What happens to the tenant's security deposit in a short sale?
Question Details:
Short-sold my house last week. The gent representing the buyer just called and asked me to mail the new owner the tenant's security deposit. Do I need to pay this? Since it's a short sale, isn't the new owner responsible for this?
By keeping the deposit you would subjecting yourself to civil/criminal penalties. The rightful owner of the deposit is the tenant who in turn, if he decides to stay, lets the new owner/landlord hold the deposit. In most cases, when real estate is conveyed, the tenant has a right to remain for the term of the lease and the tenant's deposit winds up in the new owners hands to keep in the event of damage to the property caused by the tenant.
The important thing is, YOU have no right to keep it--it's the tenant's money, not yours. Typically, you would provide it to the new owner, to keep for the tenant; another alternative followed sometimes is to give it back to the tenant, who must then furnish it to the new owner; but in no event is it yours. Even if the tentant had recourse against the new owner for the money, the new owner in turn would have recourse against you for reimbursement. The fact that it's a short sale is irrelevant; a short sale affects your obligations vis-a-vis the bank, but he tenant's security deposit was never yours or the bank's. It is the tenant's money that you happen to be holding for him (or her) and have some right to in the event specified events (e.g. tenant caused damage) occur.
