Posted by Dave T on November 28, 1999 at 11:01:35:
at settlement. Hopefully, the present owner has the security deposits in a separate escrow account. You are probably purchasing subject to the existing leases. When the settlement is completed and ownership passes to you, you will be liable for the tenant’s security deposits.
If your state/county requires interest to be paid on security deposits, you will also be liable for the interest due as well. If this is the case, make sure that the security deposit transfer also includes accrued interest.
Discuss this issue with your lawyer and request an accounting immediately. You should also ask the tenants to confirm the amount of rent they pay, their lease term, and the amount of their security deposit.
The following language is suggested by Bill Bronchick in his Real Estate Lawyer course. I include this clause in an addendum when I buy property with a current tenant.
“Buyer reserves the right to inspect leases, contact the property manager and tenants. Seller shall provide buyer with an accounting and assignment of security deposits at closing. Seller agrees to defend and indemnify buyer for any and all claims, judgements and lawsuits related to the wrongful withholding of security deposits that arose out of events or circumstances arising before closing of title. This paragraph shall survive the closing of title.”