You do not lose your security deposit just because the property was foreclosed. The old owner should transfer your security deposit to the new owner at the foreclosure sale. If the old owner does not transfer it, you can still get your deposit back.
In most cases, the new owner is responsible for your security deposit even if the old owner did not transfer the deposit.59
a. Old owner has security deposit
If the old owner has your security deposit, she is probably having money problems, so do these things right away:
- Send her a demand letter. See Security Deposit Demand Letter (Form 5).
- If the old owner does not return your deposit, you may have to sue her in court. See How Do I Get My Security Deposit Back?.
b. New owner has security deposit
Usually it is easier to get your deposit back from the new owner than the old owner. If the old owner gave the new owner your security deposit, the new owner must notify you within 45 days that she has it. The security deposit must be held in a separate account that earns interest.60
The new owner usually owes you the security deposit even if they did not get it from the old owner. The new owner can choose to pay you the deposit amount or to give you free rent for the amount of time the security deposit would have paid for.61 If the old owner did not transfer the security deposit, you could get it from her instead. You can only it back once.
Some banks do not have to repay you if the old owner did not give them the deposit.62
If the new owner refuses to give you your security deposit send her a demand letter. See Security Deposit Demand Letter (Form 5). If she still does not return your deposit, you may have to sue her in court. See Chapter 3: Security Deposits and Last Month's Rent.
If the old owner or new owner does not give you your deposit back, you can sue them for 3 times the amount owed.63
To learn more about required foreclosure notices and the foreclosure process, see our publication, Foreclosure for Homeowners.
c. Last Month’s Rent
After a foreclosure, you do not lose your prepayment of last month’s rent or the interest on it. Like your security deposit, the old owner must give the money to the new owner.64 The new owner has 45 days to send you a notice saying that she has your last month’s rent and security deposit. If the old owner did not give the new owner your last month’s rent then you can get your money from either of them.
Exception: If the bank that foreclosed is the new owner, you may not be able to get your last month’s rent back from them if the old owner did not transfer it. 65
To get the money from the old owner, write a letter to demand she return your last month’s rent, plus interest. The old owner must return your last month’s rent plus interest unless she transferred it to the new owner and you were sent notice.66
If you gave the old owner a last’s month’s rent, do not pay the new owner last month’s rent. She cannot make you pay it again.67
If you paid the old owner last month’s rent, send a letter to the new owner that says:
You already paid the previous owner, and the old owner was required to transfer all security deposits, payments for last month’s rent, and interest on each to the new owner.68
To learn more about your right to get your deposit, last month’s rent, and interest, see Chapter 3: Security Deposits and Last Month's Rent - New Owners.
62 . Every new owner has to repay your security deposit, whether or not the old owner transferred it to them, except for a bank that foreclosed on the property that is chartered by the Commonwealth of Massachusetts or chartered by the United States. G.L. c. 186, §15B(5) ("The liability imposed by this paragraph shall not apply . . . to a foreclosing mortgagee or a mortgagee in possession which is a financial institution chartered by the commonwealth or the United States."); Flewelling v. Brookline Savings Bank, Boston Housing Court, 92-SC-00211 (Smith, J., May 4, 1993).
Whether a purchaser from a foreclosing exempt bank is liable for a security deposit or assumes the exemption of the foreclosing bank is the subject of a housing court dispute. See Mall Apartments Realty Trust v. Hernandez, Hampden Housing Court, 91-SC-1865 (Abrashkin, J., Mar. 16, 1992) where the court held that security deposit law did not insulate a purchaser at foreclosure sale from an exempt bank from liability for deposits; see also Cruz v. Cabrera, Northeast Housing Court, 92-SC-00074 (Sept. 25, 1992), where court found buyer at foreclosure sale liable to tenants for the return of security deposit and awarded tenant treble damages plus court costs (credited against unpaid rent); but see Deutsche Bank National Trust Co. v. Cole & Via, Boston Housing Court (Winik, J., Dec. 13, 2013)(Finding that the statutory language exempting foreclosing banks from liability under G.L. c. 186, §15B also exempts successors from liability.).
If the owner is Fannie Mae or Freddie Mac you can argue this exemption does not apply to them because they did not actually foreclose. Usually they are assigned the bid to take ownership after the foreclosure sale so they are not the “foreclosing mortgagee.”