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Permalink Reply by Wayne Brooks on December 10, 2012 at 6:12am

It should be done on the HUD.  If not on the HUD, 1) Deposit-let tennant "not pay" current owner one month, then pay that "missed payment" to new owners as security deposit, in addition to normal monthly rent. 2)  Propration, as the numbers work out.

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Permalink Reply by 31cg1fw8yxswn on March 6, 2013 at 2:14pm

Ann,

I think the only way for this to work efficiently is to use estoppel letters in closing. But first and foremost try and get the seller and buyer to agree to change all utilities and services into the buyer's name as of the morning of closing even though the closing has not been completed.  This means utlities, services,  etc must be notified in advance that a change will happen that day and deposits made by the buyer.  This will allow your client to recieve his deposits back from each utility and the buyer will not have deposits to be exchanged at the closing, but will have done so earlier.

As to the deposit, that is not owned by buyer or seller, they are just trustee to it. In many states now a deposit must be held in a separate account.  Have the seller deliver cash to the buyer directly at closing and have the buyer give a reciept for the deposit. Deliver notice to the buyer that the deposit must beheld in a separate account if that is the law. The closing agent can keep a copy of the reciept and show it paid and recieve in the HUD if desired.

The estoppel should include all appliances and accoutrements that are in use by the renter (lawnmower, washer, dryer, etc) as they are part of the rental agreement and held by the renter and sold with the property. It should also include the information as to the rent collected and date paid through. The seller should then deliver a check or cash for the prorated rents due the buyer at closing. The buyer should sign a reciept for them as well.   Remember that no party is taking anything except what is thiers and nothing happening that legally does not have to happen.  The closing agent can keep a copy of the reciept and place the information in the HUD if necessary, it does not matter because the net affect to the HUD is zero and no one is "pocketing" anything and no one is delivering thier personal funds to do anythying. It is all prepaid rent that is property of the tenant until used as rent.

Remember those utilities and services? make sure the estoppel includes them! If your pool service has done 2 weeks work and paid monthly etc...there must be accounting and payment to the buyer etc. Estoppel notices to those services showing that payment was made to the buyer and that the billing will now be to NAME and ADDRESS..or payment to those services with estoppel letter and showing the service is to cease immediately.

lastly, the seller must send a letter of estoppel to the tenant, showing that rent from date of sale through the end of rent cycle was paid to the buyer. Also that the deposits and amounts have been transferred to the buyer. The estoppel should state that all payments in the future shoud be to NAME at ADDRESS and give contact information for the new owner. This estoppel should list all appliances and accoutrements as listed in the above estoppel so that the tenant knows the new owner knows his property as well.

letters of estoppel are hard to begin to understand at first. Once you get the idea they are very useful and can make a buyer and seller both feel very comfortable and end arguement and problems at closings. Transferring cash with reciept for each item closed makes it possible to have a HUD that will match the approved HUD. Also unless done this way, it could be that the lender is short 12 days rent in the payoff because of credit to the Buyer!

Have fun.

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Permalink Reply by Simon Campbell on March 12, 2013 at 3:02am

This is a simple matter that is commonly handled by the escrow company.  The security deposit must be paid by the seller. They should never have spent the money in the first place as it did not "belong" to them but was to be held in escrow.  The rent is a simple pro-ration on a per diem rate. Make sure the Seller does not spend their amount either (their share can be used to put toward the security deposit that they need to pay to the Buyer). Another option is to have the tenant pay their rent to the escrow company. This will ensure that the money is not spent. If it looks like there is going to be a couple of months until closing - well there is the security deposit.

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