I need some advice on how to proceed. I may have committed a rookie oversight when I bought my first tenanted rental last month (only my fourth rental property, overall) from a whole seller in Indianapolis.
Everything went swimmingly and I did not notice that the pro-rated March rent and security deposit was not dealt with in the purchase agreement or the final closing documents. After the successful transfer of the deed, the keys and the lease agreement on 3/5, my property manager requested the security deposit and I forwarded that request to the last property manager who in turn sent me to the whole seller. That's when things started to go South.
The whole seller claimed that according to the purchase agreement, the rent would not get pro-rated and was "a net to the seller" and that the tenant had not paid a security deposit.
The former, first claim is definitely a lie since I have read the purchase agreement and it does not mention the rent anywhere. The sale was on 3/5/21 and so we are talking about most of the rent for March. The second claim about the security deposit, I have not verified with the tenant, yet, but I find it hard to believe. After all, the property was professionally managed, the lease required a security deposit and the tenant had been living there for 11 months before renewing the lease for another year.
In an ideal world, this would have been dealt with at the point of sale by the title company, I guess. However, now that I am at this point, what recourse do I have? Thus far I have kept it civil but if I don't hear back by day ten of the initial request, I fear I have to escalate this a bit - or cut bait and accept my loss. What would you do?
I'd talk to an attorney and see what they say. It may be worth a few bucks to have them draft a letter to the wholesaler. That might shake a few $$ out of them.
Another tact would be to have a discussion with the wholesaler about their reputation. Would they feel comfortable if you posted the entirety of the details here? You want people to be able to decide for themselves his integrity.
If it wasnt addressed in the contract, you owe the security deposit out of your own pocket. Always include prorated rents, security deposit and interest if applicable in your contracts going forward.
It rent was paid on the 1st and you did not say in offer or contract then you not entitled to it. Take it as a learning lesson amd move one. You'll waste more time, effort, and money than it is worth.
It sounds like something that needs to be settled in Small Claims Court. Regardless of whether or not there was a clause in the sales agreement about pro-rating rent and security deposits, it is a standard business practice and expectation that the seller will make sure the buyer gets the deposits and remaining portion of rent that starts from the day the property closed escrow. Your beef should be with the seller and not the previous property manager.
They are playing you but nevertheless you have no case against them. You signed the closing docs. 🤷♂️
I think you have a case and you never know what small claims judge will decide.
Always specify all rents accrued shall be prorated, and get estoppels.
Like everyone is saying, since you didn't cover it in the sale docs you are not entitled to the rent for that month. However, in regards to the security deposit the tenant would have to be the one to request it from the previous manager. You did not collect it therefore you are not responsible for paying it back to the tenant when they leave. If they try to sue you for it just show them or their lawyer all the paper work from the sale and the email from the other manager saying they didn't take a security deposit. As a new owner you have the right to have the tenant sign a new lease with you and at that time you also have the right to ask the tenant for a security deposit. If they don't provide you with one then just give them a 30 day eviction notice.
April. You need to read up on the laws before you provide advice. So much wrong with your statement. The lease stays with building not the owner. You cant cancel his lease just because of the sale. You cant ask for new deposit because he already paid it for current lease.
What you say rings true but doesn't April have a point, too? The seller is stealing the security deposit from the tenant. Are they not supposed to keep it in a separate trust account for the duration of the lease? It is supposed to be the tenant's monies.
I am currently trying to get confirmation from the tenant that they did in fact pay a security deposit. When I do, I plan to approach the seller again. I will probably not argue about the March rent with them, but the security deposit feels different.
Thanks everybody for your input, it really helped.
No. She doesn't. At the sale you got the funds and don't realize it because you did contract wrong. Reality is you paid more for the house in what ever security deposit was. It is now your job to have that security deposit according to state law. It is to late to ask if was collected or not. If lease says a deposit then you have to give him deposit even if he did pay but lease says. Also, did you get move inspection report. If not make sure you dont charge for things your cant prove or it coats you 1.5 times deposit if you go to court. Read up on LAWS. Will save you.
I dont want to come off rude or i am being mean about it. I am not a lawyer but you needs to understand the rules to play the game.
I have to eat some crow. The security deposit was actually transferred in the closing statement. At the time, I only checked on my phone and overlooked the entry on the small screen. In hindsight, it is a bit weird that the seller just accepted the premise that the security deposit had not been dealt with. They did refuse to budge on the March rent which I still think is slightly shady. I will have to chalk that up to lessons learned.
I apologize to have partly lead you guys astray. I should have double checked. At least I did not do any public finger pointing by putting the wholesaler on blast.
Good work admitting a mistake. Now, if you haven’t already, you should have your checklist of all required actions and verifications needed for the next deal. Make sure you’ve got confirming these things on there or you’re bound to learn this lesson twice. If there’s one thing that separates the top 1% from the rest it’s how & when they learn their lessons.
@Stephan Meister in today’s WWW.World, reviews are a lot stronger than many lawsuits. I have got quick answers out of bad reviews, so if they cheated you, tell the truth and post often about it.
I have closed on quite a few properties, but made a similar mistake on my last acquisition. I was refinancing 7 properties and purchasing 1 all on the same day. We spent 6 hours signing loan docs.
I failed to notice that the one acquisition did not note the security deposits. Definitely we should have noticed the omission and it is my belief that if we had not been doing 8 loans that we would have noticed.
We contacted the escrow company and they have put forth some effort to try to collect the deposit, but so far has been unsuccessful. We are likely SOL. I believe the seller should provide us the deposits, but we made a mistake not catching it and that mistake looks like it will have financial consequences (3 deposits at San Diego rent prices).
Mistakes often have consequences. It is my view the escrow company made a mistake in not including the deposits and that we made a mistake in not catching that the deposits were not reflected in the financials.
I suspect the OP is in a similar circumstance and will be fortunate if they can collect anything at this point. The OP made a mistake not catching the issue at closing (just like our error).
Sorry, but I disagree with several posts on this one. I agree, as one person said, the lease stays with the property. I disagree that a tenant is obligated to go to the previous owner for the security deposit.
I purchased a property, the owner moved to Korea and 5 years later the tenant moved and requested his deposit. No way to find a Mr. Moon Kim in Korea. The current owner is obligated to refund the security deposit even if the previous owner skipped town and moved to Korea as long as the tenant produces a rental agreement that proves he paid a deposit. It is not the tenant's problem if the new owner allowed the previous owner to cheat him out of the deposit money.
It does not always matter when certain conditions are stated in contracts because there are already several laws that protect people from getting screwed when things were omitted from contracts. Suppose, a tenant moves into your property and you fail to get a signed rental agreement, or both parties signed an agreement but both parties lost their copies. Not too much to worry about because written laws still cover almost everything that is written into leases with the exception of dollar amounts and dates.'
I will bet that a Small Claims Court judge will favor the Plaintiff and he will recover the prorated portion of the rent and any security deposits.