Investor · Georgetown, TX · Member since 2016 · 54 posts · 13 votes
Hello friends,
I am looking to invest in a property that is currently rented out. Is it required that the seller turn over the deposits they've collected to the new owner or return those to the people leasing? I'm in Texas, if that makes any difference.
@David Sray, speaking from my experience, usually the seller does turn over the deposits at closing. I would state that in the contract and get the exact amount so there is no confusion. It may seem redundant, but its better to be safe than sorry.
@David Sray, speaking from my experience, usually the seller does turn over the deposits at closing. I would state that in the contract and get the exact amount so there is no confusion. It may seem redundant, but its better to be safe than sorry.
I would expect it to transfer to the buyer (not any vacancy/repair/capex funds though), I mean, the deposit technically isn't the landlords money. If the seller is refusing, knock that off the offer? I don't know how much the deposit was, but it probably isn't worth missing out on the purchase if it's a deal.
@David Sray, check with the laws in your state, but usually the seller is supposed to turn over any security deposits from the tenant to the buyer and this should be clarified by the contract. If you are inheriting tenants, make sure you also get copies of current leases (so you can see what conditions are in them), tenant payment records, tenant contact information and estoppel certificates if possible.
@David Sray I am in MD, so not sure if things are different for you, but you can check with the lawyer doing the closing. Our lawyer handled everything. He requested the copies of leases from the seller, totaled up what the deposits should be with accrued interest (we have to accrue interest and pay that back to the tenants upon move out here in MD), figured up the prorated rent for the month that was due to us, and then he automatically moved the security deposits and rents to us at closing from the sellers statement. It was then our responsibility to put those security deposit funds and rents in the appropriate accounts.
The seller was a little upset, since one of the tenants did not pay yet for the month, but I still got a prorated amount for the month since it was the landlords responsibility to collect that rent before closing.
So for us, it is not something that the seller had a choice in, or he gave us a check personally. Everything was handled by the lawyer. That made it a really easy transaction.
Typically the security deposit, which technically belongs to the tenant but is pledged as security that they will uphold their lease obligations, migrates to the new landlord. In Texas notification from both new and previous owners should go to the tenant so that the tenant knows who is accountable for their funds and for reconciliation after they vacate.