be subject to lien or, you know, levy or garnishment? And if the answer is yes, again, that just goes to show that not only did they not set up the account correctly, they're not managing the account correctly, they also don't even really understand what kind of account this is, right? Because at the end of the day, what that's saying in both scenarios, whether it's the FDIC question or the garnishment question, what that's saying is We are considering these funds your assets, right? So RL Property Management, you might be holding funds on behalf of, you know, 700 owners, but we have structured this so that it is your assets and that is what you don't want. And so again, that's actually my, that would be my advice to anybody listening is really ask those questions and make sure you're asking them of the right team and right contact. You had mentioned earlier, you know, banks that are, you know, out of compliance and they just like write a check and deliver the check and close your accounts, right? Yeah. You mentioned that much earlier. The problem behind that, and people always joke, I've heard it so many times and I actually love it. Like, I think it's a very funny joke and I agree with it, but they always say like, oh yeah, you know where all the bodies are buried. And it's like, it's funny. It's like, I do just because I've banked so many PMs. So I've heard all of these horror stories. I've heard so many meet banks doing that. And it's funny because like, that doesn't mean they're doing it for everyone, right? So like, you could bank with a bank that somebody else is going out saying that this happened to them at, and you've been with them for 5 years since then, and it's never happened to you, right? And the reason being, and this is the only example that I feel okay making because he's been very public about it, but like, Mark Cunningham, most people, I feel like, know who Mark Kinney is, but he's out of California and he had, this was at least 10 years ago, I think he was with Chase Bank and they did the same thing to him, right? So I won't even walk you through all the steps. He's been very public about it, but that same thing happened to him. This was obviously before he banked with us. So, but it's so funny because how many other people I could list, probably hundreds of people in this industry that bank with Chase Bank., right, who have never had that issue. The reason being is because you're going to like a branch manager or somebody to open these accounts. So they open the accounts. They're not even, not only are they not setting the accounts up on your end for you guys, but they're also not even, I'm totally blanking on the word, but they're coding is not the right word, but they're essentially not even coding or underwriting the accounts for what they are at the bank level either. So the bank doesn't even know that they're banking. These property management accounts, right? So the only reason that like Mark's, for instance, got closed was because in an audit, he's got flagged, and they realized what it was. But their general rule is, we're not banking these, right? So, and you hear this with other banks too. There, I mean, there's so many others that this has happened with. But it's funny, because then I'll talk to somebody, and they've been with them for years and had no issues. So that's why it really, at the end of the day, just shows like they're just They, they're not even understanding from the basic standpoint what these accounts are.

Yeah. And the, the backing up a little bit, the federal compliance issues to make this a little more real. And you mentioned, and this does happen a lot in our industry, if you get hit with a lawsuit, if you get hit with any type of a regulatory enforcement action or a lot, just there's a couple different things that can trigger it, but basically the bank would in that scenario would receive an order from a court that says freeze this money so that it, we make sure it's still there pending the resolution of this action or case or whatever. And at that point, the bank has no choice. They freeze the money. You can go to the bank and say, hey, this isn't my money. This belongs to my clients. And the banks say, I have no idea what you're talking about. It's under your tax ID. Go talk to the court. And that could take months or years to resolve. In the meantime, your owners are screaming. They call the Division of Real Estate. Division of Real Estate comes in, says, what the hell's going on here? They yank your license. Now you're done. Mm-hmm. And you know, this is the stuff that keeps property managers up at night, or it should. Yeah. And so what, what you're describing is like, hey, if we set this up correctly, if it is set up correctly, if the bank got a letter like that, they would say, okay, no problem. I'll freeze their operating account. But this other account over here, it's not in their tax ID. It's not their money. We have all these other tax IDs on file for whose money it is.. And at that point you could at least have a clean resolution to the trust money. Obviously you're not having a great day with regard to the enforcement action in your corporate account, but at least your clients will be made whole and the division isn't going to come in and say, yeah, we don't love that you're the subject of enforcement action, but at least you've handled your client's funds appropriately.

Absolutely. And the division may not even know about that because the division, your operating account isn't even under scrutiny with the division.

If the owners get their money back, then maybe they don't even call the division and you can just resolve it, you know, without their involvement. So yeah, absolutely.

Now that we have your attention.

Yeah, such a thrilling subject. Yeah. So has there any— have there been any recent changes, either new laws, new policies, new regulations at either the state level or the federal level that property managers should be aware of when it comes to banking and these types of products, or is everything just kind of status quo?

Everything is status quo.

There's been no real changes on that. But Trump hasn't rolled back trust account regulations or anything like that.

I don't think he can even spell trust. Yeah. No, none of that. I think that it's just— I would just say that like some of the things that have always been rules are now just kind of coming to light by way of You know, like I kind of mentioned earlier, the bank's trying to do it. And so then I just have to explain that you can't do it, but that it hasn't been a new rule. It's always been that way. Mm-hmm. Okay. I think your, I think your industry is just getting more attention now in the last couple years than it did prior when it comes to, you know, the bank accounts and stuff, but they're still just trying to figure it out.

Yeah. And, and what is your recommendation for somebody like me who's in a state where you don't bank? What, what should I do?

What should we do? Well, like I said, I really would go to your bank and ask those questions in that very— it's very important that you do it very specifically, like I mentioned.

Well, but I don't want to— yes, if I know— let's pretend that I knew I wasn't in compliance. Do I really want to bring it to their attention? Maybe what I would rather do is put things in motion with a different bank. And I guess that's maybe you don't want to talk about competitors, but I just don't even know if there are banks in Ohio that have that level of, you know, property management trust compliance.

No, I would tell you that if you were in— if I knew a bank in Ohio to work with them. So like I've always said that like for years, if I were to name like one competitor who— the problem is, is that they weren't like consistent across all states, but they were pretty consistent was First Republic, unfortunately, but they've gone under. And of course, I would not recommend the bank that they're under now. No, I would tell you if it was a bank that I couldn't bank in— oh, I'm sorry, if it was a state that I couldn't bank in, I would tell you if there was a bank. I really don't know one in Ohio. And honestly, I really don't know any. Like, I, in Colorado— not Colorado, what is Alabama, for instance, there's a bank that I think does an okay job. I don't know enough to say like they do it all great, but I think that they do an okay enough job. But we're not in Alabama, so I would say that. I just think at the end of the day, no one has really shown consistency enough, if that makes sense. Okay, sure. Like they talk a good game, but there hasn't been enough consistency to show. So, but I love the point that you make, and that's what I was going to say was like, yeah, you can ask your bank these questions. If the answer is not in your favor, which most of the time, unfortunately, it probably won't be, but like, if it's not, I would never recommend you trying to teach your bank how to do it, right? Like, that is the number one. And that's really why, like, you know, I— believe me, you've heard me go on podcasts and/or sit in, you know, NARP sessions and speak about more about granular about what it should be. But I have noticed that those words get regurgitated and the process isn't in your control, right? Yeah. So like it doesn't, it might help you, it would definitely help you on a state level for sure. But from the federal level, there's so much that goes into it. Again, I know it, but I'm not the only one doing it, right? Like we have so many team members and legal and compliance and policies and procedures and external counsel, everyone who works on it beyond just me. So, that's why it's tough. So, to your point, I would absolutely go to another bank and ask, but ask those questions as well as you're, you know, vetting those banks and make sure you're asking, you know, the right team members. And there's stuff that goes on, like people, you know, people might say like, oh, we'll get a, for like brick and mortar branch roles, right? Like they'll say like, oh, we'll put an office there. I wish that was easy. Believe me, if we could just put an office there and have you still satisfy those requirements, we would. A branch is much different. Partnerships don't work. None of that. At the end of the day, the bank has— the bank that you're hold— that is holding the deposits has to have a brick-and-mortar branch in that state.

Yeah. And the all, all the banking stuff is state by state. So in order to open one single branch, you have to go through I'm sure just thousands of pages of regulatory paperwork and disclosures and—

Yeah, it's a lot of due diligence. You're essentially opening— I mean, it's the biggest issue is because you have a cat— you, your brick-and-mortar branch requires a cash vault, right? And there's so much due diligence beyond that with the banking divisions. And honestly, it's millions of dollars to open a branch, right? So that's also another reason why we're able to manage our deposit and loan portfolio so well and the expenses around that because We're not a bank that has branches on every corner.

So I know that this is also a really big topic in HOA. They have a lot of similar dynamics, although, you know, typically not as many customers as, you know, residential property managers. You know, they may have like 50 HOAs they work with, whereas we would easily have 500. So would it be worth chatting with a bank that specializes in HOA? In my state, or is it, I don't know, like, is it similar at all? Do you guys do a lot of HOA?

We do a lot of HOA, but we separate the two divisions because the everything is so different. The compliance, like the way that you set up bank accounts is different. The product needs is different. But with that said, I think that that's probably, you'll probably have, if you're stranded like that, like you'll probably have more luck going that way. But I can't guarantee that. Right. But you know, what you don't want is them opening it up like an HOA. So that's kind of the thing. Like when you hear banks, there's so many, so many competitors on that side. Cause you'll hear a lot of banks say like property management. What they really mean is HOA. And cause HOA of course is under that property management umbrella, but even us, like even we separate the two. I'm probably one of the only ones that does both, but that's only because I have clients like you, like organically who went into HOA.

Yeah, it's, you know, as a property management company, in theory, we're very attractive to bank with, to bank for, because we have these sticky deposits and we have, you know, it's not a secret, we got millions of dollars just sitting in our trust account at any given moment. And for a bank, that's like great because that's money they can lend out to other businesses and make loans and all that, earn interest on. So it's surprising that there hasn't been more of an appetite, or maybe it sounds like there has been an appetite, but they don't set it up right and they don't position it for longevity. So it's an, I don't know, it's kind of a niche little corner, but it, it's surprising that there hasn't been more activity, which I know in the HOA world is big. Yeah. But our little corner, you know, often is neglected.

So, yeah. Well, there's not like a ton of risk with the way that the HOA, I mean, there's risk in HOA, but there's not a ton of risk in the way that the HOA needs to set up those accounts, right? Like you're, they're, they're essentially business accounts because you're setting it up under the HOA's tax ID number. It's like basically if you said to all your owners like, hey, you go and open the bank account, right? That's literally what it's like. So there's not a lot of risk there. There's almost no compliance at all. It is like Scott Brady always says, it literally is like the Wild West. Like you can just go out and do what you want with HOA. Banking is different. The banking specialties with HOA is more about HOA loans and technology. HOA is really big on technology. Well, not that, not that property management isn't, but HOA is really big on banking technology because there's just a lot more available to them. And it's not necessarily like, because you know, your banks don't have, your banks could do it. It's just that there's not really anything available to you guys. And when it comes to accounting technology, that's going to like blow anyone's mind.

Right? So you have my attention and I was gonna ask you about this because I, as I was prepping for the show, I was thinking about, the, you know, the, the software companies that integrate with trust accounts and how at the end of the day there's very little integration between the Appfolios and Buildiums and, and Rentvines of the world and the actual bank accounts that they are managing. It's still— everything is very manual. I mean, there is a bank account sync, and of course you can print checks, but it does seem to me that there's an opportunity to drastically tighten up the integration between the physical bank account, the bank, and the software that we're using every day.

Yeah, and listen, there's, there's ways to do that. We've— I think technology is like, it's always been— it's for the last few years, it's been a very trending topic in your industry. But when it comes to the banking part of it, I think there's such misunderstanding behind like, what does that mean for you? And, you know, like we have integrations with property management companies. We're rolling out even more within the next, probably I'd say like 2 months or so. But at the end of the day, it's not really going to give you much more than what you already have. So like if we said to you, you know, you can get, for instance, Like there's a bank out there right now that's talking about like integrating and getting you like real-time payments, right? Real-time payments is available to anyone. But the problem is, is that you guys, all everyone in your industry almost through there does everything through their software by way of the software's third-party processor, right? The software and their business. So I completely get this. They want to make money off of that third-party processor, right? So they don't really want you originating everything by your own. So, so real-time payments is great, but now you're out of the software, right? And you're doing it essentially manually and then you have to put it in the software. So it's— and then you have to get out of the payments. You don't allow your tenants to pay through a portal anymore, right? So it doesn't actually solve that answer. Like it's like we have it on, we have on the business banking side, it exists, but it's not going to do anything for you guys because it would now take you out of your technology, right? So it's very, it's very, very different, but it just all comes down to education and I get it. It's an exciting thought, but it's not going to solve any issues. I think the integrations are more going to be about like positive pay than anything else. So it's more about like protecting against fraud. Everything else, like the auto-rec, the, you know, daily balance files, statements, things like that. While that will be part of integrations, you actually already have that through their syncs, right? So it's just like another way for you to get it.

Yeah, there is a— there's what you're saying is tracking exactly with what I'm observing, which is, you know, the big software companies that do the trust accounting, they all layer in their own payment processors between your bank and their software. And the reason they do that is so they can take a scoop as it goes through, which we get it. That's been the model. That's been the model for the last 20 years. Is like you get them with the software, then the money's flowing through the accounts that you control and you get to take your tax. But not only is that like obnoxious and we're seeing a lot of blowback from all the providers who are doing that, which is all of them, but it also prevents these tight integrations like you're describing, like real-time payments. And there's 100 other features that you and I could list that are like either poorly implemented or not implemented on the property management software side. Because they're not using your bank as the payment processor. Yes. Like when, when a, when a tenant makes a rent payment, it does not get directly deposited into Enterprise Bank or the bank that we bank with. It gets deposited into some other bank that AppFolio or Buildium has a relationship with, and then later gets transferred into your account. And that, that one example just shows you the huge firewall that exists that is preventing a lot of— I think people couldn't even conceptualize of some of the cool things that would be possible if that integration was, was built, you know, kind of first party. So it's really interesting to think about what it would be like if a bank developed their own trust account software, or if the trust account softwares developed new ways to monetize their customers and therefore opened up and said, Yeah, we know you get to choose who you bank with and who your payment processor is. We work with enterprise, we work with ABC, other bank, and all the, all the money is now flowing natively through those accounts.

Yeah, but I mean, you know, the problem there is that like the bank has to give a behemoth like AppFolio, for instance, full payment processing. Right. And that's essentially like a— I'm, I'm simplifying these terms, but that's essentially like enough. Incredibly gigantic loan because they're essentially— Appfolio is essentially fronting the funds to you, right, while it works through the processors and the banks. I, I would love to see a way for that to happen. I don't see a day that that would happen. Just knowing how businesses are run, I can't, I can't imagine they would, you know, upset what they currently have. Not— and I'm not using Appfolio only as an example. I'm really talking about any of these software companies, you know, like the real-time payment stuff like that would never work with a software company because that's going to go bank to Fed, to bank, right? So, but the problem with like real-time payments is real-time payments is very smoke and mirrors. Like real-time payments, you have to not, you have to know that every one of your clients or tenants also is with a bank that has real-time payments because it has to be reciprocal, right? So it's not just because you have it, that doesn't mean you can take advantage of it. So there's just, so it's just all, to, in my opinion, very smoke and mirrors. You know, I can't imagine a world where, like, again, I'm using them as an example. I love them, but like where Apple is going to go backwards and say, okay, go ahead and do Notcha, everybody do Notcha. And that would be the nice alternative to real-time because it's same-day Notcha, right? But I can't imagine they're going to go back in time and say do that. And to be honest, it's very contradictory to what all of— and I mean this in a general way— what all of you in the industry are talking about when you say you want everything streamlined, right? Like you're getting everything streamlined. So do you want the real-time or do you want the streamlined, right?

And it's just right now both don't exist. Exactly, both don't exist. And, you know, whatever worlds would have to align in order to make both of those things true at the same time, it seems to me that will happen eventually. Some bank is going to figure out how to do trust accounting, or some trust account is going to form a special relationship with some bank so that we could get both. Because like, if I'm Chase Bank, right? Like when the tenant submits a rent payment, I would rather that money went straight to me than go through some third party and I'm getting it 3 days later. When you multiply that by 3 million tenants, that turns out to be a lot of interest you can earn in the 3 extra days. And same way on the other side, like when, when the security deposits are getting cut, you know, we use Buildium. When we cut a security deposit check through Buildium, Buildium has no idea if the money actually exists. In my bank account. They have no clue. So their payment processor is basically taking a risk and cutting the check and then later getting reimbursed by us. There's different ways you can set that up, but that's the example I'm giving is like there's no— Buildium really has no clue how much money is in my trust account at any given time. There's a— yeah, there's a sync for reconciliations and stuff and at the end of the month, but in a real-time basis, they just don't know. So when I make a— when I cut a check to a vendor, Buildium can give me an idea of whether or not there's going to be money there, but they don't really know for sure because they're using this third-party processor.

So yeah, I don't know, it's interesting to think about. There's something similar to that, and I probably can't speak on it too much because I literally just learned about it yesterday, but there's something similar to that on the short-term side. It's like with the short-term software, it's a partner of the short-term software still a processor, so like doesn't get you by like the real time or the bank. It's not a bank, but it does monitor the amount of funds that are in the trust account at all times. That's helpful. It's very, it's very interesting. It's called Lynbrook, but it was part of the Inhabit umbrella anyway. But it's short-term and different. Yeah.

Yeah, I agree with you. Last question I want to ask you has to do with sort of the state of the software ecosystem What's interesting is that as you know, when, when I walk around a trade show, you are possibly the only solution there that is not really affected by AI so far. Every other partner that I walk around and talk to, you could see a little fear in their eyes actually about AI and how it's disrupting their business. It's disrupting their pricing model. It's, they just, there's this big question mark and customers are asking and their employees are asking. And I, I just picture banks just kind of sitting back like, yeah, it's a good day to be a bank because AI isn't really gonna replace banking anytime soon. But let me ask you, I mean, how are you relating to what's going on in the software world with AI and, and AI in banking?

So you are correct that at the end of the day, I mean, I don't know, you never know in this world, but I guess you're right in the sense that like, sure, we're a commodity that you probably can't fully replace by AI. But AI is very much impacting my business right now by way of fraud. So that is, I have such a love-hate relationship with AI, but when it comes just in general, in like any industry in the world, in, you know, personally as well, social media, all of that stuff. But from a banking perspective, We've seen— sure, we see fraud all the time, right? For however many years, we see fraud all the time, but it's usually like check, ACH fraud. We've been— I've been seeing a lot, not a lot, but more than I'd like to see for sure lately of AI taking over cell phone accounts for callback procedures. Of course, like business email compromise, but like cell phone hacks. It's very scary to me. And it's very scary because the bank is still doing their part with what they need to do when it comes to these transactions, right? But like when AI is, we don't know that it's AI. I'm using we as banking industry in general, not just our bank, but like we don't know that it's AI. So we're doing everything from regulatory standpoints to make sure that we are following each process before we send out, for instance, a $200,000 wire, right? But we don't know that that was AI that we were speaking to and talking to and/or who was responding to messages. And it's very, very scary. I would love to live in a world where AI did not exist.

So basically, it sounds like it's just scaling up the level of fraud that's possible. Like some guy now, instead of making one-off phone calls and one-off emails, is able to engage an army of AI bots to try and attack thousands of customers at once. Most of them doesn't work, but the one that gets through, now he's able to, you know, send updated wiring instructions at the last minute, that type of thing.

Sure. And obviously it goes, you know, there's a way that they got in that didn't have to do with AI as well. Right. But like just the electronic part of it as well with the AI, it's, it's very scary to me. I don't, I would love to know if like, I would honestly love to be in a banker's mastermind where people are, you know, talking from a very federal level about like what the solutions are there. But I don't know that that exists yet because I think it's all very new to the industry as well.

Yeah, very interesting. Well, Alison, we're over time. I really appreciate you coming on the show today. This has been very educational. And thanks again. For those who want to follow along with you and connect with you, where would be the best place to do that?

Best place is probably first just going to our website at enterprisebank.com. Not the Enterprise out in Massachusetts. We're a larger bank. So enterprisebank.com and within there under our property management division, you can send in inquiries to talk with me or my team or, you know, through any of these, these podcasts, masterminds, anything that we're very, very involved in your industry and we try to stay as in touch as possible.

Awesome. Well, this has been great. Thank you again, Alison. Thank you. If you like the show and want to get connected to the community, You can follow me on Twitter @PSLohmann and subscribe to my email newsletter on my website PeterLohmann.com. I try to share as much valuable property management content as I can on a regular basis. Thanks again for listening and have a great week. Mm-hmm.