Portland, ME · Member since 2012 · 616 posts · 550 votes
I recently purchased a property where a tenant says her deposit was a much larger amount than the seller says it was. The only documentation is the lease, which was signed by both parties and has the larger amount. The seller says that just because the lease lists a certain amount doesn't actually mean that the tenant paid it. Now the tenant is moving out and I received the much lower deposit amount from the seller at closing. The tenant can't find her receipt and doesn't have a checking account. What would you do?
Before you all jump on me, I actually provided estoppel forms for the tenants, but the seller picked up most of them and I didn't see them until closing. I suppose I could have stopped the closing, but I didn't think it was worth the hassle over a few hundred dollars' dispute.
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
11y
That's a tough one...legally you're obligated to honor the lease. If the lease has the higher of the two numbers in it, then that's probably what you're going to end up owing the tenant if it escalates to a legal dispute. Depending on the dollar amount, it may or may not be worth going after the previous landlord for. As an outsider to the situation, I'd say you are the one that dropped the ball by accepting less at closing than what was outlined in the lease(s). I'd consider that a relatively cheap lesson to learn, pay the tenant what's in the lease less any damages and chalk it up as something to know better for next time.
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
11y
That's a tough one...legally you're obligated to honor the lease. If the lease has the higher of the two numbers in it, then that's probably what you're going to end up owing the tenant if it escalates to a legal dispute. Depending on the dollar amount, it may or may not be worth going after the previous landlord for. As an outsider to the situation, I'd say you are the one that dropped the ball by accepting less at closing than what was outlined in the lease(s). I'd consider that a relatively cheap lesson to learn, pay the tenant what's in the lease less any damages and chalk it up as something to know better for next time.
I would refund the deposit amount in the lease - minus any claim - to the tenant and chalk up the difference to a life lesson.
I am glad you circulated Estoppel Certificates to the tenants. We always collect these ourselves, but we also have a condition in our APS requiring contracts for service, leases, estoppels, etc. in the possession of the Vendor to be provided to us no late than X-days prior to Close.
Investor · Hagerstown, MD · Member since 2014 · 299 posts · 140 votes
11y
Our attorney who did our closing on a property with tenants, used the leases as a basis for prorated rent and security deposits and transferred the deposits as part of the settlement. It was never between me and the former owner.
Portland, ME · Member since 2012 · 616 posts · 550 votes
11y
Thank you for the comments. I actually moved up the closing date to accommodate the sellers' schedule so I didn't have enough time to thoroughly vet the estoppels.
I owe him a little money for prorated rents and oil that was not collected at closing, which I would like to use to offset the missing security deposit. The seller insists that the lease is incorrect and that I owe him this money and that the deposit dispute is between him and the tenant and has nothing to do with me. What are your thoughts on this?
In my state, if a landlord mishandles deposits he is liable for twice the amount plus court costs. I might suggest to the tenant that she takes the seller to small claims court and double her money. However, would I actually be the one liable?
Investor · Hampton Roads, VA · Member since 2014 · 1k+ posts · 418 votes
11y
It is probably easier and less stressful on you to write a check and move forward with life. Any avenue that drags this on will only continue to put you in the middle of a drama Ferris wheel. Around and around the drama wheel goes, when it will stop nobody knows. Writing a check and moving on ends the ride.
Rental Property Investor · Queen Creek, AZ · Member since 2013 · 368 posts · 191 votes
11y
I agree with @Bryan N. it is best to move forward and learn that sometimes accommodating others could put you at a disadvantage. Its disheartening that the previous landlord is not willing to honor the agreement he made with the tenant. Be the bigger person and treat the tenant fairly also make sure you communicate this with the previous tenant and you never know they may refer your property in the future. There are always opportunities to do the right thing some chose not to.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y
The judge will look at the lease contract and conditions you assumed that the seller was in receipt of XX security deposit.
If the seller wrote in they took more then they did that is on the seller. The judge will have you honor the agreement on the lease you assumed for the stated deposit.
The judge should also tell you your issue resides with the seller and you will need to file against them in court to try and resolve. The seller could get angry and say you have not kept up your agreement with owing the oil and pro-rated rents.
There should have been an escrow that was not touched held back from the proceeds at closing until the issues were resolved. This is allowed in commercial but I am not sure about single family houses especially with a loan involved. In that situation you might have to approach from a different angle.
Both you and the seller made some mistakes here. Just be glad it's a couple hundred bucks and not tens of thousands.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
11y
Return the tenant deposit as stated in the lease which is the official documentation. Talk to your lawyer about what you owe to the seller if there is still money to be settled here between you an the seller. if you agreed to the lesser deposit at closing I think you are likely stuck with it.
Portland, ME · Member since 2012 · 616 posts · 550 votes
11y
Thanks for all the comments. I plan to refund the full amount of the deposit as listed on the lease (as long as she leaves the apt. clean and doesn't owe any rent). Treating the tenant fairly is my first priority.
The seller is acting like I'm an idiot for thinking that the amount of deposit written in the lease is the actual amount collected. Am I mistaken and it's actually common practice to write an amount other than the actual deposit in the lease? If less were collected, I would think a payment plan would be written into the lease. When I fill out my leases, I actually consider the lease as a receipt for the deposit and initial next to it.
Residential Real Estate Broker · Chicago Suburbs, IL · Member since 2013 · 1k+ posts · 594 votes
11y
I would say if you didn't think it was enough money to stop the closing, you should pay it to the tenant. It's on the lease. They could take you to court. Not worth the hassle.
I don't know who in their right mind would put an amount on the lease that is NOT what the tenant actually paid, unless they want to wind up in court. That's the point of writing it on the lease. And if there was a payment plan it should also be documented somewhere, preferably on the lease. I do receipts, but I doubt most landlords do and would not expect most tenants to know where there's is.
The seller is acting like I'm an idiot for thinking that the amount of deposit written in the lease is the actual amount collected. Am I mistaken and it's actually common practice to write an amount other than the actual deposit in the lease? If less were collected, I would think a payment plan would be written into the lease. When I fill out my leases, I actually consider the lease as a receipt for the deposit and initial next to it.
The seller is the one being the "idiot" - or, more probably, dishonest - here. Why would s/he collect a deposit less than the amount s/he is legally obligated to return to the tenant? No one benefits. Conversely, recording an amount on the lease, less than the amount collected, is blatantly dishonest, and, in most jurisdictions, certainly illegal. Here the tenant would loose.