Tuesday, September 28, 2010

Security Deposits: How Much Can I Require, and What Do I Have to with Them?

Residential security deposit law in North Carolina is governed by the Tenant Security Deposit Act and can be found at N.C.G.S. 42-50 through 42-55. As is often the case in tenancy law, this act primarily addresses issues in residential tenancies so this article will be addressed to residential security deposits.

How much can I charge for the security deposit?

Unfortunately the answer to this question is a moving target. The amount of security deposit depends on the term of the tenancy as follows:

(a) If the term of the tenancy is week to week, the landlord can require two weeks rent;

(b) If the term of the tenancy is month to month, the landlord can require one and one-half month’s rent; or

(c) If the term of the tenancy exceeds one month, the landlord can charge two months rent. See N.C.G.S. 42-51.

Are there additional fees a landlord can charge?

Landlords are also entitled to a non-refundable "pet fee". The only requirement for the "pet fee" is that it must be reasonable, and the tenant must have a pet.

I have the security deposit, now what do I do with it?

A landlord must place the security deposit in a trust account with a licensed and insured bank or savings institution in North Carolina, and notify the tenant of the bank's name and address within 30 days after the beginning of the lease term. There are a couple of minor exceptions to this rule but they involve the landlord obtaining a bond for the amount of the deposit, and will not affect most landlords.

If you know where you will place the security deposit at the time you prepare the lease, it is wise to include this notification in the lease.

If you move the security deposit at any time, you should notify the tenant immediately in writing of the new location.

When must the deposit be returned?

The landlord must return the deposit to the tenant within thirty days after the end of the rental period. If the landlord deducts from the deposit for damage to the property, or for unpaid rent, those charges must be described to the tenant in writing, and the writing (also referred to as an accounting) plus any portion of the deposit still due to the tenant must be delivered within that same thirty-day period.

If the extent of the landlord's claim against the security deposit cannot be determined within 30 days, the landlord shall provide the tenant with an interim accounting no later than 30 days after termination of the tenancy and delivery of possession of the premises to the landlord and shall provide a final accounting within 60 days after termination of the tenancy and delivery of possession of the premises to the landlord.

What deductions can the landlord make from the security deposit?

You may only take deductions from the security deposit for: the tenant's nonpayment of rent and costs for water or sewer services; damage to the premises beyond reasonable wear and tear; nonfulfillment of rental period; any unpaid bills that become a lien against the demised property due to the tenant's occupancy; costs of re-renting the premises after breach by the tenant; costs of removal and storage of tenant's property after a summary ejectment proceeding; or court costs in connection with terminating a tenancy.

Additionally, it should go without saying but, you can only deduct your actual damages, and you should keep receipts to substantiate your deductions in case you are sued by the tenant.

What if I don’t know where to send the security deposit to the tenant after he vacates the property?

If the tenant's address is unknown the landlord shall apply the deposit as permitted after a period of 30 days and the landlord shall hold the balance of the deposit for collection by the tenant for at least six months.

It is a good practice to send the deposit to the tenant via certified mail. If the mail is returned unopened put in the tenant’s file the same way. If you are later sued for failure to return the deposit you will have clear evidence that you attempted to return it.

What if I fail to comply with the act?

If the landlord fails to account for and/or refund the balance of the tenant's security deposit as required by this Article, the tenant may institute a civil action to require the accounting of and the recovery of the balance of the deposit.

The willful failure of a landlord to comply with the deposit, bond, or notice requirements of this Article shall void the landlord's right to retain any portion of the tenant's security deposit as otherwise permitted under G.S. 42-51.

In addition to other remedies, the tenant may recover damages resulting from noncompliance by the landlord; and upon a finding by the court that landlord is in willful noncompliance, the court may award attorney's fees to be taxed as part of the costs of court.

What if I sell or buy a rental property already occupied by tenants?

Within 30 days after the termination of the landlord's interest in the dwelling unit in question, the landlord shall, do one of the following acts:

(1) Transfer the portion of the deposit remaining after any lawful deductions made under this section to the landlord's successor in interest and thereafter notify the tenant by mail of such transfer and of the transferee's name and address; or
(2) Return the portion of the deposit remaining after any lawful deductions to the tenant.

Upon receipt of the deposit the purchaser must place it in a trust account with a licensed and insured bank or savings institution in North Carolina, and notify the tenant of the bank's name and address within 30 days after the beginning of the lease term.

Happy landlording!

Monday, September 20, 2010

Big Changes to Lease Options in 2010

If you, the landlord, ever offer your tenants a lease option to purchase the rental property then you should learn about this new law. The Homeowner and Homebuyer Protection Act, Senate Bill 1015 takes effect on October 1, 2010, and can be found at http://www.ncga.state.nc.us/Sessions/2009/Bills/Senate/PDF/S1015v8.pdf.

What options are affected?

The new law affects all options to purchase contained in a lease, or executed concurrently (at or near the same time) with the lease. If you offer an existing tenant an option to purchase then this law should affect you.

Are there any changes to the option contract?

The option contract is now required to be in writing and given to purchaser. Further, the option contract must be recorded by the seller at the register of deeds within five business days after signing by both parties. In the alternative, the seller can record a "Memorandum of Option Contract," which must contain the names of the parties, the signature of the parties, a description of the property, the time during which the option must be exercised, and a statement that the purchaser has the right to cure a default once every twelve months.

The option contract itself must contain:

1) full names and address of all parties to the contract;
2) the date the contract was signed by each party;
3) a legal description of the property to be conveyed subject to the option;
4) the sales price of the property;
5) all fees or payments paid by each of the parties including the option fee;
6) all duties whose breach will result in forfeiture of the option;
7) the time period during which the option may be exercised;
8) a statement of the rights of the purchaser, including the right to cure a default once during each 12 month period; and
9) a statement in at least 14 point boldface directly above the purchaser’s signature, that the purchaser has the right to cancel the option any time prior to midnight of the third business day following the signing of the option.

What happens if the purchaser defaults?

In the case of default, as stated above the purchaser has the right to cure once every 12 month period. The seller must be given at least 30 days from receipt of the notice before he is evicted or loses the option. Additionally, the seller must provide a written notice of default that advises the purchaser of:

a) the nature of the default, including the amount if the default is a failure to pay;
b) the date by which the purchaser must cure the default or the option will be forfeit; and
c) the name and address of the seller or the attorney for the seller.

The notice of default must be served by hand, sheriff, or certified mail or equivalent.

What if the purchaser does not remedy the default?

The seller must obtain and record a mutual termination executed by both the purchaser and the seller, or obtain a judgment by a judge of competent jurisdiction that terminates the option and extinguishes the purchaser’s right of redemption. The judgment must be recorded at the register of deeds as well.

After the default notice has been served, and not cured within 30 days if it is the purchaser's first default of the year, the seller may move forward to cancel the option and the purchaser's equitable right of redemption by either:

a)filing an agreement terminating the option, signed by all parties, at the register of deeds; or
b)obtaining a court order terminatng the purchaser's option, and filing the order with the register of deeds.

What if the seller defaults?

If the seller defaults on a loan secured by the property during the option period the purchaser may cancel and rescind the option contract. The seller will have to return all monies paid by the purchaser under the option, less the fair market rental value of the property while it was occupied by the purchaser and compensation for any damage to the property by the purchaser that is beyond normal wear and tear.

What are the penalties for violating the act?

A violation of this act is an unfair and deceptive trade practice subjecting the seller to treble damages and attorney’s fees, as well as equitable and declaratory relief.

Are there any other changes taking place?

YES, there are new rules governing purchases with lease backs, and installment land contracts. You should read the act in it is entirety and/or contact the writer or other competent legal counsel. In future posts I will address these other changes.

Saturday, September 18, 2010

You Purchased a Property at Foreclosure and there is a Tenant in it. Now What?

So, you have bought a property in foreclosure and you find there is a tenant living there that you would prefer did not live there. Maybe you didn't do as much due diligence on the property as you should have, or maybe the tenant is paying under market value for the property. Whatever the reason you want him, her or them out.

The rules governing what you need to do to remove this tenant changed last year under the The Protecting Tenants at Foreclosure Act of 2009 (PTFA), part of the Helping Families Save Their Homes Act of 2009 (Public Law 111-22, approved May 20, 2009).

Does the PTFA affect all residential rental property?

The act applies to "a federally-related mortgage loan or any dwelling or residential real property after the date of enactment of this title. . ."

Does it affect all tenants?

Only "bona fide" tenants are protected by the PTFA. A bona fide tenant:
a) has a lease that was entered into before the Notice of Foreclosure;
b) who is not the mortgagor, their child, spouse or parent;
c) whose lease was an arm's length transaction; and
d) has a lease that is not substantially less than fair market value.

So it affects most properties and most tenants, what do I have to do to comply?

If new owner does not intend to personally occupy the dwelling, he may give the tenant 90 days written notice to quit the property, unless the tenant is under a lease that does not expire within 90 days from the notice, then the tenant is entitled to remain through the end of their lease.

If the new owner intends to occupy the rental unit, then it does not matter whether there is an unexpired lease term. The new owner must simply terminate the lease immediately and give the tenant 90 days written notice to vacate.

What if the tenant doesn't vacate?
If the tenant does not vacate at the expiration of the 90 days you will need to file a summary ejectment action just as you would for any tenant holdover. The landlord should be able to sue the tenant for rent during the time that you held the property, but that is a topic for another post.

Additionally, the act was scheduled to sunset on December 31, 2012, but was extended 2 years to December 31, 2014 by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Friday, September 10, 2010

Bed Bugs!!!!!!!!!!!!!!!

Bed bugs have made a resurgence all over the world and North Carolina has not been immune. This is not a problem that any property owner or manager should take lying down. Below I am posting an e-mail from the Wake County Government about an upcoming Bed Bug informational meeting they are having on October 6, 2010

From: Carla.Piedrahita@wakegov.com [mailto:Carla.Piedrahita@wakegov.com]
Subject: Bed Bug Interest Meeting - October 6 - Please RSVP

Wake County Government has observed an increase in the
number of reports of bed bugs in the community. While
bed bugs do not transmit disease, they can severely
impact the quality of life of our citizens. Reported
cases of bed bugs seem to be on the rise, but we still
believe there is an opportunity to develop education and
outreach programs and services that can serve as
valuable resources to our citizens to address this problem.

On Wednesday, October 6, 2010, from 10 am until noon, Wake
County Government will host a meeting of concerned parties
to discuss the issue of bed bugs in our community. The
meeting will be held in the Boardroom (344) of the Health
Department, located at 10 Sunnybrook Rd in Raleigh (next to
WakeMed Hospital). We would like to use the meeting to
review and discuss information regarding the current degree
of bed bug infestation in the community, public health concerns
associated with bed bugs, programs and services that are
currently available to citizens to address bed bugs, methods
and techniques used to eliminate bed bugs, current research on
bed bugs, and lessons learned from other communities. At the
conclusion of the meeting, it is anticipated that a series of
follow up meetings will be scheduled as part of a plan of work
to develop bed-bug related education and outreach programs and
services for our citizens.

We are looking forward to meeting you on October 6th. Please
RSVP to Carla Piedrahita by replying to this e-mail. If you
are unable to make the meeting, or if there is another person
from your office that would be more appropriate, feel free to
send a representative. Please don't hesitate to call if you
have any questions in the meantime.

Thanks for your interest in attending this meeting.

Tommy Esqueda
Wake County Environmental Services

Carla Piedrahita
Health Educator
Communicable Disease Program
Wake County Human Services
10 Sunnybrook Rd., PO Box 14049
Raleigh, NC 27620-4049

E-mail correspondence to and from this address is subject to
the North Carolina Public Records Act and may be disclosed to
third parties unless made confidential under applicable law.

Thursday, September 9, 2010

I Need to Evict a Tenant. If I Sue Will I Get a Money Judgment, Possession, or Both?

In North Carolina a landlord or property manager seeking eviction has the option of choosing to obtain both a money judgment and a judgment for possession or just a judgment for possession, pursuant to N.S.G.S. 42-28. Although it seems that you would want to get both remedies at the same time, this is often not the case

I will start with the reasons why you would not want to get both a judgment for possession and money damages at the same time.

1) You may only be able to sue a tenant for money damages once, and you will only be allowed to sue for damages through the date of trial. Lawyers like to say, "you only get one bite at the apple." You probably will not know the full extent of your money damages until you have obtained possession and access to the rental unit, or possibly until you re-let the unit or the lease expires.

2) You must personally serve the tenant(s), or the tenant must appear in court for a money judgment, but you can serve the tenant(s) by posting the summons and complaint on the property in a judgment for eviction, pursuant to N.C.G.S. 42-29. Generally, you want an eviction action to proceed as quickly as possible so that you can cut your losses and move on. If you have trouble locating the tenant(s) this could delay your action.

3) If you are suing in Small Claims Court, your damages are limited to $5,000.00. Hopefully, your damages will not exceed this amount, especially because you should be holding a security deposit, but the damages can add up quickly.

Reasons to sue for both a money judgment and possession of the rental unit at the same time:

1) You may only need to appear at court one time.

2) You will not have to wait to begin collecting on your money judgment.

3) You may have difficulty locating the tenant after they have been removed from your property.

4) The tenant may be more likely to make payment arrangements if they realize they are facing a money judgment together with the eviction.

Different landlords and property managers will have their own preferences. The important thing is that you make an informed decision and don’t unnecessarily discard your rights.

Legal Disclaimer

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Nothing in this blog shall create an attorney-client relationship. The opinions expressed herein are those of the blogger and not of the PRAET LAW FIRM, PLLC.