Short answer
The deposit is still the tenant's money, and the tenant can sue a former landlord if it is not returned on time. When you sell, put the deposit in the sale contract: who holds it, how much, and how it is credited on the settlement statement. Ask a Pennsylvania landlord-tenant attorney to confirm the details.
The tenant's claim does not vanish
The Philadelphia Municipal Court pamphlet states that a tenant may sue a former landlord to recover a security deposit that has not been returned in a timely manner. The documents the court lists for such a case include the lease, proof the tenant returned the key and gave a forwarding address, a written demand and any explanation the landlord sent.
That tells you the risk. If a sale leaves the tenant's deposit unaccounted for, you may be the one the tenant comes after.
Treat the deposit as a liability that moves with the house only if you make it move. Nothing happens automatically just because a deed is recorded.
Decide it in the contract
The cleanest approach is to address the deposit in the agreement of sale. State the amount of each tenant's deposit. State whether the deposit transfers to the buyer, with a credit to the buyer on the settlement statement, or is returned to the tenant at closing. Both are possible. Pick one and write it down.
This answer did not review Pennsylvania's statute on deposit limits, escrow or return deadlines, so it does not state them. Ask an attorney for those rules before you finalize the paperwork.
A credit to the buyer on the settlement statement is the usual way to show a transfer, but ask the title company to confirm how it handles deposits. If you hold the deposit in a separate account, make sure the transfer of that money matches the credit.
Records to hand over
Give the buyer the lease, the deposit amount, the date it was collected and, if it is held in a separate account, the account information. Keep copies for yourself. Include any interest owed under the lease or statute.
If a tenant is moving out as part of the sale, document the condition of the unit with photos and a walk-through, since the deposit decision will depend on it. The court pamphlet notes landlords may seek repair costs when a deposit is not enough, and photographs and invoices are among the documents the court asks for.
Keep a list of what each tenant paid, because multi-unit houses are where errors show up. One missing deposit is a dispute waiting to happen.
Tell the tenant
Send the tenant a short written note after closing that says who now holds the deposit and who to contact. It heads off confusion, particularly if the tenant gives notice soon after the sale.
Kaizen Home Buyers buys as-is, offers within 24 hours and charges no agent commission. If you want a cash offer on a rental, tell us how many tenants and deposits are involved so the paperwork is clean. Call 267-329-0084.