(CA) Does purchaser of an REO property owe the existing tenant the security deposit?

6 Replies

I know on a regular purchase, the new owner assumes the responsibility for the security deposit but I heard on an REO that the purchaser has no obligation to pay the tenant back. This seems unfair to the tenant so I wanted to double check here. Let's assume that no mention of security deposits was made on the escrow statement but the tenant's original lease did show one. The property is in California if that makes a difference. Thanks.

Every reo (I am assuming your mean bank owned) I have bought (so 2) the unit has been vacant.

Thanks Elizabeth but my question relates to occupied purchases.

Originally posted by @Elizabeth Colegrove:

Every reo (I am assuming your mean bank owned) I have bought (so 2) the unit has been vacant.

I guess my point was I had never heard of a foreclosure being occupied unless you are buying at the court house steps or somethingsomething. 

Oh yes, I've seen it happen often and now I have an owner that doesn't think it is owed back to the tenant.  I've Googled but so far no luck so I was checking with BP.  Hopefully I will hear from somebody that has been in a similar situation.

The short answer is no but we love to litigate in California. The previous owner is supposed to have those funds held for the benefit of the renter. The obligation is from the previous owner however, it may be worth it to throw the renter a bone to get them out quietly if that is the objective.

Actually, both the old owner AND the new owner can be held jointly liable for the tenant's security deposit. 

Here's some excerpts from various sources on the subject:

"The lender, bank, or person who now owns your building must return the security deposit to the tenant. The new owner is responsible for any deposit that you paid the old owner. The transferring of the deposit is their responsibility. After the tenant moves, the deposit should be returned in three weeks. If not, the tenant may sue the former owner, the new owner, or both in Small Claims Court."

Source: Santa Cruz County District Attorney's Office: Tenants Rights in Foreclosed Properties

"Under California Civil Code Section 1950.5, a successor owner is jointly liable with the former owner to retun the deposits once the tenant vacates."

Source: Security Deposits after Foreclosure (California)

"Your security deposit, or the amount of money you paid the landlord to protect against damage to the rental unit, must be transferred to the new owner if you are staying or paid to you if you are moving. The new owner has three weeks after you move out to return the deposit amount to you, even if the foreclosed landlord has not given the deposit to the new owner, as per 1950.5 of California Civil Code. The new owner becomes the successor in interest to the former landlord and automatically assumes legal responsibility for your deposit under California law."

Source: California Foreclosure Laws for Tenants

"If the tenant decides to move out of the property after the foreclosure is complete, according to California law, both the former property owner (or the agent who may be holding the security) and the new owner are jointly and severally liable to return of the security deposit to the tenant (less allowable deductions)."

Source: California Apartment Association: Foreclosures and Rental Housing