Who does the security deposit belong to?

Question

When a property is sold with tenants, their security deposit is ordinarily transferred to the new owner. What happens if the tenants are behind in rent? Can the old landlord deduct it from the security deposit or do they need to go after the tenant?

Background:

I just bought a duplex, due to close next week. The agent and owner told me that neither tenants ever signed a lease or paid a security deposit.

I spoke to the tenants in person at the property today. Both had signed (month to month) leases and paid a $1100 security deposit upon move in. Both tenants said they were currently $200-$300 behind on rent.

I'm concerned that I was lied to by the owner and agent. I'm wondering if I have rights to receiving the security deposits?

Nat C. · Answer

This is a first for me. I've never seen such an outright lie in a bid to keep $2200 which belongs to the tenants. Generally speaking, yes most of the brokers and agents I've dealt with over the years have been of good character with sound morals and strong ethics. It's only the odd dishonest one that give others a bad name.

NA Jones · Answer

Same here. In MD you are required to disclose even the faintest of relation of the agent to anyone involved in the transaction.

Christopher Telles · Answer

@Brad M.is right you should require, not ask, for an estoppel to be signed by all the parties.

If you want to buy this deal you know going in that you might have legal issues to deal with early in your ownership of this property.

Because you are dealing in a he said she said situation now the best way to cut down on any eviction or legal expenses is to get everyone's understanding of their position from them in writing.

Require that the listing broker prepare an estoppel containing known facts, as they've been given to him by his client, have s/he get the seller to sign the estoppel, and require s/he submit the estoppel to each tenant for signature.

Sometimes tenants won't cooperate and return a signed estoppel but the seller should and its on them to provide you full knowledge about the security deposit and the current status of each tenants rent.

If you have this estoppel then you can provide it to your legal counsel if and when it may be needed.

The alternative is to threaten to walk from the deal unless the seller agrees to have escrow hold back this months full rent and the security deposits purported by the tenants to having been paid until such time as the landlord can leverage the tenants to comply in validating the information in the estoppel or the seller can produce documentation that supports their claim that no security deposit exists.

If I were in your shoes and didn't know exactly what my legal standing is as a buyer under a contract for sale or post closing as a landlord with allegations of existing security deposits from tenants I might be evicting before receiving any rents I would contact an attorney post haste to get sound legal advise.

Char Prado · Answer

It's not yours yet, don't borrow trouble!  Find out what's really going on, it's sounds fishy on the seller's end and maybe you should walk!

The tenants did admit to being behind, if you do decide to buy I'm not sure you'd want to inherit the tenants.

Good luck!

Teresa F. · Answer

The security deposit belongs to the tenant until the tenant vacates the property.  When ownership is transferred, the security deposit should be transferred to the new owner.

Brenda Chambers · Answer

Yes of Course you are.  Contact the Agents Broker.  If they play dumb, threathen to contact the Real Estate Board for answers.  You'll get answers and quick.

Account Closed · Answer

The tenant should provide evidence of both the security deposit and the lease. If they indeed were promised a refund of the deposit at the end of their lease, guess who they will be demanding the deposit refund from? You! And they would be entitled to it based on whatever the terms of the lease is and you would have to get reimbursed by the seller -- if you could find them then. That they would try such a level of blatant deceit is unfathomable and is usually grounds to have someone severely dealt with -- if the tenants actually have proof of any of this. The realtor is gambling with their license.

Christopher Telles · Answer

Good for you for being persistent.

As a 25+ year veteran on the CRE side and an entrepreneur of CRE brokerages that have recruited 100's of brokers/agents understand not all, not nearly even many, operate in such flagrant dishonest manner.

There are many many ethical and trustful agents/brokers who care deeply about what they do, and equally or more important how they go about doing it. Find a couple of good reputable agents to work with/

Nat C. · Answer

The agent stated in an email multiple emails that NO DEPOSIT was taken and the owners husband rented the place out without her knowledge or consent. It personally sounded like an odd story to me, or else they have a very strange marriage.

Low and behold the tenants found their original deposit receipts, which are in fact signed by the owner! I am frankly disgusted by the deception of 'professional' people.

After presenting these to the agent, they are now suddenly willing to hand over security deposits.

Nat C. · Answer

Excellent advice! I will certainly do that.

Who does the security deposit belong to?

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