What Happens to Security Deposits when a Landlord Sells a Building

The first thing you must realize is that even though the building has been sold, all leases and deposits are still in effect. You are still entitled to a return of your security deposit regardless of the change of ownership. Here are four situations which may occur and what should happen to security deposits when a landlord sells a building.

The new owner is another landlord.

If your landlord sells the building to another landlord, the security deposit you paid must be surrendered by the former landlord. Your former landlord can do this two ways; they can give your security deposit to the new landlord, or return it to you. You should be notified in either case what is happens to the security deposit when the landlord sells the building. If your new landlord gets the security deposit you should request a copy of the receipt of payment and bank information where the deposit went. If you are given the security deposit, you must then hand this to the new landlord to maintain your lease; again, get a receipt and bank information.

The new owner is a bank

What happens to security deposits when a bank becomes the landlord? This usually occurs when your old landlord has defaulted, or the bank foreclosed on the building. In this case, the security deposit is most likely gone, and the bank will need to sue for damages. But, this does not affect you. Because the bank is now the new landlord, the bank is liable for the security deposit which you gave to live in the residence. If the bank still owns the residence when you move out, the bank must return the security deposit whether it was received from the former landlord or not.

The new owner is a private family

This is also common. When the old landlord sells a rental house to a private family it is most often the intent of the family to use the house as a primary residence. Different outcomes can occur with this situation. If the family wants to move in, they must allow you time to find a place and move out. If this happens your former landlord is responsible for your security deposit and must return it, usually within 30 days depending on the state you are in. If the family is not moving in immediately, they may allow you to stay; this could be while they sell their home, relocate, or use your rent as income to make repairs to the property. If this happens, the family is considered your new landlord and is responsible for your security deposit if the old landlord didn't return it to you. Either you, or the family, must sue for the security deposit if it is not surrendered.

The new owner is an organization

This situation is also common. This happens when a church, school, hospital or other institution buys your building for a use other than a rental unit (most often parking or offices). When the organization has no immediate plans to use the building, they may allow the tenants to finish out the lease. Often the rental agreements and conditions are handed over to real estate agents to manage. This would also include the security deposit. Again, what happens to a security deposit when the landlord sells a building here is the same as if the building was sold from one landlord to another as mentioned above.

Sources:
Nolo
Los Angeles County
Legal Assistance Resource Center of CT