Security Deposit / Last Month Rent did not transfer at closing

4 Replies

Hello, Does anyone have experience where some transfer funds were missed since it was not captured in the rent roll provided by seller? The specific situation is that an inherited tenant moved out at the end of their lease. This tenant remembered paying double deposit, but looking at the rent roll and signed lease they only paid one month rent for security deposit. Digging into the paperwork a bit more we found a hand written break down in the corner of welcome letter that stated a Last Month Rent was paid at signing. Since this was not disclosed from the seller in the Rent roll we did not validate this information when going through the documents. Any suggestion is appreciated and if there are regulations where the seller is responsible for misrepresenting or not clearly documenting funds that need to be transferred to buyer. Thank you.

The tenants esstopal letter should have included that information. It is too late now for the tenant to come forward and make their clai now unless they have documentation themselves to prove they paid.. Chances are you will not see their LMR anyway. You are likely SOL.

If they do pay their last month tell them to go after the previous landlord for the money since he still has it.

@Tim Chiu You say “after digging into paperwork” you found the handwritten note. When did you receive this paperwork? If after closing documents were signed then in my opinion you may have a legitimate claim to pursue the seller for the funds. If before, tough luck. I always assume rent roll is not accurate. The actual leases are the true info. I’m not an attorney and this is not legal advice. Perhaps you should consult an attorney. All RE investors should have one.
@Tim Chiu Although I do not like to spend any funds I do not need to. I am not a lawyer, and can only provide a potential scenario . In this case you will probably have to eat the last months rent and pay the tenant. First, what will it cost you to go after the seller to recover this funds. You might be able to ask the closing agent why it was not discovered by them, but then again what would it cost to recove the funds from them if they were liable. You could tell the tenant tough luck, but what if they had nothing to loose and found some ambulance chasing attorney to sue you. In discovery they would most likely find the information even on a side note from documents you or the closing company could be compelled to supply. You could then be found liable with more costs than just paying the rent back. One thing you may be able to do is to pay it back and reduce the amounts of rent received making it a tax write off, but ask your tax accountant.

The closing agent has no responsibility in this.....they simply close the transaction as per the contract language and written agreements provided by the parties, they don’t go investigating/verifying such things.