I am currently in escrow to purchase a fully-rented tri-plex in California. Long-standing tenants have signed month-to-month leases with the lender/new owner and have each been paying rent to the bank for +/- 6 months. The prior owner has not returned security deposits as requested by the tenants (surprise!) and the bank has informed them that the only way to recoup their money is to sue the prior landlord in small claims... From my review of tenant's rights, it seems that "the successor owner" will be held responsible for those deposits once the tenants vacate. Can the bank be held liable since they have signed leases and are collecting rents? Will I be liable if I purchase this property?
Thank you for a reply or referral to another reference
I agree with Attorney Mashal, and would only add a comment: The reason why a "succesor owner" would be liable for tenant deposits is that the succession is by contract - a sale where the original landlord with the deposit obligation sells the property to the new landlord, and the new landlord thereby becomes the successor in interest to all of the rights and obligations of the selling lanldord. In a foreclosure, the bank is not the succesor in interest to any contractual obligations of the previous landlord.
Richard A. Rodgers, Esq.
200 N. Westlake Blvd. Ste 201
Westlake Village, CA 91362
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Take a look at Section 1950.5 of the California Civil Code. If the bank received title to the property through foreclosure, the bank cannot be held liable for any deposits held by the defaulting owner. If after receiving title, the bank accepted security deposits from tenants, both the bank and you (new owner) will be liable for these deposits; the bank can cutoff its liability by complying with Subsections (h)(1) and (h)(2) of Section 1950.5. Be sure to consult your own attorney to protect your legal rights.
If the former landlord did not transfer the tenants' security deposits to the bank as the new owner (and most likely and most logically did not), then the new owner (and each successor owner) is jointly and severally liable for returning the tenants' security deposit.
California Civil Code section 1950.5 (h) and (j) cover this:
" (h) Upon termination of the landlord's interest in the premises,
whether by sale, assignment, death, appointment of receiver or
otherwise, the landlord or the landlord's agent shall, within a
reasonable time, do one of the following acts, either of which shall
relieve the landlord of further liability with respect to the
(1) Transfer the portion of the security remaining after any
lawful deductions made under subdivision (e) to the landlord's
successor in interest. The landlord shall thereafter notify the
tenant by personal delivery or by first-class mail, postage prepaid,
of the transfer, of any claims made against the security, of the
amount of the security deposited, and of the names of the successors
in interest, their address, and their telephone number. If the notice
to the tenant is made by personal delivery, the tenant shall
acknowledge receipt of the notice and sign his or her name on the
landlord's copy of the notice.
(2) Return the portion of the security remaining after any lawful
deductions made under subdivision (e) to the tenant, together with an
accounting as provided in subdivision (g).
(i) Prior to the voluntary transfer of a landlord's interest in
the premises, the landlord shall deliver to the landlord's successor
in interest a written statement indicating the following:
(1) The security remaining after any lawful deductions are made.
(2) An itemization of any lawful deductions from any security
(3) His or her election under paragraph (1) or (2) of subdivision
This subdivision does not affect the validity of title to the real
property transferred in violation of this subdivision.
(j) In the event of noncompliance with subdivision (h), the
landlord's successors in interest shall be jointly and severally
liable with the landlord for repayment of the security, or that
portion thereof to which the tenant is entitled, when and as provided
in subdivisions (e) and (g). A successor in interest of a landlord
may not require the tenant to post any security to replace that
amount not transferred to the tenant or successors in interest as
provided in subdivision (h), unless and until the successor in
interest first makes restitution of the initial security as provided
in paragraph (2) of subdivision (h) or provides the tenant with an
accounting as provided in subdivision (g).
This subdivision does not preclude a successor in interest from
recovering from the tenant compensatory damages that are in excess of
the security received from the landlord previously paid by the
tenant to the landlord.
Notwithstanding this subdivision, if, upon inquiry and reasonable
investigation, a landlord's successor in interest has a good faith
belief that the lawfully remaining security deposit is transferred to
him or her or returned to the tenant pursuant to subdivision (h), he
or she is not liable for damages as provided in subdivision (l), or
any security not transferred pursuant to subdivision (h)."
Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, consult your own attorney.
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