Do Security Deposits Transfer to New Buyer?

Question

I am working to put together a contract to purchase a triplex unit in TX. It is a nice deal but Seller has thrown a curve ball at last minute.

The seller is telling me she will not be transferring security deposits to me because these are considered last months rent.

This is my first rental property but I thought legally the Seller has to transfer security deposits being this is actually property of tenants.

How should I proceed or not proceed? Thanks for any advice!

Tom Gimer · Answer

I highly doubt those leases are expiring as of the closing date... so the seller is scamming you.  Those deposits are a liability, not just an asset. If the asset goes poof you just paid that much more for the property.

If your agent can't resolve this, hire an attorney. Keep an eye on everything going forward.

Matt H. · Answer

Okay let’s say for a minute someone still uses first and last, which they don't. Pretty sure that ended 30 years ago and any reasonable lease clearly states you can’t use the security for lasts months rent. Her statement still makes no sense. Just think about it.

If she was holding last months rent she’d still owe that to you. The tenants are all still there and you will be the owner during their last month whenever that is. Would still transfer.

Maybe she also doesn't want to pro rate the rent for the month you close, and also maybe you should pay the taxes on her gain and her kids college tuition while we are busy doing ridiculous things :)

Greg H. · Answer

You are assuming the current owner's position in the lease agreement therefore you will be responsible for refunding the deposits when the tenants vacate regardless of whether the current owner credits them to you at closing

The TREC 1-4 family does not address this issue.  I add in special provisions :  Rents to be pro-rated from the date of closing. All keys and deposits to be transferred to the purchaser at closing

Chinmay J. · Answer

That is not seller's money to keep. At least in VA, its not considered last month's rent. It is the money that the landlord owes the tenant after they have vacated minus any late fees, unpaid rent and damages etc. In VA the timeline is 45 days. You have to provide them with the money or some sort of itemized statement of the security deposit in 45 days. You need to see what TX Law states, and also read the details of the lease. Hope you are using a title company or a real estate attorney for this transaction. They should be able to provide the exact guidance.

I have made a rule going forward that any of the SFH or 2-4 MF properties I buy will NOT come with tenants. I am interested in buying the property, not the old landlord's headaches. I will only purchase properties that are vacant or put in a contingency in the contract for them to be vacated before closing, but that's just a sidebar to the conversation.

Ryan Murdock · Answer

Security deposits are not the seller's money and should be transferred to the buyer at closing. The devil is in the details though. I'd read the lease and make sure those funds really are a security deposit and I'd go a step further and have the tenants and seller sign an estoppel agreement so that everyone is one the same page regarding what is being held. Ultimately, as the new owner, you'll be on the hook for it so you want to make sure you know what is supposed to happen.