Peter Lohmann describes a $40K dispute where a seller failed to hold tenant security deposits in a trust account, instead distributing them to owners who credited them as personal funds. When the new owners claimed deposits covered damage costs, the sellers had to dig up three-year-old records to prove otherwise, sparking a protracted fight that could have been prevented with proper trust account verification.
the seller was like, oh, we don't hold the security deposits. We were like, what do you mean you don't have the security deposit in your trust account? They're like, no, we distribute those right to the owner as soon as they come in. And we're like, okay. And we just kind of like, we just proceeded and closed. Well, that was true. They did distribute the security deposit to the owners. The problem is the owners didn't really understand that accounting because they just credited it to their owner account. And so what happened every single time we had a move out from those accounts that we purchased, the owner said, well, why is it this expensive? Didn't you take the security deposit to pay for some of these damages? And we said, well, actually you got the security deposit 3 years ago when the tenant moved in. And the owner said, no, we didn't. And we said, yeah, we did. And luckily we were able to get access to their old Appfolio account, dig up, show them the statement showing that they actually did get it. But of course they didn't believe it. And there was all this arguing about it. So whether you guys look into it or not, my advice to the audience is really take a close look at the trust account and have the security deposits and the reserves been properly accounted for, and what is the owner's understanding of how that was done, just so you don't run into any surprises.
