Security Deposit Owed if Never Received?

[Chris Paul]

Hi all,

This is a strange situation that I'm hoping someone can give me a sanity check on:

I purchased a home last year from a well-known company in Chicago that was forced to close earlier this year. The home was occupied at the time by a tenant and the property manager had collected the tenant's security deposit before I closed on the home a month later. 

Now the tenant is now moving out and asking for the security deposit back. Unfortunately, the deposit funds were never transferred to me because the management company was forced to close (they also owe me thousands in collected rent that I don't expect to see). 

I'm guessing I owe this deposit, even though I never received it. I'm discussing options with my new property management company's lawyer, but wanted to crowd-source some opinions from more experienced landlords as well. What would you do in this situation?

[Eric G.]

Assuming the tenants deposit was documented in the lease, you are now responsible for refunding the money. In purchasing the property, you assumed the lease.

Usually the original owner will transfer you the deposits during escrow. But that doesn't always happen. Sometimes these things are overlooked. Sometimes buyers purchase a distressed situation at a good deal and consider it a transactional cost. Whatever the case may be, it is now your responsibility.