Seller keeps rent deposit from new building owner

Q: My husband and I purchased a six-flat a few months ago. This was our first purchase of an investment property. Everything was going along fine until one of our tenants told us he was moving out at the end of November. No problem with that except he asked us when he would be receiving his security deposit back.

When we closed, the seller told us this tenant used his security deposit for rent earlier in the year. We told the tenant what the seller told us and he said it was not true. He has offered to show proof of all payments made in 2019.

Now what? We have a rent roll that shows no security deposit for this tenant and a tenant that will be demanding his deposit back, which is $2,000. Any advice you could give us would be appreciated.

A: First, I would take the tenant up on his offer to show proof of all 2019 payments. If possible, have him include 2018 payments also, anticipating that the seller may come back saying "maybe it was a 2018 payment he missed." Presuming the tenant can document his payments, you are left with dealing with the seller.

Have your attorney forward a letter to the seller's attorney describing the issue and include the tenant's proof of payments. Demand that you be reimbursed the $2,000. In the event seller ignores your demand (which is likely), you would need to decide if this was worth pursuing in court.

You have a couple options. One, file a pro se complaint (Latin for "on your own behalf"). Most counties have a simplified procedure for small claims like this without attorneys. They are handled somewhat like "People's Court" on television. You could, of course, hire an attorney but this is generally impractical for this size case as the attorney fees would likely exceed any benefit you may derive from the litigation.

This comes with one caveat, though. Review your sales contract. There is a good chance the contract contains a provision stating that in the event either party files a lawsuit to enforce the terms of the contract, the prevailing party is entitled to collect attorneys fees from the non-prevailing party. If applicable, I would have your attorney include this in the initial letter to the seller's attorney.

For all you prospective purchasers of investment property, especially where you are inheriting tenants, one way to avoid the above situation is to demand "estoppel" letters from your seller. An estoppel letter is a statement, signed by the tenant, indicating the monthly rent and the outstanding security deposit. Now you have a documented statement from each tenant that can help avoid this situation, especially for longtime tenants at the property.

Q: My husband and I are looking to purchase our first home. I came across a property that is listed as a short sale. I'm not sure what that means though some friends have advised me to stay away. Can you explain what a short sale is and whether or not I should take my friend's advice.

A: A short sale is where the seller does not have enough equity in the property to pay off his or her mortgage. To illustrate, seller sells for $200,000 but owes $210,000 on the mortgage. When this occurs, a seller often asks his mortgage company to accept less than the full amount owed to them. There is a short-sale process involved with this that usually results in it taking longer, sometimes much longer, to close.

This can be a problem when the buyer needs to close by a certain date. This may be because the buyer is selling his or her home and wants to move straight into the new home, or the buyer is ending an apartment lease and must vacate the apartment by a certain date. However, a short sale may be an excellent opportunity for a flexible buyer, such as a buyer living with mom and dad. Short sales often offer discounted prices so presuming you are flexible and no other negatives exist, don't let the fact that this is a short sale discourage you from moving forward.

• Send your questions to attorney Tom Resnick, 910 E. Oak St., Lake in the Hills, IL 60156, by email to tom@thomasresnicklaw.com or call (847) 359-8983.