Security Deposit return

Tenant recently moved out and is asking for a return of a security deposit which they never paid since they took over the apt. from friends who paid the actual security but never asked for it when they left. The security amount was left on the lease. The last tenant may or may not have paid their friends the security money. Is this last tenant entitled to security refund?

No. The deposit should have been retuined to the former tenants when they vacated according to your state law. You should have requested a new deposit from these tenants. Did these tenants take over, as in a sublet, from the others? If so, the first tenants have the deposit coming to them as the unit they rented is now vacant.

The last tenant signed a lease with me ( landlord ) to rent the apt.; it was never a sublet situation. Just that the original tenants did not ask for security return. Now last tenant states he paid the former tenant security and I asked for proof of that of course. Also what if the original tenant asked for security return at this point?

If you signed a lease with this tenant, why didn't you refund the former tenants' deposit and collect a new one from this tenant? You can't return this deposit to him because he never paid you a deposit. You have no way of knowing of any side agreements between these tenants, do you? You would have to contact the old tenants and get a signed letter saying they transferred their deposit to this tenant before you could legally release it to him. They should have given you this when they left. If you knew of the deposit transfer, you should have asked for it at that time.

Normally, a deposit only stays with the LL in a sublease situation. All others should have the deposit refunded after inspection (and deductions for damages caused by their tenancy), just prior to the new tenant taking occupancy. When you signed that new lease, you terminated the lease from the former tenants, and were supposed to have refunded their deposit at that time. Why didn't you? Get ahold of those former tenants ASAP.