# Security Deposits - Why do people not get these back when the landlord forecloses? **URL:** \ **Category:** Factual Questions\ **Created:** [March 24, 2009, 6:40pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618 "2009-03-24T18:40:57Z")\ **Posts on this page:** 19\ **Page:** 1
**Author:** ![Driver8](https://avatars.discourse-cdn.com/v4/letter/d/b5a626/32.png) [@Driver8](https://boards.straightdope.com/u/Driver8)\ **Post date:** [March 24, 2009, 6:40pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/1 "2009-03-24T18:40:57Z")
I read [yet another article](http://www.cnn.com/2009/US/03/23/landlord.foreclosure/index.html) about a renter being evicted when the home owner they were renting from foreclosed. This one states that the lady has lost her security deposit. I recall most of the articles I have read about these scenarios state something similar. Why is this? In every state I have rented (Florida, Georgia and California) my lease explicitly stated where the security deposit funds would be located. I would have thought that this was to ensure these funds remained accessible in case your landlord went bust. I had always thought of it as more of an escrow style thing, where it never really becomes the landlords money. Is this not the case? What is the typical legal status of this money (I am guessing this depends on the state)?. It doesn’t make sense to me that the deposit would enter the general funds of the landlord and therefore be at risk if they go bankrupt. This is not something that I am worried about from a personal perspective, just a general curiosity. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [March 24, 2009, 6:50pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/2 "2009-03-24T18:50:08Z")
The story you link is from New York, and according to [this site](http://www.rentlaw.com/dep/nydeposit.htm): > [@](#): > > New York Landlords, regardless of the number of units in the building, must treat the deposits as trust funds belonging to their tenants and they may not co-mingle deposits with their own money. Landlords of buildings with six or more apartments must put all security deposits in New York bank accounts earning interest at the prevailing rate. Each tenant in New York must be informed in writing of the bank’s name and address and the amount of the deposit. > > \ > > If the building is sold, the landlord must transfer all security deposits to the new owner within five days, or return the security deposits to the tenants. Landlords must notify the tenants, by registered or certified mail, of the name and address of the new owner. Doesn’t say what happens in the event of foreclosure. Of course, even if the landlord has indeed broken the law, the question now is whether the tenant can do much about it. Pursuing it as a civil matter is probably a lot of trouble with little chance of success; i wonder if it could be reported as a criminal matter? This sort of thing couldn’t happen in Australia, or at least in New South Wales. When i was renting in Sydney, the law was that all rental bonds (our name for a security deposit) had to be lodged by the landlord with the Rental Bond Board, a government agency. The RBB would place the money in an account, at interest, and it would be returned at the end of the lease. The RBB also acts as an arbitrator of sorts, if disputes arise between landlord and tenant over how much of the bond is to be returned. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [March 24, 2009, 6:51pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/3 "2009-03-24T18:51:03Z")
Here’s a page from the California Department of Consumer Affairs on [Security Deposits](http://www.dca.ca.gov/publications/landlordbook/sec-deposit.shtml). I didn’t read it very closely, but I don’t see anything about security deposits being held in escrow. It states that you can sue your landlord for failure to return a security deposit, which implies that the funds _aren’t_ held in escrow, and are in fact paid to the landlord. For what it’s worth, I’ve rented three places, and none of them specified in the lease where the security deposit would be held. Even if you can sue the landlord, it doesn’t do much good if he’s actually bankrupt, and even if he’s solvent and you win, you still have to collect, and even if you collect many months later, that doesn’t do you much good when you’ve just gotten kicked out of your home and need to find another one ASAP. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 24, 2009, 7:35pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/4 "2009-03-24T19:35:36Z")
There is some variation among jurisdictions, but this states the basic legal principles involved: > [@](#): > > 1. Who is responsible for the security deposit after a foreclosure and how does the tenant get it back? > The former landlord is responsible for the refund of the security deposit to the tenant, although many attempt to retain it. Typically the tenant receives written verification of the foreclosure from the former owner, the management company, or the lien holder. > > As soon as this verification is received, the tenant should send a demand letter to the former landlord giving 10 days from the date the letter is received to return the security deposit. Sending this letter by certified mail, return receipt requested is recommended. The landlord, however, may have the usual 30 days to refund the security deposit. The security deposit law does not provide a time period for refund of a deposit following a foreclosure, but it is assumed to be 30 days. > > If the tenant moves out after the lease ends and then the property is foreclosed on, the landlord still has 30 days to refund the deposit. > > Finally, if the landlord who holds the deposit files bankruptcy and lists the deposit as a protected debt, the tenant should be notified of the bankruptcy by the court and must fill out a proof of claim form and file it with the court. This ensures that the tenant’s claim for the deposit will be paid if there are sufficient assets to distribute to creditors. > > 1. Does the former landlord have the right to withhold any part of the security deposit after foreclosure? > No. This is the former owner of the property and not someone who holds the title to the premises. The former landlord does not have the right to walk through the property prior to returning deposit monies and cannot verify the condition of the premises. Therefore, the former landlord has no right to claim damages to the property and has no right to withhold any part of the deposit. [http://www.housing-rights.org/foreclosures.html](http://www.housing-rights.org/foreclosures.html) And see: [http://www.keytlaw.com/azrealestate/tenantforeclosure.htm](http://www.keytlaw.com/azrealestate/tenantforeclosure.htm) Of course, as others have pointed out, the landlord’s insolvency and a queue of other creditors seeking to collect may make these rights very theoretical. ---
**Author:** ![NurseCarmen](https://avatars.discourse-cdn.com/v4/letter/n/5daacb/32.png) [@NurseCarmen](https://boards.straightdope.com/u/NurseCarmen)\ **Post date:** [March 24, 2009, 7:56pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/5 "2009-03-24T19:56:17Z")
In Minnesota landlords are required to hold security deposits in escrow. I’m amazed more states don’t require that. ---
**Author:** ![Lightnin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lightnin/32/180_2.png) [@Lightnin](https://boards.straightdope.com/u/Lightnin)\ **Post date:** [March 24, 2009, 8:02pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/6 "2009-03-24T20:02:42Z")
> [@NurseCarmen](#): > > In Minnesota landlords are required to hold security deposits in escrow. I’m amazed more states don’t require that. That’s also the case here in Washington. I had to file suit against my previous landlord for not returning my deposit (strangely, he felt that my deposit was his to spend on new carpet so he could sell his house). He’d never given me the receipt of his putting my deposit money into a separate account, so I was planning on using that little fact if the case went to court. Luckily, he realized that he was completely screwed and gave me the full refund before the court date. ---
**Author:** ![Carnacki](https://avatars.discourse-cdn.com/v4/letter/c/b5e925/32.png) [@Carnacki](https://boards.straightdope.com/u/Carnacki)\ **Post date:** [March 24, 2009, 8:08pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/7 "2009-03-24T20:08:50Z")
Assuming it’s the new owner who actually does the eviction, in California at least, if you don’t get anything from the previous landlord, you can also go after the new owner. Here’s a quote from California Civil Code Section 1950.5: > [@](#): > > (h) Upon termination of the landlord’s interest in the premises, > whether by sale, assignment, death, appointment of receiver or > otherwise, the landlord or the landlord’s agent shall, within a > reasonable time, do one of the following acts, either of which shall > relieve the landlord of further liability with respect to the > security held: > (1) Transfer the portion of the security remaining after any > lawful deductions made under subdivision (e) to the landlord’s > successor in interest. The landlord shall thereafter notify the > tenant by personal delivery or by first-class mail, postage prepaid, > of the transfer, of any claims made against the security, of the > amount of the security deposited, and of the names of the successors > in interest, their address, and their telephone number. If the notice > to the tenant is made by personal delivery, the tenant shall > acknowledge receipt of the notice and sign his or her name on the > landlord’s copy of the notice. > (2) Return the portion of the security remaining after any lawful > deductions made under subdivision (e) to the tenant, together with an > accounting as provided in subdivision (g). > … > > (j) In the event of noncompliance with subdivision (h), the > landlord’s successors in interest shall be jointly and severally > liable with the landlord for repayment of the security, or that > portion thereof to which the tenant is entitled, when and as provided > in subdivisions (e) and (g). A successor in interest of a landlord > may not require the tenant to post any security to replace that > amount not transferred to the tenant or successors in interest as > provided in subdivision (h), unless and until the successor in > interest first makes restitution of the initial security as provided > in paragraph (2) of subdivision (h) or provides the tenant with an > accounting as provided in subdivision (g). I’m not your lawyer. Before you go and sue Wachovia when you get evicted, go talk to an attorney. ---
**Author:** ![Driver8](https://avatars.discourse-cdn.com/v4/letter/d/b5a626/32.png) [@Driver8](https://boards.straightdope.com/u/Driver8)\ **Post date:** [March 25, 2009, 12:01am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/8 "2009-03-25T00:01:15Z")
Thanks for the interesting information. It looks like it is all over the place depending on the state. An escrow system like Minnesota makes more sense to me, I don’t think it is fair that you would have to wait in line behind other creditors if the landlord goes broke. Creditors take on a known risk by lending money or not being paid up front, a security deposit seems like a different sort of thing. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 25, 2009, 12:54am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/9 "2009-03-25T00:54:30Z")
> [@NurseCarmen](#): > > In Minnesota landlords are required to hold security deposits in escrow. I’m amazed more states don’t require that. I don’t see that provision in the statute [https://www.revisor.leg.state.mn.us/statutes/?year=2008&id=504B.178](https://www.revisor.leg.state.mn.us/statutes/?year=2008&id=504B.178) or in the attorney general’s explanation of landlord tenant law. [http://www.ag.state.mn.us/consumer/Housing/LT/LT\_1.asp](http://www.ag.state.mn.us/consumer/Housing/LT/LT_1.asp) Beyond that, I’m not sure what it would mean for the landlord to hold the deposit “in escrow,” except in a trivial legal sense. Just about every state requires the landlord to return the deposit at the end of the lease. The money doesn’t belong to the landlord. Most states impose penalties for screwing around with the deposit. But a true escrow would be a third party. Some states require the landlord to deposit the money into a bank account and provide the tenant with details of the account. That’s closer to an escrow arrangement than Minnesota’s. Closer yet would be a requirement that the money be given to a disinterested third party with instructions to hand the money over to the tenant once certain conditions are met, and not to allow the landlord access to the money unless the landlord meets certain conditions. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [March 25, 2009, 1:03am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/10 "2009-03-25T01:03:49Z")
> [@Gfactor](#): > > Just about every state requires the landlord to return the deposit at the end of the lease. The money doesn’t belong to the landlord. Most states impose penalties for screwing around with the deposit. But aren’t those usually civil penalties, not criminal? In my state, (NH), the tenant can sue the landlord for any irregularities with the deposit, and recover double the amount of the deposit if the court finds in his favor. But that still leaves the problem of collection from a party who the bank already had no luck collecting a much larger debt from. Not much satisfaction. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 25, 2009, 1:05am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/11 "2009-03-25T01:05:29Z")
> [@Fear\_Itself](#): > > But aren’t those usually civil penalties, not criminal? In my state, (NH), the tenant can sue the landlord for any irregularities with the deposit, and recover double the amount of the deposit if the court finds in his favor. But that still leaves the problem of collection from a party who the bank already had no luck collecting a much larger debt from. Not much satisfaction. Right. ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [March 25, 2009, 1:25am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/12 "2009-03-25T01:25:49Z")
> [@Gfactor](#): > > Closer yet would be a requirement that the money be given to a disinterested third party with instructions to hand the money over to the tenant once certain conditions are met, and not to allow the landlord access to the money unless the landlord meets certain conditions. Yep. That’s pretty much the role of the Rental Bond Board in New South Wales, which i described in my first post. I think it’s a good system. [Here](http://www.fairtrading.nsw.gov.au/Tenants_and_home_owners/Renting_a_home/Bonds.html) is a description of how it all works. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 25, 2009, 1:27am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/13 "2009-03-25T01:27:10Z")
Here is a chart describing the basics of security deposit laws in every state: [http://www.rentlaw.com/securitydeposit.htm](http://www.rentlaw.com/securitydeposit.htm) This pdf has a chart that includes information on which states impose requirements (bank account, bond, escrow account, etc.) on security deposits: [RentingYourHome.com is for sale | HugeDomains](http://www.rentingyourhome.com/forms/State%20Security%20Deposit%20Laws.pdf) I haven’t verified any of the information. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 25, 2009, 1:30am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/14 "2009-03-25T01:30:35Z")
> [@mhendo](#): > > Yep. That’s pretty much the role of the Rental Bond Board in New South Wales, which i described in my first post. I think it’s a good system. > > [Here](http://www.fairtrading.nsw.gov.au/Tenants_and_home_owners/Renting_a_home/Bonds.html) is a description of how it all works. Yes. The website goes a little nuts in my browser, but the system looks good. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [March 25, 2009, 4:07am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/15 "2009-03-25T04:07:41Z")
> [@Lightnin](#): > > That’s also the case here in Washington. I had to file suit against my previous landlord for not returning my deposit (strangely, he felt that my deposit was his to spend on new carpet so he could sell his house). He’d never given me the receipt of his putting my deposit money into a separate account, so I was planning on using that little fact if the case went to court. Luckily, he realized that he was completely screwed and gave me the full refund before the court date. Having worked for three landlords (a 28-unit building and a 96-unit one that had two owners wihle I was there), I can assure you that plenty of Washington landlords aren’t following the law about keeping security deposits separate. But to address the original question: it’s pretty easy to find reasons to keep a security deposit. If you’re desperate enough to be foreclosed on, you’ll have pointed out the scratch on the wall, the tiny burn mark on the carpet, the tenants’ failure to clean behind the stove and whatever else. If you’re the tenant, you probably didn’t pay much attention to the move-in inspection, didn’t take pictures of the original condition, and aren’t sure where “wear and tear” ends and damage begins. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [March 25, 2009, 11:23am UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/16 "2009-03-25T11:23:49Z")
> [@dracoi](#): > > But to address the original question: it’s pretty easy to find reasons to keep a security deposit. If you’re desperate enough to be foreclosed on, you’ll have pointed out the scratch on the wall, the tiny burn mark on the carpet, the tenants’ failure to clean behind the stove and whatever else. In my state, landlords cannot just claim damage, they have to produce receipts for the repairs, and they must return the difference. I can sue them for double the deposit if they try to pull anything. ---
**Author:** ![SCSimmons](https://avatars.discourse-cdn.com/v4/letter/s/e495f1/32.png) [@SCSimmons](https://boards.straightdope.com/u/SCSimmons)\ **Post date:** [March 25, 2009, 1:03pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/17 "2009-03-25T13:03:46Z")
> [@Fear\_Itself](#): > > In my state, landlords cannot just claim damage, they have to produce receipts for the repairs, and they must return the difference. I can sue them for double the deposit if they try to pull anything. And in the case of a foreclosure, according to **Gfactor** ’s post above, the former landlord cannot even deduct for damages, as they are no longer the owners of the damaged property. If the new owner (i.e. the bank) wishes to recover any damages, they’ll need to sue the tenant; the former owner no longer has any interest in the property and must return the deposit in full. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 25, 2009, 1:25pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/18 "2009-03-25T13:25:11Z")
Between the mortgagee and landlord the matter of existing leases is often handled by a clause in the mortgage documents called and assignment of leases and rents. Here is an example: [http://contracts.corporate.findlaw.com/agreements/wwf/gmac.assign.1997.12.12.html](http://contracts.corporate.findlaw.com/agreements/wwf/gmac.assign.1997.12.12.html) ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [March 25, 2009, 4:38pm UTC](https://boards.straightdope.com/t/security-deposits-why-do-people-not-get-these-back-when-the-landlord-forecloses/490618/19 "2009-03-25T16:38:55Z")
> [@Fear\_Itself](#): > > In my state, landlords cannot just claim damage, they have to produce receipts for the repairs, and they must return the difference. I can sue them for double the deposit if they try to pull anything. But landlords can charge for labor based on an hourly rate. Did you remember to remove the faucet knobs to clean the soap scum from underneath? Did you patch over all your nail holes and repaint them? New paint and labor to put it up runs about $400 for a 900 sqft apartment. If we have to replace the carpet (which normally happens every 3-6 years), you’re already talking $900 to $2000. All we have to do is come up with a reason why the replacement is your fault and not part of wear and tear. There’s always some burn mark, bleach spot or stain we can find if we look. Now, I don’t mean to imply that the places I worked for did anything unethical. We returned about 60% of the security deposits. But, having been in the business, I know that I could justify virtually anything I wanted to if it was my goal to keep a deposit.