Anyone Familiar with Leases and New Ownership of Leases?

Question

I signed a lease with some scum bag who was behind on his payments with the bank so the bank appointed ownership of the property with a new owner who isn't on my lease. However the lease is now terminated and I am doing month to month with the current owner. I am now ready to move and give the owner the 30 days notice and they told me I need to consider my security deposit as a lost.  Is it true that since a new lease was not constructed when they gained ownership of the property that they also are responsible to the lease agreement since a new one was NOT constructed. They were provided a copy of the lease as well. I don't even want the deposit back I just want to live out my security deposit for the month because I understand the deposit was not made to the now current owner. I'm being told I have to pay for the final month of staying there and I don't think its right or legal that I have to take a $2000 loss as a tenant. That money went somewhere. Please help.

Jon Holdman · Answer

I have to disagree with Bill Gulley here.  The lease runs with the property.  The fact the new owner didn't get the security deposit from the old owner is their problem, not yours.  Push back and demand they provide a property accounting of the deposit and a refund of whatever amount isn't legitimately consumed when you move out.  Many jurisdictions allow double or triple damages if the landlord doesn't handle the security deposit correctly after moveout.  I'd recommend looking to see if there's any landlord/tenant advocacy group in your area.  There is in many areas.

Now, failing to pay the rent is your problem.  I never let tenants use the security deposit as their last month.  If you don't pay that last month's rent as scheduled, they can evict you, regardless of what's going on with the deposit.

Kelly N. · Answer

Hi Mark,
Sorry you are in this situation.  It is my understanding that the security deposit you had with the first landlord should have been transferred to the new owner at the closing.

I'm pretty new at this, but we've purchased two properties with tenants in them and we've had to sign a document saying we'd honor the current leases.  By state law (I am also in MI) we also had to notify the tenants where their security deposits were now being held.

IMO, the new owner had the lease and should have ensured that the deposit was transferred (and should also have received a prorated rent from the seller) at closing.  If they didn't, that's their problem, they might be able to go back to the seller on it, possibly through their real estate agent or the title company that did the transfer to get your money from the seller.

Kelly

Bill Gulley · Answer

As I said, I assume it was a foreclosue as Jon pointed out, the bank just can't appoint an owner, which is what my assumption is based on.

If there was a foreclosue, it wipes out encumbrances for the new owner. Deposits usually are not assigned, but if they were the new owner has them. If they were not, the foreclosure wiped them out as to the leasehold interest, but the lease remains valid, it's the escrow of the deposits that are a different issue as a liability of the previous owner, that does not tie to the property but is under a contractual obligation. Deposits are a seperate issue from a leasehold interest granted.

State law may require the new owner to be responsible even if amounts were not transferred, so you'll need to inquire with tenat/landlord law or your attorney, but this is not the usual case. You can take the road to hold them responsible, even if they didn't collect the deposits, they may see it as an easier route to cave in and cover it. Don't bet on it, they may not be obligated if ther was a FC.

Now, if there was a purchase from the previous owner, depsoits would have been credited or assigned as Jon mention. But not if there was a foreclosure. :)

Jon Holdman · Answer

Yes, I definitely believe you should focus on the current landlord.  They're responsible for the deposit, regardless of what transpired between them and the former owner.  If you have to sue someone or take them to small claims court, they're the one.   If there is a loss here, its their loss, not yours.

You say "the bank appointed ownership of the property with a new owner".  That part doesn't really make sense.  The bank can't just appoint someone to be the owner.  They may have foreclosed on the former owner and taken the property back, then hired a property manager to run it.  Or they may have taken it and sold it to someone else.  Or maybe the owner sold it to this new owner.  Now, if there was a foreclosure, then you may have a problem.  Foreclosure do wipe out junior claims.  You security deposit may be considered a junior claim and might have been wiped out by the foreclosure.  It may be worth your while to spend a couple hundred on a lawyer and figure out exactly where you stand.

Bryan H. · Answer

Why was the original lease terminated? Like it was said before, the lease is with the property, not the owner. Your old lease should be valid unless I'm missing something. Also, it is up to the owners to manage your deposit. It's still your money, not theirs.

Rob K. · Answer

The law in Michigan is 30 days to return a security deposit.

This is a huge problem with landlords getting foreclosed and the tenant becomes the victim. You might want to talk to a lawyer to see what your options are. There is a law in Michigan that the security deposit needs to be settled within 30 days or else there are treble (triple) damages. A landlord is also required by law to hold your security deposit in an account and provide you with the name and address of the bank where it is held.

If I were you, I would look up all the laws so you are well versed and then send a letter to your current landlord demanding to know where your security deposit is held, per Michigan law.

Mark Johnson · Answer

Thanks Jon, should I focus more on going after the current landlord for my deposit if it was his responsibility to collect it from the previous owner? I believe the law is the deposit should be return by 15 days after I move out. I could be wrong on that one.

Mark Johnson · Answer

Thank you all for your replies.

Kelly:

I am not aware of any agreements made between the previous owner and the current owner. When I would ask the current owner about my security deposit he was investigating it and kept saying that he was unsure. I was not notified of anything as to the whereabouts of my deposit.

Bill:

The previous owner has completely dropped off the face of the planet. I know his name and that is all. I have no way of contacting him.

Bill Gulley · Answer

Hi Mark, I'm assuming a forecosure or a deed in lieu of foreclsoure with the old owner walking away, your past landlord is responsible for the deposits, unless the bank was smart enough to set off those amounts from the escrow or checking account held by the owner, if they had such accounts. Deposits are probably with that last owner, not the bank or any new owner, if any, sounds more like a property manager at this point. Damage deposits are for damages, not rents, if you fail to pay the rents due and there are no deposits (that can't really be applied to rents generally) the new owner or bank can seek a judgment against you for back rents.

I'd be looking up the past owner....  :)

Anyone Familiar with Leases and New Ownership of Leases?

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