Apply deposit toward rent in landlord foreclosure?

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Q: We have learned that our landlord is in foreclosure, but we don’t know how quickly the bank will move. Meanwhile, she expects us to pay rent, but we seriously doubt that we’ll ever see our security deposit. I asked if we could apply the deposit to the next month’s rent, and of course she refused and told us she’d terminate the lease if we tried that. Any suggestions? –Albie A.

A: You aren’t alone in facing the dismal prospect of paying rent to a landlord who is so short on funds that she can’t make her mortgage payments. You are also not to be faulted for fearing that your deposit, if it hasn’t been used up already, will not be returned to you.

When property changes hands, owners are legally required to either return the deposit or transfer it to the new owner, and this rule applies whether the new owner is a foreclosing bank or someone who buys the house in a regular sale. But in foreclosure situations, the defaulting owner seldom returns the deposit or gives it to the bank.

In most states, the new owner in this situation is held responsible as a matter of law for returning the deposit. This is only fair, as the bank had the opportunity to require the former owner to transfer the money, but banks have not been known for following through with these details. And many tenants, caught in foreclosed rentals that have deteriorated, are so demoralized and intimidated that they move on and fail to press the issue.