Security Deposit/Rent Issue after buying in Tax Foreclosure in OH

Security Deposit/Rent Issue after buying in Tax Foreclosure in OH

Investor · Los Angeles, CA · Member since 2016 · 33 posts · 6 votes

I recently picked up a property in a tax foreclosure in Cuyahoga County in Ohio.  There are good tenants in the building that pay monthly and they were paying to a property management company that was still collecting rents and signing new leases while the property was in foreclosure and had no contact with the owner because he either went MIA or decided to completely neglect the property and let it go.  It seems like the property manager was basically collecting and pocketing rents since there was nowhere for him to send the funds too.  I know in tax foreclosure situations the new owner can become liable for the security deposits.  In this specific situation should the property management be forwarding me the current owners security deposit and/or paying me a pro-rated amount for the current month collected if I acquired the property in the 1st week of the month and rent was already paid for the full month?  If I am not entitled to the money by law is there any harm in asking him for the security deposit and pro-rated amount of rent for the month that was being charged or having my tenants nicely ask for their deposit and/or pro-rated rent back for the month they had already paid in advance?

Thanks for your time

0Reply
34 views

Most Popular Reply

Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
6y

Hi @Brian H., you've found quite the sticky puzzle here.

Let's start with the PM -- PMs cannot simply pocket a security deposit (well, um . . . should not).  There are strict accounting requirements for security deposits on anyone who holds them and what should absolutely be the case is this:  if the PM held a deposit for the tenant, they should transfer it to you right away so that you can hold it according to the local Tenant-Landlord Act requirements, your lease requirements, etc.

Regarding the partial rent for the month you purchased it -- they should pay that amount to you, too. 

I would approach the PM first off, and only involve the tenant in that pursuit if needed down the road.

See this reply in the discussion

5 Replies

Jump to latestLatest
  • Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    6y

    Hi @Brian H., you've found quite the sticky puzzle here.

    Let's start with the PM -- PMs cannot simply pocket a security deposit (well, um . . . should not).  There are strict accounting requirements for security deposits on anyone who holds them and what should absolutely be the case is this:  if the PM held a deposit for the tenant, they should transfer it to you right away so that you can hold it according to the local Tenant-Landlord Act requirements, your lease requirements, etc.

    Regarding the partial rent for the month you purchased it -- they should pay that amount to you, too. 

    I would approach the PM first off, and only involve the tenant in that pursuit if needed down the road.

  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    Do you plan to mange it yourself or go through a PM?  Will answered your other questions.

  • Property Manager · Cleveland, OH · Member since 2020 · 268 posts · 315 votes
    6y

    Do you intend to use a property manager?  It could be worthwhile to possibly engage the current manager in which case they have a strong incentive to give you the deposits and prorated rent.  You might be able to get a month to month agreement with them and then after you have the rent and deposits you’ll have the freedom to quickly change managers if they don’t work out.  If you don’t want to use them then you are completely entitled to request those funds. As for deposits I would ask a local landlord/tenant lawyer that question, I’ve never had it come up from a tax sale where there was someone around to get the deposit from.  If you don’t have one I can recommend a few.

    I would not get involved in or worry too much about what happened with rents owed and who has them from prior to you getting title.  The management company should have those funds in a trust account and maybe you can give them the benefit of the doubt they may hold them for a period and then send the money to unclaimed funds.

  • Cleveland · Member since 2020 · 16 posts · 5 votes
    6y

    What I would be most worried about are other outstanding judgements that may be associated with the property.  I do not know if Cuyahoga Co only auctions 'free and clear' (meaning no outstanding filed liens) properties OR after someone picks up the place, some lending institution comes out of thin air wanting an unpaid loan or worst, some deadbeat who hasn't paid child support in 17 years and the gov't comes to collect as a first lender (even before the financing guys get a crack at collection).  This would be picked up on if a quick title/lien search is done prior to bid, BUT who wants to drop $400 on a bid (or multiple places) just to find out that it's a true turkey and that the great pricing is going to have GREAT BAGGAGE.  If you can get a deal structure setup with a title company that gives you a bulk discount on checking multiple places (that's what I have done in TX and it's saved me HUGE on 2 places that were KILLER, but they had an outstanding mortgage AND child support...) - talked to the guy who won one of the places a few months later and he was still dealing with it...he is a larger player here, so had the resources to sort it out, but he carried that place for months before putting 1 nickel into the turn.
    That said, the deposits and prior rents:  @Will Fraser's suggestion of contacting the PM is spot on.  See where that goes - you might get rent/sec dep windfall.
    If the existing PM ghosts you, make contact with the tenants individually and go from there - accept that back rent and sec dep are gone.  Now you have 2 options: be the nice guy and honor a month's rent and 'cover' the sec dep yourself if the existing tenants sign a new lease OR say (and I'm pretty sure this is correct) sorry, that past owner and PM retained the sec dep funds and you as the new owner are not obligated to pay them. It becomes a math game after that.  Bird in hand...

    Good luck





    @Will Fraserundefined

  • Investor · Los Angeles, CA · Member since 2016 · 33 posts · 6 votes
    6y
    Originally posted by @P Baxter Hudson:

    OR say (and I'm pretty sure this is correct) sorry, that past owner and PM retained the sec dep funds and you as the new owner are not obligated to pay them. 

    I don't believe this to be correct in the state of Ohio

Join the conversationCreate a free account to reply, vote on answers and follow this thread.