Getting Your Security Deposit Back

Getting Your Security Deposit Back After Foreclosure

You do not lose your right to get your security deposit back just because a bank or other lender has foreclosed on your landlord's property. The old landlord is obligated to transfer your security deposit to the person or entity that purchases the property at the foreclosure sale. If she does this, the new owner becomes fully responsible for the security deposit and must notify you within 45 days that it has the deposit and is holding it in a separate interest-bearing account.

After a foreclosure, however, the old landlord usually does not transfer the security deposit to the new owner. This does not mean you have lost your deposit. If your old landlord does not properly transfer your deposit, you can recover it from either the old landlord or the new owner.¹⁵

Recovering Your Security Deposit from the Former Landlord

To recover your security deposit from your old landlord, you should send her a demand letter and then, if still necessary, take her to court (see Form 5 Security Deposit Demand Letter in Chapter 3: Security Deposits and Last Month's Rent). You should begin this process right away because after a foreclosure, your old landlord may be difficult to locate. Even if you can locate your old landlord, it may be difficult to collect the security deposit from her. A landlord who has just lost her property in foreclosure is almost certainly having serious financial problems and may even have spent your security deposit, although that is against the law. This can make it difficult, if not impossible, to recover the security deposit from her, even with a court order.

Recovering Your Security Deposit from the New Owner

The bank or other new owner is likely to have the funds to return your security deposit and may be easier to find than your old landlord. For this reason, you may want to try to recover your security deposit from the bank.

New owners after foreclosure are responsible for your security deposit unless they are a bank chartered by the Commonwealth of Massachusetts or the United States and foreclosed on the property.¹⁶ In many cases, the new owner after a foreclosure is actually a group of investors who have formed a trust and hired a bank to be the trustee responsible for managing the foreclosure. In these cases, it should not matter whether the bank is chartered because the trust itself is not chartered. In other words, if an investment trust owns your property, it should be responsible for your security deposit regardless of who the trustee is. Even if the new owner is a chartered bank, if it purchased the property at the auction, it should be responsible for your security deposit, because the security deposit law excuses only lenders who are foreclosing on a property, not lenders who purchase a property at the auction.¹⁷

If the new owner refuses to acknowledge possession of or refuses to return your security deposit, you can send it a demand letter as you would with any landlord (see Form 5: Security Deposit Demand Letter). If the new owner still does not return your deposit, you can take it to court. If your security deposit, plus any interest you are owed, is less than $2,000, then you can file a small claims case. If your security deposit plus interest is more than $2,000, you should file a regular civil case. In most cases, though, you will be better off bringing your security deposit claim against the new owner as a counterclaim if the new owner files an eviction case against you. If you raise a security deposit claim in an eviction case, it can also serve as a defense against the eviction and prevent your eviction.

For more information about security deposits, see Chapter 3: Security Deposits and Last Month's Rent.