In the world of multifamily housing, manufactured homes, and rental properties, unclaimed security deposits are one of the most overlooked compliance obligations a property manager carries.
When a tenant moves out and forgets to claim their security deposit refund, or when a deposit refund check is mailed to a wrong address and goes uncashed, the deposit doesn’t stay with the property manager indefinitely.
Under New York state law, unclaimed security deposits become reportable abandoned property after three years. The property manager must report them to the Office of Unclaimed Funds at the New York State Comptroller’s office and turn the funds over to the state.
Most property managers don’t know this obligation exists. The legal and financial risks that can haunt a property management company that ignores it are significant: $100 per day in penalties, 10% annual interest on unreported amounts, and audit lookbacks extending 15 or more years.
In SFY 2024-25, the New York State Comptroller’s office collected $127 million from audits of non-compliant holders. That number is growing.
What Are Unclaimed Security Deposits?
Unclaimed security deposits are deposit refunds owed to former tenants that have gone uncollected past a state-defined dormancy period. In New York, that period is three years.
Under New York’s Abandoned Property Law §1315(2), any money or property held by a landlord that belongs to a rightful owner who cannot be located becomes abandoned after the dormancy period expires. Security deposits are explicitly covered. Banks, insurance companies, and property managers are all holders under the APL. For property managers, the most common trigger is a security deposit refund that a tenant never claimed after moving out.
Two situations create unclaimed security deposits:
- A deposit refund check is mailed to a forwarding address that no longer works. The check comes back undeliverable. The tenant can’t be reached.
- A tenant moves out without providing a forwarding address. The deposit sits in the account.
In both cases, the dormancy clock runs. At the three-year mark, state law requires the holder to report and remit.
New York State Security Deposit Law: The Context for Property Managers
Before the unclaimed property obligation applies, property managers have existing obligations under New York security deposit law that shape how the situation develops.
Under the General Obligations Law and the Housing Stability and Tenant Protection Act, landlords must:
- Collect no more than one month’s rent as a security deposit
- Place security deposits in an interest-bearing account in a New York state bank for buildings with six or more units
- Return the security deposit within 14 days after the tenant vacates
- Provide the tenant with an itemized statement of any deductions from the security deposit within the same window
- Use registered or certified mail where the tenant’s forwarding address is uncertain
A landlord must transfer all security deposits to the new owner within five days when a property is sold. The new owner is directly responsible for the return of security deposits to tenants even if the deposits were never physically received.
If a landlord fails to return the deposit or provide an itemized statement within 14 days after the tenant vacates, the landlord forfeits the right to retain any remaining portion of the deposit. Tenants may demand the return of the full security deposit, file a complaint with the New York state attorney general, or file in small claims court. Security deposit complaints have ranked among the top consumer complaints filed with the AG’s office since 2023.
The unclaimed property obligation comes after all of this. A landlord who mails the deposit refund on time has satisfied the return obligation. If that check is never cashed and the tenant cannot be located, the three-year dormancy clock starts from the move-out date.
The 3-Year Dormancy Clock
The dormancy period starts from the date the deposit refund became payable to the tenant. It does not reset when contact attempts are made.
Year 1 and Year 2: The property manager holds the unclaimed funds. Documented due diligence outreach is required. Landlords must notify the tenant at their last known address by certified or registered mail and document every attempt.
Year 3: The deposit is considered abandoned. The holder must file the annual unclaimed property report with the Office of Unclaimed Funds at the New York State Comptroller’s office by November 1 and remit the funds.
The 2022 window: Summer 2025 marked the three-year anniversary of summer 2022 move-outs. Any uncashed deposit refund from a tenant who vacated between June and September 2022 was due in the November 2025 reporting cycle. If those deposits weren’t reported, the Voluntary Compliance Program is still available.
What You’re Required to Do
- Identify dormant deposits. Pull every open security deposit account with a move-out date three or more years ago where the refund was uncashed or no forwarding address exists.
- Send due diligence notice. Send written notice by registered or certified mail to the tenant’s last known address. Document the date, method, and result. This documentation is what you produce if audited.
- File the annual unclaimed property report by November 1. Reports must be submitted in NAUPA format through the KAPS system. The reporting portal is at osc.ny.gov/unclaimed-funds.
- Remit the funds. Transfer the deposit amount to the state at filing. The tenant can then claim their security deposit refund directly from the state at any future date. The property manager’s liability ends at remittance.
The KAPS Transition: What Changed in 2025
Effective July 1, 2025, the New York State Comptroller’s office replaced its legacy system with the Kelmar Abandoned Property System (KAPS). All unclaimed property reporting in New York now runs through KAPS.
What changed:
- Only NAUPA-formatted reports are accepted. Legacy NY-format reports are rejected.
- Prior logins and reporting workflows do not carry over.
- A Manual Online Reporting tool is available for property managers with smaller volumes.
What this means operationally:
Any property management company that filed before July 2025 using the old format needs to update its workflow before the next November 1 deadline. Spreadsheet exports or legacy software outputs generating NY-format reports will be rejected. Confirm your output format before filing.
The Legal and Financial Risks of Non-Compliance
Non-reporting creates compounding exposure. The penalties are not theoretical.
What Non-Compliance Costs
- $100 per day for willful failure to file
- 10% annual interest on all unreported amounts
- Audit lookbacks extending 15 or more years
- False Claims Act exposure: 3x damages plus $6,000 to $12,000 per violation
The Enforcement Reality
In SFY 2024-25, the New York State Comptroller’s office collected $127 million from audits of non-compliant holders. The same year, 184 companies enrolled in the Voluntary Compliance Program and self-reported $36 million before audit contact.
The 15-year lookback is the number that demands attention. A property manager holding unclaimed security deposits from 2010 has potential exposure across 15 annual reporting cycles, with penalties and interest compounding on each unreported amount across every year it went unreported.
The Voluntary Compliance Program: Your Safe Harbor
The VCP is the only path to clean up past unclaimed property exposure without penalties or interest. It is available to any holder who self-reports before receiving audit contact from the Comptroller’s office.
What the VCP provides:
- No interest on past-due amounts
- No penalties for late reporting
- A structured process to report and remit all past-due unclaimed security deposits
The hard deadline:
VCP eligibility ends the moment audit contact is made. No grace period. No appeal. Once the letter arrives, full penalties, interest, and audit costs apply going back 15 or more years.
In SFY 2024-25, the 184 companies that enrolled reported $36 million without penalty. The companies that received audit letters contributed to the $127 million collected in enforcement.
Enroll at osc.ny.gov. The window is open, but it closes without warning.
Security Deposit Management Software and the Unclaimed Property Gap
Property management software handles security deposit management at the transaction level. It records the deposit, records the return attempt, and stops. What no major PMS platform does is track the three-year dormancy clock, flag deposits approaching the reporting threshold, or generate NAUPA-formatted reports for KAPS.
For a property manager using Yardi, Rent Manager, or MRI, the unclaimed property reporting workflow sits entirely outside the software. The dormancy clock runs silently until an audit makes it visible.
In New York, you’re required to hold security deposit in unique, interest-bearing accounts, which adds another layer of complexity to the entire process.
Rentable tracks the full deposit lifecycle including the post move-out dormancy period, alerts when deposits approach the three-year threshold, and supports the KAPS reporting workflow. For a complete guide to managing security deposits in New York from move-in through escheatment, see our full NYC security deposit compliance overview.
Frequently Asked Questions
What are unclaimed security deposits in New York?
Unclaimed security deposits are refunds owed to former tenants that have gone uncollected past New York’s three-year dormancy period. Under the Abandoned Property Law, security deposits that remain unclaimed for three years must be reported to the Office of Unclaimed Funds and turned over to the state. Tenants may then search for unclaimed funds and claim their deposit directly from the New York State Comptroller’s office.
How long before a security deposit becomes unclaimed property in New York?
Three years from the date the refund became payable. At that point the property manager must file an annual unclaimed property report with the NY Comptroller by November 1 and remit the funds.
What is the KAPS system for unclaimed property reporting in New York?
KAPS is the Kelmar Abandoned Property System, the reporting platform used by the New York State Comptroller’s office for all unclaimed property submissions as of July 1, 2025. Only NAUPA-formatted reports are accepted. Legacy NY-format reports are rejected. The portal is at osc.ny.gov/unclaimed-funds.
What are the legal and financial risks of not reporting unclaimed property in New York?
Non-reporting carries $100 per day in penalties for willful failure to file, 10% annual interest on unreported amounts, and audit lookbacks extending 15 or more years. False Claims Act exposure can add 3x damages plus $6,000 to $12,000 per violation. The NY Comptroller collected $127 million from audits in SFY 2024-25.
Does property management software handle unclaimed property reporting?
No. Property management software records deposits and return attempts but does not track the three-year dormancy clock, flag deposits approaching the reporting threshold, or generate NAUPA-formatted reports for KAPS. Unclaimed property reporting sits outside the transaction layer of every major PMS platform.
Last updated: March 2026. Statute referenced: New York Abandoned Property Law §1315(2). This guide reflects reporting requirements as of the KAPS transition (July 1, 2025) and New York General Obligations Law as amended by S952B (November 2025). It is intended as operational guidance for property managers and does not constitute legal advice. Consult a qualified attorney for advice specific to your situation.
