Landlord Question and Answer Forum

Hello, Back in August of 2017, my husband and I purchased our 1st rental house with current tenants in the home that agree to stay and sign a contract. We opened up a business checking account at the same time to keep it separate from our personal finances and formed a LLC. The renter has always paid rent in the form of money order made out to the business name. Unfortunately, we have come to find that you live and learn. During the closing at the attorneys office, it turned into a messy issue and the seller stormed out the room, she did not agree to pay the prorated rent nor the property taxes up until that date ( the attorney made her do pay so we were paid for those). The security deposit we were under the impression was handled at closing and we thought originally we received it. Since then I started working with loan closings at my job and learned about the HUD settlement and completely understanding how it works. Fast forward to this year, the renter is looking to move out at the end of the year due to medical issues and needs to move closer to the medical facilities, which is completely understandable. She questioned her security deposit at the end of her lease and I told her I would have my attorney look into and CPA to make sure I was looking at my records correctly. They both have came back and does not show where it was paid at closing nor has came in as a deposit on our checking account after the closing. It has come to be that a security deposit was never collected. How would you handle this situation when you have no security deposit to pay for any damages or to prove to her we never receive it. I can provide her a reconciled Leger we have from the time we gain ownership of the property. Since our 1st rental purchase we have bought other rental homes and purchased a management software to make sure this does not happen again, especially in our busy lives with work, family, nursing school etc. How would you handle this if it was your property? Thank you all for your advice and help.

Lesson learned

Posted by Matthew M, IL on Friday, September 13, 2019

I believe in always being fair. If the tenant was responsible, paid the rent on time, and otherwise not problematic, and if there was no damage to the property, then this is a seems to be an ethical decision for you as well as a legal one. You are legally bound to lease. If the lease states the deposit is refundable and there is no justifiable reason for you to keep it, then you are responsible for paying the renter. It is not the renter's fault you or your team failed to do comprehensive book keeping / due diligence. The renter held up their end of the deal by paying rent. You must hold up your end of the deal by returning the deposit. If you wish to pursue this then you should target the former owner or the party responsible for managing the ledger. The question you have to ask yourself is, is deposit worth effort and expense? I don't think. Consider it education fee in property management., To be clear, you are wrong to make the renter responsible for your mistake.

Posted by Joseph L, UT on Friday, October 18, 2019