When buying a fully occupied property who pays back deposit?

8 Replies

Sorry if this is a newbie question but I’m looking into buying my first property soon and I was looking at some multi family properties and a thought hit me. When the property is fully rented and I buy it and a tenant is evicted who pays for their deposit they originally made? Would I, the new owner of the property have to be responsible for that or does the previous owner have to leave that with me once the property is sold? Thanks

When you purchase an occupied rental, you should require transfer of the deposit from the Seller to you. If you miss this step, you will be responsible for refunding the deposit out of your pocket.

If you do not ask for it, they aren't necessarily obligated to give it to you. Be sure to require the Seller to transfer the deposit, the original application (if available), any written lease or other documentation, the tenant's payment history, keys, security deposit, and anything else they may have.

You should be getting the deposit PLUS any paid rent for the days you are buying. So if you close on the 15th, you should get 50% of October’s rent from the seller.

You should get an estoppel letter from the tenant confirming the amounts of deposit and that there was no amendment to the lease agreement that was provided to you.

Even if they did not transfer this to you prior to closing, it may still be possible to get this sent to you from the seller after closing is finished. This actually happened to me because i used an inexperienced real estate agent (at leas inexperienced with investors) to purchase my first property. Luckily the title company had their lawyer look into the closing documents and there is a line in there that says something about it. The lawyer ended up sending an email with this in it to the seller post close.

"Section 9(B)(5) of the Contract clearly provides that the Seller SHALL transfer security deposits
at closing; and Section 13 provides that rents shall be prorated. Both
of these obligations must be read with the terms of
Section 19, which states that all covenants between the parties
“survive closing”, meaning that they are fully enforceable even after
closing.

Now I'm not sure if the sections will line up with your documents the same way, but it is possible that this is in your closing paper work as well. This required the seller to send me the deposits, even though it wasn't handled at the table. They weren't happy or polite about it, but i did get the deposits in the end.
Originally posted by @Guillermo Lara gonzalez :

Sorry if this is a newbie question but I’m looking into buying my first property soon and I was looking at some multi family properties and a thought hit me. When the property is fully rented and I buy it and a tenant is evicted who pays for their deposit they originally made? Would I, the new owner of the property have to be responsible for that or does the previous owner have to leave that with me once the property is sold? Thanks

Deposits should be either sent to you in a separate check or credited to you on your closing statement when you buy the property. Then when it comes time to refund and or account for any tenant's security deposits you are the one liable.