Does money set aside for “Reserves” get passed on to new owner at closing?

I’m aware that typically money from rent roll and security deposits are usually, if not always, transferred from the seller to the buyer at closing.

If the seller has an account set aside for reserves, it that typically transferred at closing?

Thanks again!!

Hi Bill,

I’m not sure if you’re referring to the impound account the seller has with their mortgage (for property taxes and insurance).

If so, the only way that would transfer is if you took the property over “subject to” existing financing AND negotiated the transfer of the reserves to you.

If you’re just referring to the seller putting aside a sum of money for “just in case”, then no, those funds will not be transferred to the buyer at closing. The exception would be if you were purchasing the LLC that holds the property and as a result were also purchasing the current balance in any bank accounts. Since it’s unlikely that’s what is being done, assume that you will receive only pro-rated rents and security deposits.

Another thing to note is, although of course the rents & deposits are supposed to transfer to the buyer at closing, you as the buyer are responsible to ensure they are included on the HUD-1 before signing the closing documents. I have had five different closings where the title company neglected either all or part of the appropriate credits from the seller.

If you’re dealing with a title company that is accustomed to closing investment properties, it’s less likely they’ll forget this. Other title companies are used to dealing with normal homeowner purchases where no such transfers take place. It’s not a purposeful error, just a somewhat common what in my experience.

I hope that helps.

Have an awesome weekend!!