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
Saturday, October 9, 2010
Friday, October 1, 2010
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.
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.
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!
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.
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.
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