Can My Tenant Withhold Rent?

This question trips up landlords, attorneys and even judges from time to time.

The short answer is a resounding NO.

North Carolina statute N.C.G.S. 42-44(c) provides that "The tenant may not unilaterally withhold rent prior to a judicial determination of a right to do so." This begs the question, "when can a judge determine a tenant has a right not to pay rent?"

For the answer we must back up a little to N.C.G.S. 42-41, which states "The tenant's obligation to pay rent under the rental agreement or assignment and to comply with G.S. 42‑43 and the landlord's obligation to comply with N.C.G.S. 42‑42(a) shall be mutually dependent." N.C.G.S. 42-42(a) sets out a landlord's responsibilities with respect to maintaining the property, and N.C.G.S 42-43 sets out the tenant's responsibilities regarding maintenance of the property. You can click on the statute if you would like to view it, but a more detailed discussion of these responsibilities will be in another post.

Now this is starting to get confusing. N.C.G.S. 42-41, stating that a tenant's obligation to pay rent is dependent on a landlord maintaining the property, seems to contradict N.C.G.S. 42-44, which says a tenant may not unilaterally withhold rent. The two statutes are reconciled by allowing the judge to determine the actual value of the property above that stated the tenant cannot withhold rent. The two statutes are reconciled by allowing a judge to determine the value of a property in disrepair, subtracting that from the actual rent, and awarding the tenant an abatement in the amount of the difference.

The way this works is: $750.00 (amount of rent) - $500.00 (rental value of property in disrepair) = $250.00 (rent abatement). The landlord will then have to return to the tenant the abatement amount. There is also the possibility that a tenant can in limited circumstances prevail on an Unfair and Deceptive Trade practices claim relating to failure to repair, which can get very expensive. I will discuss this process in greater detail in a subsequent post, because this is a bad news topic, and this is a good news post.

The good news being that a tenant does is not allowed to withhold rent.

One more quick point: This is particularly good with respect to repair issues because a tenant cannot fail to pay rent and then try to blame some sort of minor property defect as the reason for this failure, justifying the tenants non-payment.

If you have any questions relating to North Carolina Landlord Tenant Law that you would like addressed in this blog send me an e-mail at norm@starklawgroup.com

Big Changes to Lease Backs for Sellers in Default!

The second major change for property owner's in the Homeowner and Homebuyer Protection Act("the Act"), effective October 1, 2010, affects foreclosure rescues. Below I explain how to comply with the Act and avoid trouble if you engage in these deals.

What does the Act consider a foreclosure rescue?

A rescue is a sale of real property where:

a. It is the principal residence of the seller;

b. The seller is in default (defined as the seller being more than 60 days delinquent on any loan or debt that is secured by the property, including real estate taxes) or foreclosure;

c. The purchaser or his agents make representations that the sale of the
property will enable the seller to prevent, postpone, or reverse the effect of foreclosure and to remain in the residence; and

d. The seller retains an interest in the property conveyed, including a tenancy interest, an interest under a lease-purchase agreement, an option to reacquire the property, or any other legal, equitable, or possessory interest in the property conveyed. This would include any "subject to" deals.

What types of property are affected?

Property that has one or more single-family dwellings, including an individual condominium unit, cooperative unit, manufactured home, or mobile home.

What does the Act require?

The purchaser must pay the seller at least 50% percent of the fair market value of the property as set by a licensed appraiser. The appraisal must be performed no more than 90 days before the sale. Further, the appraisal must be delivered to the seller within 3 days after it is performed and at least 7 days before the sale.

This would make "subject to" deals much more difficult if the seller is in default.

Are there any new contract requirements?

The contract shall be in writing, signed by all parties, and contain all the terms to which the parties have agreed. The contract shall contain the following:

(1) The names and addresses of all parties to the contract;

(2) The legal description of the property being transferred;

(3) Any financial obligation of the seller that will be assumed by the purchaser;

(4) The total amount to be paid by the purchaser;

(5) The fair market value of the property;

(6) A description of the interest in the property retained by the seller; and

(7) The terms of the seller's right to any future possession or ownership of the property.

If I don't comply with the act what are the penalties?

Failure to comply with the act is considered an unfair trade practice. The seller may bring an action for the recovery of damages, to void a prohibited foreclosure rescue transaction, as well as for declaratory or equitable relief, and attorney's fees.

Are there any exemptions or exclusions?

The following buyers are exempt from the Act:

a. A member of the seller's immediate family;

b. A government agency or organization;

c. A bank, savings institution, or credit union; or

d. A licensed mortgage lender or mortgage servicer.

In summation the big change is that you will need to purchase rescue properties for at least 50% of their appraised value.

If you have any questions or comments on the Act or this post feel free to contact me by e-mail or telephone.