When an apartment building is sold, how should the renters' security deposits be represented on the HUD 1 statement?

In the context of an apartment building sale, security deposits held by renters should not be included in the HUD-1 statement because they are not part of the transaction between the seller and the buyer. Security deposits are funds that belong to the tenants and serve to secure their rental obligations, which means these amounts are essentially held in trust by the landlord or seller for the benefit of the tenants.

When the property is sold, the security deposits typically remain with the property until the tenants' leases are terminated or transferred in accordance with relevant laws and agreements. Therefore, it is standard practice to exclude security deposits from the settlement statement to prevent any confusion about the funds that are not part of the transaction, allowing for a clear delineation of the actual selling price and other relevant fees.

This aligns with the general principles of real estate transactions where only the financial aspects related to the impetus of the sale should be documented in the HUD-1 statement, while any third-party trust funds, like security deposits held for tenants, are left out of the equation.