Security Deposits

9 Replies

Does a multi-family property buyer receive the tenants security deposits at closing?

Yes.  You become responsible for returning it when the tenant ultimately leaves, therefore you are due it at time of transfer.

@Glenn Willeford  

It depends.  In our local jurisdiuction,  security deposits are {suppose to be} remitted to the Office of the Rentalsman and not held by the landlord.  When the property is sold, part of the completed paperwork is a change of registration with the Rentalsman to identify the buyer as the new landlord.

In other jurisdictions where we operate, security deposits are held in-trust by the landlord and are transferred to a trust account of the buyer at Close.

In either scenario, you should be preparing Estoppel Certificates based upon the information provided by the Vendor; reviewing these certificates with the tenants and, if the information jives, have the tenants sign the Estoppel.   Estoppels will assist you in ensuring the Vendor does transfer all security deposit funds and should illuminate any concessions or side arrangements between the Vendor and a tenant {i.e. Billy-Joe Bob really pays $400/mth in rent as opposed to the listed $650.00 because he mows the lawn, shovels the walks and cleans the common areas}.

Would check your local rules/laws. Here in Chicago, the answer is yes and you must disclose the new bank location where the deposits are being held.

Yes, in my state it shows up on the HUD and it is shown as a credit to the buyer.

Don't forget the interest for the time held by previous owner too...assuming your state law says security deposits are to be held in an interest-accruing account. In Maryland, for example, it's 3% simple interest per year.

You might have to specify in the purchase and sales contract that you are to be given control of the security deposits at closing; don't assume that the existing owner will just offer it to you. 

We always are very cautious in Chicago on this and even if the seller doesn't give us the deposits at closing we will honor it and pay interest based in the date we closed.  

Originally posted by @Nicole W.:

Don't forget the interest for the time held by previous owner too...assuming your state law says security deposits are to be held in an interest-accruing account. In Maryland, for example, it's 3% simple interest per year.

The law actually requires you pay the tenants 3% interest in this sub 1% environment?  Wow!

Thanks for the info. I found a purchase agreement located in the Fileplace that simply states "Seller will transfer all tenant security deposits to Buyer."

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