Short answer
Within five days of delivering the deed, the former owner must turn over all security deposits plus the tenant's share of interest to the new owner and notify the tenant by registered or certified mail. The new owner is responsible for the deposit either way. After the transfer is made, the former owner is relieved.
The five-day rule
The Department of Community Affairs says that if a property is sold, foreclosed or conveyed for reasons of bankruptcy or insolvency, the former owner must, within five days of the date of delivery of the deed, instrument of assignment or court order, turn over to the new owner all securities plus the tenant's portion of interest earned. The former owner must also notify the tenant by registered or certified mail of the name and address of the new person holding the deposit. After the transfer and notification, the former owner is relieved of responsibility for the deposit.
The new owner's duties
The bulletin says it is the new owner's duty to obtain the deposit and accrued interest collected by the former owner. Whether or not they are transferred, the new owner is responsible for investing the deposit, giving all notices, paying interest and returning the deposit with any accrued earnings. A security deposit notice must be given by the landlord within 30 days of acquiring the property. A buyer who learns the deposit was not funded may ask for a credit at closing, so be ready for the question.
What to put in the sale paperwork
Ask the closing attorney to list each tenant's deposit amount and the account where it is held, and to handle the transfer or credit at closing. Keep a copy of the notice you send to each tenant, along with the certified mail receipt. If the deposit has to come from a bank account, check that the interest is tracked per tenant, because the interest belongs to the tenant, not the landlord.
Missing or misused deposits
If a deposit was spent or never invested properly, fixing it before the sale is better than facing the buyer's attorney. The bulletin warns that a landlord who unlawfully diverts a deposit may be considered a disorderly person and fined not less than $200 and/or jailed up to 30 days. It also says a tenant can sue for double the deposit if it is not returned on time. Another answer on this site covers deposit rules in detail.
A cash buyer and the deposit
Kaizen Home Buyers makes cash offers on New Jersey houses as-is, with no repairs and no agent commission. We can give an offer within 24 hours and close in 14 to 30 days or on the date you choose. Call 267-329-0084. Tenant deposits are a closing item to work out with the attorneys on both sides, whether the buyer is us or someone who bought through an agent listing.