Proposal: 5%-10% Tax, Plus Comprehensive Regulations
Like Uber and Lyft, is the law finally catching up with the new economy-disrupting technologies for the real estate industry like Airbnb? The answer is yes if Massachusetts legislators have their way. Today, Massachusetts House legislators are holding a hearing on a new bill which would tax and regulate Airbnb and other short term rentals. The proposal is House Bill 3454 (click to read). The proposal would impose a new excise tax between 5% – 10% on short term rentals, depending on whether the host rents his/her own residence, is a “commercial host,” or the rental is professionally managed.
According to a recent Boston Globe article, Airbnb, the largest of such rental sites, reports that it logged about 592,000 guests in Massachusetts last year. Had those stays been subject to the state’s hotel tax rate of 5.7%, that would have added an estimated $15 million to the Commonwealth’s coffers. The availability of such easy tax revenue may be too much for legislators to pass up this year, although a similar effort failed at the last minute last year.
Airbnb is happily sharing these calculations because it wants to be taxed, and this week it’s airing a new TV commercialabout the issue. Now don’t think for a second that this is some kind of benevolent new-economy thing. Guests, not Airbnb, pay the tax! Taxation is also a form of legitimization for these online portals.
The House proposal would also establish a comprehensive regulatory and safety scheme on Airbnb rentals, similar to that imposed on bed and breakfasts and other small local lodging facilities. Local towns and cities would be permitted to restrict certain types of short term rentals, the number of rental days allowed, require business licenses and a housing registry, and make the host obtain liability insurance of at least $1M in coverage. Violations of the new law carry a stiff fine of up to $1000/day for the illegal rental period.
The proposal has received much attention in recent months as hearings have been held across the state. The Massachusetts Association of Realtors has come out in opposition to the bill, as with many Airbnb hosts who rely on this source of additional income.
I will keep up with developments, so check back here from time to time.
Proposal Moving Through State House, But Funding Remains a Question
The Housing Court expansion plan to have statewide coverage has been gaining political momentum, but whether the plan will receive the long-term funding it needs to make it a reality remains a question mark. Legislators have filed two bills in the House and Senate which are co-sponsored by over 75 legislators. The bills were before the Joint Judiciary Committee on May 2, and are reportedly moving through the State House. Housing Court Chief Justice Timothy Sullivan hopes that the expansion will be in place by January 2019.
The expansion would provide currently unserved Middlesex County with Housing Court jurisdiction and reorganize the remainder of the system into 6 new geographic divisions. A new Central Division would serve Framingham, Marlboro, and other Middlesex county towns plus all of Worcester County. A new Northeastern Division would serve all of Essex county plus several towns along the Route 128 corridor including Waltham, Burlington, Lexington, Watertown, and Woburn. The new Eastern Division would be the largest, serving all of Suffolk County plus Somerville, Brookline, Cambridge, Newton, Medford, Arlington, and Belmont. A new Metro South Division would serve Norfolk county towns plus the Brockton area. The new Southeastern Division would serve the Bristol-Plymouth County/South Coast area (Taunton, Fall River, New Bedford), the Cape and Islands. The Western Division would serve the 4 western counties. The new sessions would be “mobile” and travel to existing district courthouses in addition to holding sessions in present facilities such as the Worcester County Courthouse and Edward Brooke Courthouse in Boston.
Landlords would still have right to file an eviction case in district court, but tenants would have right to transfer to Housing Court. So effectively the vast majority of eviction cases would wind up in the Housing Court.
The expansion bill increases the total number of judges to 15, up from 9. Of course, each new justice would cost $185,000/year under the controversial pay increase recently approved by House Leader Stan Rosenfeld, over Gov. Baker’s veto. The total cost of the expansion proposal could reach $2.4 Million or more. It appears that funding remains the primary obstacle to getting this expansion passed.
I would support the Housing Court expansion if the Legislature finally approves the long-awaited Rent Escrow bill requested by landlords to level the playing field in notoriously tenant-friendly Massachusetts. I believe that would be a fair trade-off for both landlords and tenants.
Just a quick note about yet another recent case demonstrating the backwards nature of Massachusetts landlord-tenant law. In CMJ Management Company v. Wilkerson, the Appeals Court ruled that a tenant could be evicted from Section 8 housing because her grandson shot and injured a neighbor child with a BB gun. Sort of reminds me of the movie the Christmas Story — you’ll shoot your eye out kid!
But — hold on — the court ruled the tenant would not be evicted because the housing court judge made a legal error by striking the tenant’s jury trial because she (not being represented by a lawyer) did not file a pre-trial memorandum. The net result is that the landlord is back to the starting line — the case goes back to the Boston Housing Court for a retrial, some 3 years after the eviction case was originally filed. Only in Massachusetts!
Questionable Ruling Goes Against Established Law That Foreclosed Owner Not Entitled to Notice to Quit
In a recent post-foreclosure eviction case before the Southeast Housing Court, Justice Anne Kenney Chaplin issued a head-scratching ruling that a third party purchaser at foreclosure was required to issue a 90 day notice to quit to the former owner. The ruling goes against the generally accepted rule of law that a foreclosed owner still in occupation of the mortgage premises is merely a tenant at sufferance, not entitled to any notice prior to an eviction. The case is Lenders Commercial Finance LLC v. Pestilli, 16-SP-03779, embedded below. This is a very troubling ruling which has the landlord-tenant legal community buzzing.
Foreclosed Owner Squats For 6 Years
In 2011, Bank of America foreclosed upon Bruce Pestilli’s home in Whitman, but Mr. Pestilli remained in occupation of the premises. As a side note, Mr. Pestilli filed a federal lawsuit challenging the foreclosure which was ultimately dismissed. Several years later in 2016, Lenders Commercial Finance LLC purchased the property from Bank of America and issued Pestilli a standard 30 day notice to quit, although such is not typically required in a post-foreclosure eviction. Lenders Commercial then filed an eviction action in Southeast Housing Court.
Pestilli’s lawyer again challenged the validity of the foreclosure during the eviction case. Lenders Commercial filed sworn affidavits and certified documents demonstrating that the foreclosure was conducted lawfully. Judge Anne Kenney Chaplin heard the matter on a motion for summary judgment.
Judge Rules 90 Day Notice to Quit Required
Although the legal arguments were centered around the foreclosure title issues, Judge Chaplin raised the issue concerning the notice to quit on her own even though the tenant’s attorney did not even make that argument during the case. Judge Chaplin held that a 90 day notice to quit was required under M.G.L. c. 186, § 12 because there was no evidence that there was any agreement between Lenders Commercial and Pestilli to pay rent. Well, that’s not surprising because the vast majority of post-foreclosure occupants have not made any payments to anyone for a long time! Indeed, in this case, Mr. Pestilli has not made any mortgage or rent payments for some six years.
Did Judge Make Major Legal Error?
The ruling goes against long-standing Massachusetts case law concerning the rights of third party purchasers of foreclosed properties. Massachusetts courts have universally held that after default and foreclosure, a former mortgagor is a tenant-at-sufferance, i.e., an occupant who has lost his or her title to the premises with no further right to possession. Further, courts have held that tenant-at-sufferance are not generally entitled to a notice to quit.
If this ruling is followed by other judges, it could give foreclosed owners another tactic to delay post-foreclosure evictions. Landlords and their attorneys should be aware of this ruling and prepared to push back that former owners are tenants at sufferance and not entitled to a 90 day notice to quit.
Property Owners Should Get New Marijuana Policies and Lease Riders In Place Now
On December 15, 2016, the recreational use of marijuana became legal in the Commonwealth of Massachusetts, after voters approved Ballot Question 4 The Regulation and Taxation of Marijuana Act. Driving down the Pike this morning on my way to Boston Housing Court, I did not see any “Cheech and Chong” scenes in vehicles. That said, the new law will no doubt affect the legal relationship between landlords and tenants and will likely result in disputes as to what can and cannot be done with respect to cultivating, growing and using marijuana in and around rental property.
What is Legal and Illegal Generally?
Adults (21 or over) may possess up to 10 ounces of marijuana in their primary residence. A person may cultivate up to 6 marijuana plants for personal use, and up to 12 plants per household are allowed if more than one adult lives on the premises. Marijuana growing at home must be done discreetly and securely. Marijuana plants cannot be plainly visible from the street or any public area and must be cultivated someplace where there is a security device.
Outside the home, adults 21 or over can possess up to 1 ounce of marijuana.
Recreational marijuana cannot be sold in any form in Massachusetts without a retail license. A Cannabis Control Commission, yet to be named, will be responsible for issuing retail licenses.
Marijuana cannot be possessed, purchased, grown or used by anyone under age 21 (unless they have a valid medical marijuana permit), and it’s against the law to give away marijuana to someone under 21.
Using marijuana is illegal in any public place. You can’t, for example, walk down the street smoking a joint the way you would a cigarette. It’s also illegal to use marijuana in any place where tobacco is banned.
Possession of any amount of marijuana remains illegal on school grounds, public housing, and government buildings.
Can Tenants Use or Cultivate Marijuana In Rental Property?
The key provision in the Act provides that it is illegal to:
“prevent a person from prohibiting or otherwise regulating the consumption, display, production, processing, manufacture or sale of marijuana and marijuana accessories on or in property the person owns, occupies or manages, except that a lease agreement shall not prohibit a tenant from consuming marijuana by means other than smoking on or in property in which the tenant resides unless failing to do so would cause the landlord to violate a federal law or regulation.”
As I read the new law, landlords have the ability through a lease agreement to regulate the smoking and cultivation of marijuana in rental property, except that landlords cannot prohibit the consumption of marijuana edibles or any other form of non-smoking consumption.
New Marijuana Lease Addendums Should Be Implemented
Now, here’s the rub. Most current leases in effect right now do not have specific provisions dealing with marijuana use. Some leases have anti-smoking and nuisance provisions, which would arguably prohibit pot smoking, but it’s not clear whether that would apply to the discreet growing of marijuana. Under general contract law, there must be some additional legal consideration to significantly amend a lease agreement and curtail a tenant’s rights. Thus, there is a question as to whether existing lease provision would apply to the tenant use/growing of marijuana. Courts will have to decide these issues going forward. I would imagine that most landlords would not want to take on the risk of hundreds of tenants each growing 12 marijuana plants in their apartments. As I explain below, it is incumbent upon landlords to get marijuana policies and lease riders in place now and going forward on new leases.
Practice Pointer: If you are a landlord and you want to have a strict marijuana use policy, you must act now and have your tenants sign a new lease addendum for recreational marijuana use. The addendum should, among other things, provide that smoking and growing of marijuana is strictly prohibited, while consumption of edibles is allowed, provided that it does not create a nuisance. There should also be indemnification language in the rider as well. My office can assist you with drafting a marijuana lease rider.
Vaping = Smoking?
Marijuana consumption technology has come a long way since your college dorm room. I’ve been told that many serious users use vaping technology which heats and vaporizes buds, giving the user a much cleaner and less toxic high. A question which may come up is whether vaping is equivalent to smoking. Not being an expert on marijuana technology, I will leave that to the experts. My brief Google research says that vaping does still produce a slight odor of marijuana but far less than traditional smoking of a joint or pipe. I think it will all depend on how vaping impacts neighbors in an apartment building.
Utility/Water Usage
If a tenant begins growing and cultivating up to 12 marijuana plants as allowed under the new law, how will that affect utility and water usage? Under the State Sanitary Code, the landlord is obligated to pay for electricity and gas in each dwelling unit unless it is separately metered and there is a written document that provides for payment by the tenant. See 105 Code Mass. Regs. § 410.354. Concerning billing a tenant for water use, under the Tenant Metering Law, a landlord can only bill the tenant water usage if he satisfies many onerous requirements such as getting local certification and installing low flow faucets and shower heads. If you allow growing of marijuana in your rental property, make sure that the tenant does not hose you with a huge water/electric bill. Again, your new marijuana lease rider should address this issue, among other items.
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If you need assistance with creating a new Massachusetts Marijuana Lease Addendum/Rider, please contact me at [email protected] or 508-620-5352, and we would be happy to create a customized one for you!
A Step Back To Rent Control Or Solution To The Affordable Housing Crisis?
Citing skyrocketing rents and lack of affordable housing — and over the vociferous objections of property owners — Boston Mayor Marty Walsh has sided with pro-tenant groups and has formally submitted a home-rule petition to the Boston City Council to create wide-ranging “just cause” eviction protections for all Boston tenants. Harking back to the days of rent control, the petition, named the Jim Brooks Community Stabilization Act after a recently deceased Roxbury housing advocate, prohibits virtually all no-fault evictions in favor of evictions only for certain enumerated “just cause” grounds. The law also requires landlords to file a notice of termination with the newly formed Office of Housing Stability prior to starting an eviction. In a state which is already extremely pro-tenant, this new law will make evicting tenants even more difficult and cost prohibitive, and may also affect owners’ rights to raise rents and sell rental property in the City of Boston.
“Just Cause” Grounds for Eviction
The petition (embedded below) provides that landlords may only evict tenants for nine (9) specified reasons:
Non-payment of rent.
Violations of lease provisions
Nuisance/damage to unit
Illegal activity such as drug use
Refusal to agree to lease extension or renewal
Failure to provide access.
Subtenant not approved by landlord
Landlord requires premises for housing for family member
Post-foreclosure and occupant refuses to pay fair market rent
Middle Ground?
It’s not all bad news for property owners, however. The Walsh bill is a compromise from what tenant groups had pressed for. They wanted to require landlords to submit to mediation for rent hikes of more than 5%, but were not able to get support for it among city council members. Tenant groups also pushed for prohibitions on evicting elderly or disabled tenants and long term renters with children in the school system. The Mayor rejected those ideas as well.
Additionally, not all landlords are covered by the new law. Exempt are owners of 6 or fewer residential rental units, owner-occupants of multi-family dwellings, and Section 8/federally subsidized housing.
Landlord groups, meanwhile, remain skeptical of Walsh’s proposal. State law already has strong tenant protections, Greg Vasil, chief executive of the Greater Boston Real Estate Board told the Boston Globe. Adding more will only subject building owners to even-more-drawn-out legal fights with tenants, he said. And, Vasil added, Walsh’s restrictions may deter developers from building more apartments in Boston, which has been a top priority for the mayor, who has pledged to add 53,000 units by 2030 and combat high housing costs. “This would make it more difficult to develop housing for the middle of the market,” Vasil said. “We’ve been making good progress and I’d hate to see anything happen to that.”
Because the bill is a Home Rule Petition, it must be approved by the City Council then the entire State Legislature. The bill may also face court challenges because it fundamentally alters existing private contracts and the very nature of a tenancy at will relationship. If the petition becomes law, evictions in Boston will become even harder and more expensive.
Readers, what are your thoughts on this important development? Post below in the comments.
Rule Prohibits No More Than 4 Undergraduate Students Per Rental Unit
With thousands of college students set to invade Boston in the next week, the Chief of Boston’s Inspectional Services Department is letting local landlords know that he intends to enforce an eight year old ordinance barring no more than four undergraduate students from living together in off-campus apartments and houses.
Feeling pressure from local residents and in reaction to the tragic death of 22-year-old Boston University senior Binland Lee, who got trapped in an overcrowded Allston apartment house, ISD Chief William Christopher has had enough, saying “we’ve found a way to make this punitive, and we think this will take it to another level.” City officials want landlords to report the number of undergraduates living in each unit. Landlords would report that information when they register each unit annually, which is a requirement the city established in 2013.
Mr. Christopher and I discussed the “No More Than 4” rule on the WHGH-PBS Greater Boston show this week. The video of the show can be seen below. I have always had major problems with this rule, both its legality and on a public policy level. The state sanitary and building codes provide maximum occupancy levels based on the square footage of the unit, as the Supreme Judicial Court held a few years ago striking down a similar action by Worcester Housing officials. The city should enforce the rules already on the books rather than painting all undergraduate students as potential troublemakers or artificially creating more demand which increases rents. If ISD starts fining landlords, look for the no more than 4 rule to face a legal challenge which could be successful.
Widespread Racial Disparities In Criminal Justice System Justifies New Policy
Last week the Obama administration released new controversial Fair Housing guidelines telling the nation’s landlords that it may be discriminatory for them to refuse to rent to those with criminal records. The U.S. Department of Housing and Urban Development (HUD) says refusing to rent based on a criminal record is a form of racial discrimination, due to racial imbalances in the U.S. justice system, despite the fact that criminal history is not a protected class under the federal Fair Housing Act.
“The Fair Housing Act prohibits both intentional housing discrimination and housing practices that have an unjustified discriminatory effect because of race, national origin, or other protected characteristics,” say HUD’s newly-released guidelines. “Because of widespread racial and ethnic disparities in the U.S. criminal justice system, criminal history-based restrictions on access to housing are likely disproportionately to burden African-Americans and Hispanics. While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification.” About 25 percent of Americans have some kind of criminal record, which can range from felony convictions to arrests that never led to charges.
HUD says that landlords may be allowed to bar those with criminal records, but they will have to prove that such a policy is necessary for protecting the safety of other tenants, and designed to avoid illegal discrimination. The new guidance recommends that landlords consider factors such as the severity of the criminal history and how long ago it occurred.
Practice Pointer: Blanket prohibitions denying applicants with criminal histories will get landlords into major trouble under the new HUD policy.
Evaluating whether the criminal history policy or practice has a discriminatory effect
Evaluating whether the challenged policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest
Evaluating whether there is a less discriminatory alternative
Policy Places Burden On Small Landlords
I’m all for giving people a second chance at life, but the major problem with this policy is that it puts the onus and burden on the small landlord to do the criminal history check and then figure out how severe the offense is and what the underlying circumstances are. Also the policy does not advise a landlord exactly how old a crime is to be considered “too old.”
In Massachusetts, a CORI (Criminal Offender Record Information) report contains only the basic of information of the offense such as the date of arrest/conviction, disposition, court and sentence, if any. There is nothing in the CORI report showing the underlying facts of the crime and it does not include police reports. Thus, for a charge of open and lewd conduct, a landlord does not know whether this is a serious offense or just a college kid urinating in an alley. Under the new HUD policy, landlords now have the burden of playing criminal investigator and assessing whether a crime is not truly serious.
Also, please remember that under the so-called Mrs. Murphy exemption, the federal Fair Housing Act does not apply to owner-occupied rental properties of up to 4 units.
What Now?
So how are landlords going to navigate this new policy? Well, first I would expect that risk-adverse landlords will cut down or stop requesting criminal history information all together. Of course, this puts landlords in a dilemma because they retain a legal duty to keep residents safe, and if they rent out to a known sexual offender, for example, who attacks another resident, they can be sued for millions.
For those who still ask for criminal record information, they will have to offer an applicant the opportunity to explain the circumstances of their arrest/conviction before making a final decision. As with all rental application decisions, it’s best to make the decision rest on financial considerations such as credit, income, and employment.
If you need guidance navigating this new policy, feel free to contact me at [email protected].
In a ruling which reaffirms Massachusetts’ place as one of the most landlord-unfriendly jurisdictions in the country, the Supreme Judicial Court ruled yesterday that a landlord’s minor security deposit law violation over failing to pay $3.26 in interest can be a complete defense to an eviction case even where the tenant owed thousands in rent. After this ruling, tenants will have another powerful tool to avoid eviction in both no-fault and non-payment cases. A change in this ruling would only come about through legislative action — which is usually a non-starter on Beacon Hill.
Rich’s Legal Advice: I have long advocated to my landlord clients that they NOT take security deposits. This ruling should be the nail in the coffin on that issue.
Garth Meikle v. Patricia Nurse
The Massachusetts Security Deposit Law provides a three month penalty, including payment of the tenant’s legal fees, against landlords who don’t follow its strict requirements. One of the requirements of the Security Deposit Law is that annually the landlord must pay the tenant any accrued interest on the deposit. That’s what got landlord Garth Meikle in trouble with his tenant who was three months behind in rent. Meikle brought a no-fault eviction case in the Housing Court, but the tenant raised the counterclaim and defense that she did not receive interest on the security deposit. Ruling that the landlord’s minor violation of the security deposit was not a complete defense to the eviction, the Housing Court Judge Marylou Muirhead allowed the eviction to proceed, ordering the tenant to pay the past due rent, but deducting the security deposit plus the $3.26 in unpaid interest. However, the tenant, represented by Harvard Legal Aid Bureau, appealed her case all the way up to the Supreme Judicial Court.
Statutory Interpretation
The issue on appeal was the distinction between a counterclaim and a defense for a security deposit violation. Everyone agrees that the tenant can raise a security deposit violation as a counterclaim (entitling the tenant to up to triple damages), but the question was whether such a violation could be a complete defense to an eviction, preventing the landlord from regaining possession of the rental unit. Landlords and yours truly argued that a security deposit is a separate financial matter between the landlord and tenant which has nothing to do about whether the tenant owes rent or the condition of the property.
Justice Geraldine Hines, writing for SJC, disagreed and found that a security deposit violation was within the list of defenses to an eviction. Despite quite unclear and murky statutory language, the justice was persuaded that the Legislature’s historical tightening of penalties and sanctions against landlords was indicative of the legislative intent to include a deposit violation among the list of available defenses to eviction.
So we’ll have to thank the SJC and the Legislature for sticking it to Massachusetts landlords once again. With tenant activist groups pushing “Just Cause Eviction” i.e, rent control and the Legislature’s continual failure to enact any sensible landlord-tenant reform, no wonder Massachusetts has a well-deserved reputation as one of the most tenant-friendly states in the union.
The Housing Court expansion plan to have statewide coverage has been gaining political momentum, but whether the plan will receive the long-term funding it needs to make it a reality remains a question mark. The Governor’s fiscal 2017 budget proposal earmarks $1 million for the court’s expansion, which calls for its jurisdiction to be widened with the addition of a sixth division and its bench increased from 10 to 15 judges.
While supporters are pleased with the language in Gov. Charlie Baker’s budget, which authorizes the Housing Court’s structural changes through a so-called outside section, Trial Court officials estimate that the annual cost of the proposal would be more than double the earmarked sum, reaching up to $2.4 million. “The $1 million will allow us to ramp up over a period of time,” Housing Court Chief Justice Timothy F. Sullivan (shown right) told Mass. Lawyers Weekly last week. “We don’t expect it will happen overnight. We’ll have to grow into our new roles.” Meanwhile, House and Senate bills are pending that seek a larger statewide court as well, providing access to those who currently do not fall within the court’s jurisdiction — about one-third of the state’s population.
The budget and legislative proposals call for adding a Metro South Division that would encompass all of Norfolk County (Dedham) — except Brookline — plus Abington, Bridgewater, Brockton, East Bridgewater, West Bridgewater and Whitman. Four of the five existing divisions would absorb additional communities, which includes the highly populated MetroWest area including Framingham, Newton, Cambridge and the rest of Middlesex County.
Of the five new judges that would be added, two would be assigned to the Metro South Division; the circuit judge pool would grow from one to three; and the Northeastern Division would take on an additional judge.
Guarded Support
As I told Mass. Lawyers Weekly, I am a “guarded supporter” of the expansion. Most landlord groups do not consider the Housing Court a level playing field and prefer to have their cases heard in District Court. While the Housing Court’s housing specialists and mediators can help matters move quickly, the volume of cases at some courts can be a bottleneck. “You have to look at the number of cases versus the number of judges available to handle the cases. That’s going to be an important consideration,” I told MLW.
We also need to look at the pro bono legal support available to both sides of the dispute. In Boston Housing Court, for example, there is a small army of Harvard law students ready to assist tenants free of charge. There is no comparable service for small unrepresented landlords, and that’s not fair.
Doug Quattrochi, executive director of the MassLandlords.net trade group, agreed. Though the Housing Court has a process — not available in District Court — that allows landlords and tenants to mediate first and then move directly to trial if an agreement cannot be reached, his trade group would like to see some of the “lopsided, tenant-centric” laws corrected if the Housing Court is expanded, he said. “The laws build in procedural delays that tenants become more aware of in Housing Court. Let’s look at changing these laws,” Quattrochi suggested.
I would fully support the Housing Court expansion if the legislation were linked to the passing of the rent escrow bill and other reforms to make landlord-tenant laws fairer to landlords.
Many Massachusetts landlords are unaware that before charging tenants for hot water and sewer service, they must comply with the numerous and onerous requirements of the Massachusetts Water Sewer Sub-Metering Law, General Laws chapter 186, chapter 22. These requirements include having separate water meters for each unit, installation of low flow faucets and toilets by a licensed plumber, and certification with the local health board, among other requirements outlined below. Non-compliance with this law may result in a three month rent penalty to the landlord plus payment of the tenant’s attorneys fees.
A landlord can only charge a tenant for water/sewer service under the following conditions:
1. The tenant’s unit must be separately submetered by a separate water meter installed by a licensed plumber. A separate water meter measures the amount of water supplied to a particular unit, and enables the landlord to charge the tenant for the tenant’s own water usage. So, for example, if a building contains 4 dwelling units and a basement where water is utilized for the entire building, a landlord would need to have 5 submeters installed in addition to the primary meter that measures the building’s water use in its entirety. If the building does not have separate meters for each unit, the tenant may not be charged for water service.
2. The tenant’s obligation to pay for water usage must be contained in a signed lease, in an obvious place, and not in the fine print. Each bill for submetered water usage must clearly set forth all charges and all other relevant information, including the current and immediately preceding submeter readings and the date of each such reading, the amount of water consumed since the last reading, the charge per unit of water, the total charge and the payment due date. If the landlord bills the tenant on a monthly basis, payment of the bill by the tenant must be due 15 days after the date the bill is mailed to the tenant, but if the landlord bills the tenant at intervals greater than 1 month, payment of the bill by the tenant is due 30 days after the date the bill is mailed to the tenant.
3. A landlord may not charge the tenant for water supplied through a submeter unless the a licensed plumber has installed fully functional water conservation devices for all faucets, showerheads and water closets/bathrooms in the unit (low-flow shower heads and faucets and low-flush toilets)
4. The landlord must provide a certification under the penalties of perjury, with the board of health or health department, that the appropriate submeters and water conservation devices were installed by a licensed plumber.
5. A landlord cannot charge a tenant for water/sewer service mid-way through a tenancy or lease. A landlord can only charge a tenant for water/sewer upon the start of a new tenancy in the unit; and only if the unit is being occupied for the first time, or if the previous tenant left voluntarily, or was evicted for non-payment of rent or other breach of the lease.
6. A landlord who engages in self-help by willfully failing to furnish water or directly or indirectly interfering with the furnishing by another of water, or transferring responsibility for payment for water to the tenant without their knowledge or consent, is punishable by a fine of not less than $25.00 nor more than $300.00 , or by imprisonment for not more than 6 months and is liable for actual and consequential damages or 3 month’s rent, whichever is greater, and the costs of the action, including a reasonable attorney’s fee.
Given these onerous requirements, my advice to landlords is to never charge the tenant for water/sewer! Just pay the bill and make it “hot water included” in the rent.
Hundreds Cram Into City Council To Debate Controversial Petition
Hundreds of tenant activists, small property owners and landlords packed City Hall and poured over into overflow rooms last night as the Boston City Council held its first public hearing on the need for “just cause” eviction legislation, to stem the city’s skyrocketing rents. Harking back to the days of rent control, the proposal would prohibit a landlord from evicting any tenant except for certain “just cause” grounds. These grounds and their related procedural impediments to eviction, would in my opinion, make it nearly impossible (or cost prohibitive) to evict tenants, raise rents and sell occupied rental property in the City of Boston. For more specifics of the proposal, please see my prior post, Boston Tenant Activists Pushing Just Cause Eviction Proposal.
The City Council, led by Councilor Josh Zakim, heard four hours of impassioned testimony from both sides of the issue. Renters say it would create safeguards against eviction; landlords say it would slap them with thinly disguised rent controls.
“Any way you look at it, this is rent control,” Skip Schloming, of the Small Properties Owners Association, said in an interview just before the hearing started.
Lisa Owens Pinto, executive director of City Life/Vida Urbana, for the tenant side told news outlets that “this proposal would just require property owners to provide a good reason to evict someone.” Ms. Owens Pinto said her organization’s measure has three central provisions – landlords must provide a reason for an eviction; if a rent increase is sought, a landlord must first notify the city; once notified, the city must use its resources to contact and advise the affected tenant.
Gilbert Winn, chief executive of Boston-based developer Winn Companies, told the council that a new set of regulations isn’t needed and warned that any changes may have an adverse effect on housing. “You can’t attack the very thing you are trying to protect, which is the rental economy,” Winn said. His company is a major developer of affordable housing projects. Winn, the son of Winn founder Arthur Winn, also claimed the proposal would provide tenants with a potential avenue to avoid living up to their rental agreements. “If a contract between a willing renter and a willing owner cannot be adhered to, and only one party has to adhere to it, then the whole system falls apart,” Winn said.
The proposal has been a moving target. A revised draft of the group’s proposal, originally submitted as a home-rule petition, wasn’t available at the hearing, leaving several councilors perplexed as to why it hadn’t been officially filed. “We’re talking about a specific proposal and I’m finding it hard to follow because we don’t have the draft in front of us,” City Councilor Josh Zakim said about halfway through the four-hour hearing.
Prior to the hearing, tenant advocates agreed to drop one of their most controversial requests: a mandate that rent increases of 5 percent or more be subject to nonbinding mediation. Instead, they are pushing for a rule that would require landlords to notify the city of rent hikes that result in eviction, known as a no-fault notice to quit.
Mayor Marty Walsh had initially signaled support for the measure, but wanted to see how the details would be fleshed out. As they say, the devil is in the details and it’s quite possible this proposal will get significantly watered down during the legislative process, if it survives at all.
Gov. Baker Selects Newton Lawyer For Housing Court | Now First Trial Court With Female Majority
Maria Theophilis (pictured right in red), a 46 year old partner in the Newton law firm of Broderick Bancroft, has been selected by Gov. Baker to sit as a new judge of the Housing Court. Theophilis replaces Chief Justice Steven D. Pierce, who retired Sept. 30, 2015.
Theophilis was nominated by Governor Charlie Baker who stated to the Metrowest Daily News that “throughout her career, Maria has provided support to those seeking an outspoken advocate on their behalf. Combined with her lengthy record of proceedings before the Housing Court on behalf of both tenants and landlords, I know she carries all the requisite experience to provide sound decisions from the bench.”
Some landlords and small property owners, however, may be a bit concerned about Theophilis’ legal background. She was a staff attorney for several years with Greater Boston Legal Services, which represents tenants and advances a very liberal social agenda. She was also worked for the Lawyers Committee for Civil Rights and the Committee for Public Counsel Services — also two very left leaning public interest groups. More recently, however, she represented property owners as a partner in private practice.
That said, Theophilis has deep experience on both sides of the landlord-tenant relationship which is very important. By all accounts, she has an excellent reputation and was voted in unanimously by the often fickle Governor’s Council which says a lot these days. Plus, she was picked by Republican Governor Baker, who is has been doing a good job with judicial appointments, in my opinion. As with any new justice, she deserves the benefit of the doubt as she steps on the bench for the first time. It’s a tough job.
Theophilis is the sixth woman selected for the Housing Court, which now has a majority of female justices. I believe that no other trial court department can claim that accomplishment.
As with this year’s blockbuster Star Wars — The Force Awakens, my prediction for an active and entertaining 2015 in Massachusetts real estate law has come to fruition. Without further ado and with a Star Wars theme, I present you with the top 5 “episodes” for the last year in Massachusetts real estate law.
I. TRID (Truth in Lending RESPA Integrated Disclosure) Rules
Heralded as the most comprehensive change to real estate closings in the last 20 years, the new TRID rules (Truth in Lending/RESPA Integrated Disclosure) have certainly lived up to their billing. If TRID were a Star Wars character, it would be Kylo Ren of the First Order, smashing and destroying the old way of doing closings with his scarlet cross-guard lightsaber. The new rules went into effect on October 3, and the real estate industry has been, by and large, scrambling to get up to compliance speed with the new regulations. The new “Closing Disclosure” is quite convoluted with far too much information, and also necessitates a separate “seller” closing disclosure. So, the old three page HUD-1 form has turned into two forms with seven pages. That’s the government for you… There is also a 3 day waiting period for closings to be scheduled after the issuance of the new Closing Disclosure. Some lenders have been great getting the “CD” out on time. Some others, not so much. In my estimate, I would say that at least 50% of my transactions have been delayed due to TRID related issues. For 2016, I predict continued delays and compliance issues for the first two quarters of the new year, with things hopefully smoothing out for the spring market. Oh, did I already tell you that I miss the old HUD-1 Settlement Statement already!
II. SJC Rules Real Estate Agents Can Remain Independent Contractors
The summer saw the SJC come down with its long awaited ruling on independent contractor classification inMonell, et al. v. Boston Pads, LLC. After much lobbying from the industry, the Court ruled that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. However, like the plot holes in The Force Awakens, the Court left open a few important questions such as whether agents could build a case on other legal theories. In 2016, look for the Legislature to address the murkiness which remains with the law.
III. Gov. Baker Signs Foreclosure Title Clearance Law
If Gov. Charlie Baker were a character out of the Force Awakens, he would be the hotshot Resistance pilot Poe Dameron, swooping down in his X-Wing fighter and saving the day for thousands of Massachusetts homeowners who have been unable to sell or refinance their homes due to foreclosure title defects. After a five year legislative struggle (in which I testified before the Legislature), Gov. Baker signed into law the Act Clearing Title To Foreclosed Properties. The bill will resolve potentially thousands of titles which were rendered defective and un-transferable after the SJC’s landmark ruling in U.S. Bank v. Ibanez. There is a one year waiting period, but after that we should start seeing previously unsellable homes start to come back on the market.
IV. SJC Continues To Scrutinize Foreclosure Compliance
In a major foreclosure decision, the Supreme Judicial Court ruled in Pinti v. Emigrant Mortgage Co. Inc. that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale. This is so even after the property was purchased at auction by a third party without knowledge of the defect. This ruling has resulted in two leading title insurance companies, First American and Fidelity/Chicago, deciding to restrict underwriting title to foreclosed properties
V. Just Cause Eviction Proposal
The upcoming year will see a looming “Resistance” battle between liberal tenant activists and small property owners over a Just Cause Eviction proposal submitted to the Boston City Council. As I’ve written here, the proposal is just a clever re-branding of rent control which was outlawed a decade ago and has been proven not to work by leading economists and city planners. The Just Cause Eviction petition would prohibit a landlord from evicting any tenant except for certain serious “just cause” grounds, making it very difficult and expensive to evict tenants at will or those whose leases have expired. Small property owners claim — and I agree — that the procedural impediments to the Just Cause Eviction proposal are shockingly socialist in nature. Everyone agrees that Boston has a problem creating affordable housing, however, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s the job of the government. Rent control has never been a successful solution to the housing problem. To be continued in Episode VIII…
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I hope everyone has a very happy, healthy and prosperous New Year! –Rich
Rent Control Thinly Disguised As “Just Cause” Eviction Proposal
Citing skyrocketing rents and lack of affordable housing, several activist pro-tenant groups in the City of Boston, with the assistance of the Harvard Legal Aid Bureau, have submitted a home-rule petition to the Boston City Council to create a wide-ranging “just cause” eviction protection for all Boston tenants. Harking back to the days of rent control, the petition would prohibit a landlord from evicting any tenant except for certain “just cause” grounds. These grounds and their related procedural impediments to eviction are shockingly socialist in nature, and in practice would make it nearly impossible (or cost prohibitive) to evict tenants, raise rents and sell occupied rental property in the City of Boston. Rental property owner groups are vigorously opposed to this proposal.
“Just Cause” Grounds for Eviction
The petition provides that landlords may only evict tenants for eight (8) specified reasons. The most troubling situations are outlined below.
Non-payment of rent. A tenant’s failure to pay rent must be “habitual” (which is left undefined) and “without legal justification.” Ordinarily, if a tenant fails to pay rent even once, the landlord may terminate the tenancy and evict. Under the just cause standards, the standard is significantly higher. What exactly is “habitual”? Two late payments, three, four? No one knows, but the petition puts the burden of proof on the landlord.
Damage by tenant. In order to evict, the tenant must have “willfully caused substantial damage to the premises beyond normal wear and tear and, after written notice, has refused to cease damaging the premises, or has refused to either make satisfactory correction or to pay the reasonable costs of repairing such damage over a reasonable period of time.” This would make it much more difficult to evict based on damage caused by a tenant.
Disorderly conduct. The tenant has continued, following written notice to cease to be so disorderly as to destroy the peace and quiet of other tenants at the property.
Illegal activity. The tenant has used the rental unit or the common areas of the premises for an illegal purpose including the manufacture, sale, or use of illegal drugs.
Failure to provide access. The tenant has, after written notice to cease, continued to deny landlord access to the unit as required by state law.
Rent Increases and No Fault Evictions
The most fundamental impact of the just cause eviction petition is how it attempts to severely curtail landlords’ legal right to raise rents and file no-fault evictions. Make no mistake about it, the underlying premise of the petition is rent control – to keep rents (even under market) from increasing and stabilizing “affordable housing.”
Resurrecting the old Boston Rent Control Board, landlords are required to participate in a City-approved mediation session with that agency before raising rents or even declining to renew an expired lease. The board is then required to notify all tenant advocacy groups in Boston of the situation. These groups are invited into every eviction or rent increase process. It will be one landlord against many tenants and advocates. There is no stated limit as to how long the mediation process can last, and after which a landlord still must go to Housing Court which can take anywhere from 6-12 months to complete a no-fault eviction under current law. A landlord’s failure to follow these requirements will result in the immediately dismissal of their eviction case and can also subject them to a $1000 fine by the City.
Moreover, in true socialist form, there are also substantial roadblocks to evicting tenants even where the unit will be used for the owner’s own personal residence. Owners are banned from evicting tenants who are 60 years old, disabled or have children in the school system and have lived in the premises for 5 or more years. (Landlords can only end tenancies after the school year is over.) Seeking to turn private properties into government subsidized elderly and disabled housing, the petition thereby creates lifetime tenancies for these classes of renters. This will greatly discourage investment and capital improvements for these properties many of which are double and triple deckers in struggling neighborhoods.
Rent Control Does Not Work
As counsel for landlords across Greater Boston and having testified at the State House in support of various landlord tenant legal reforms, I am strongly opposed to this proposal. This petition is the fourth attempt by Boston tenant advocates to bring back rent control, all of which have failed after voters rejected rent control state-wide in the mid-1990’s. The idea of rent control has been debunked as a failed policy by countless economists, and actually makes affordable housing stock shrink. A restrictive price ceiling reduces the supply of properties on the market. When prices are capped, people have less incentive to fix up and rent out their property, or to build new projects. Slower supply growth actually exacerbates the price crunch. Those landlords who do rent out their properties might not bother to maintain it, since both supply and turnover in the market are limited by rent caps; landlords have little incentive to compete to attract willing tenants. Landlords may also become choosier, and tenants may stay in properties longer than makes sense.
The problem of skyrocketing rents in Boston and affordable housing is complex and certainly worthy of out-of-the-box thinking. As an old city with little if any developable land left, Boston has always dealt with a supply vs. demand problem. Boston developers have long been required to pay into linkage funds designed to promote affordable housing. Mayor Walsh recently announced a plan to build 53,000 new housing units by 2030. The city’s colleges can also do a better job of creating new student housing. But even with all of this centralized planning, the influx of people to the city, drawn by jobs and Boston’s quality of life, have made this problem a very tricky one to solve.
However, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s just flat out Un-American. If we want more affordable housing, create economic incentives to build more, and encourage the City to buy their own properties and create housing. Rent control has never been a successful solution.
If and when the Just Cause Eviction proposal rears its ugly head in the Boston City Council again, email your local city councilor and the Mayor.
A copy of the Just Cause Home Rule Petition can be found below.
Landlord Stopped From Evicting Tenant Over $3.26 In Interest
Massachusetts has a well-deserved reputation as being a hostile jurisdiction for landlords. With a myriad of tenant favorable laws on the books, the proverbial playing field is often stacked against landlords. Exhibit A is the Security Deposit Law which provides a three month penalty, including payment of the tenant’s legal fees, against landlords who don’t follow its strict requirements.
One of the requirements of the Security Deposit Law is that annually the landlord must pay the tenant any accrued interest on the deposit. That’s what got landlord Garth Meikle in trouble with his tenant who was three months behind in rent.
Garth Meikle v. Patricia Nurse, SJC-11859
Meikle brought an eviction case in the Housing Court, and essentially won with the judge ordering the tenant to pay the past due rent, but deducting the security deposit plus the three dollars and change in interest. However, to the tenant’s rescue came the crusading Harvard law students from Harvard Legal Aid Bureau. Representing her for free, the students have taken her case all the way up to the Supreme Judicial Court. (Why is it that landlords are not offered the same free legal aid?). The tenant posted an appeal bond so she’s allowed to stay in the apartment while paying the rent during the pendency of the case.
The SJC heard arguments this morning with third year Harvard Law student Louis Fisher arguing the case. (Damn lucky kid!).
The Harvard tenant lawyers are advancing the dangerous argument that a landlord who violates the security deposit law — even in the most minor of circumstances — cannot evict a non-paying tenant.
Scary right? If the Court accepts this argument then tenants will have yet another powerful tool to avoid eviction. The Security Deposit Law is so strict that most landlords make minor errors in holding the deposit. That’s why I have advised that landlords don’t even bother taking security deposits in the first place.
You can guess where I stand on the merits of the case. The security deposit is a separate financial matter between the landlord and tenant which has nothing to do about whether the tenant owes rent or the condition of the property. Those are the two primary issues in a non-payment eviction case. You don’t pay the rent without legal defense, you’re out. Period. Compliance with the security deposit law should have no bearing on a non-payment eviction. The Legislature did not intend otherwise, and regardless, that should not be our policy. Enough is enough already.
You know what else bothers me? These legal aid organizations take on these “test cases” to train law students and get them experience. After all when does a law student ever get to argue a SJC case? Is that really fair and just to small unrepresented landlords like Mr. Meikle who told the justices that his son and fiancee were hoping to live in the apartment?
The SJC should come out with a final ruling in the next few months. Check back here for future developments. In the meantime, I will keep on fighting the good fight for landlords.
I will be speaking about Rental Legal Trends and Security Deposits at the monthly Boston Real Estate Investors Association meeting on November 3, 2015 at the Hilton Hotel – Dedham, 25 Allied Drive, Dedham, MA. Time: 5:30PM-9PM.
Agenda below. It is FREE for anyone who mentions my name!
5:30 PM – “Meeting Before The Meeting” – Multifamily Investing with Charles Dobens
7:30 – 8:00 pm – What You Need To Know BEFORE Placing An Offer. Lee Abdella of Walsh Home Inspections will address what you should look for before putting an offer in on a house or before waiting your home inspection!
8:00 – 9:00 pm – Mass Security Deposit and Rental Law with Richard D. Vetstein Esq.
Landlord Sued for Wrongful Death After Assailant Shoots Four Guests At House Party, Killing One
A landlord’s worst nightmare is someone getting hurt, or worse, shot and killed on their rental property, and then getting sued for wrongful death. This was the situation facing a property owner in Dorchester in the recent case of Belizaire v. Furr, (Appeals Court 13-P-1908 Sept. 11, 2015). Fortunately for the landlord, the Court ultimately concluded that she was not legally responsible for the shooting because there was no reason to predict it would happen. Had the facts been different in this case, the landlord would not have been so luck to escape liability. After discussing this important case, I’ll talk about some ways that landlords can manage their risk.
Shooting at House Party, 5-7 Edson Street, Dorchester
The landlord owned a two-family in Dorchester which she rented out to several individuals. The landlord was fairly lax with written lease agreements, with some of the tenants having leases, but others not. On the night in question, the landlord’s son and one of the occupants (who were friends) hosted a party with a DJ, alcohol and dancing. Carl Belizaire attended the party as a guest. Late at night, an unknown assailant shot up the room, killing Belizaire and injuring three other guest. The assailant was never found or charged. There was no prior history of violence at the property.
Landlord Sued For Wrongful Death
Belizaire’s estate sued the landlord for wrongful death, alleging that she failed to keep the property safe. The Court first analyzed whether there was a tenancy or lease in place, because that would minimize the landlord’s liability and control over injuries occurring on rental property. The landlord’s failure to secure leases with the tenants at the property, particularly the tenant who threw the party, resulted in the court concluding that there was insufficient evidence to rule that there was a valid tenancy in place to shield the landlord from liability.
The Court, however, ultimately ruled that the landlord was not liable for the shooting because there was no evidence of prior shootings or similar violent incidents on the property. Although there was evidence of prior drug activity at the property, the court found this insufficient to support a finding of liability. There was no evidence of other large parties with uninvited guests similar to the one in question taking place on the property. Nor was there any evidence that the landlord was affiliated in any way with, or knowledgeable about, the assailant or any dispute that the assailant may have had with the victim. The evidence submitted suggests that the victim’s death was tied to events beyond the party at the rental property. As a general rule, a landowner does not owe a duty to take affirmative steps to protect against dangerous or unlawful acts of third persons. In certain exceptional circumstances, landlords may be liable for ignoring criminal activities that occur on their premises and were known or should have been known to them. That was not the case here.
Managing The Risks Of Property Ownership: Use Strong Leases and Set Up LLC’s to Hold Title
Many of my landlord clients often worry about liability issues at their rental property. They often ask me whether they can get sued over someone getting hurt on their rental property and what they can do to minimize their risk.
The landlord in this case made some catastrophic mistakes which, had the facts been different, could have resulted in a multi-million dollar liability. The first mistake she made was not securing written leases for all tenants and occupants at the rental property. The form lease that I have drafted contains a unique indemnification clause which would have help shield the landlord for liability for injuries caused by the tenants. The second major mistake made by the landlord was holding title to the rental property in her individual name, thereby exposing her personal assets to a lien or judgment. Although not always appropriate for every landlord, it’s a prudent idea to hold rental property in a limited liability company which would shield the landlord’s personal assets from liability. There is expense to set up the LLC and there is a $500 annual fee, but in my opinion, it’s well worth it relative to the risk of getting sued for wrongful death.
If you are a rental property owner and would like advice concerning your leases or would like to discuss setting up an LLC, please contact me at [email protected] or 508-620-5352. I would be happy to help you in any way.
By-Pass Housing Court For Expedited Superior Court Restraining Order Procedure
I recently handled an interesting case involving an unauthorized family member taking up residence in my client’s rental unit. My client, a doctor, owns a very nice condo unit in the Theatre District in Boston. He and his family live next door in the adjacent unit. The client signed a one year lease with a wealthy foreign national from Jordan, a middle aged lady. Per the lease, the tenant was the only authorized occupant for this 1BR unit. There was no discussion about family members being authorized occupants, and my client would not have agreed to it.
My client comes to find out that the tenant’s 20-something year old son, who attends a local college, has taken up residence in the unit. To make matters worse, the kid hosts several loud late night parties reeking of marijuana and cigarette smoke. My client is incensed, and to add insult to injury, he is fined several thousand dollars for noise and lease violations by the condo association. My client attempts to take action against tenant and son, but they hire a well known tenant’s rights attorney who stonewalls the two attorneys hired by the client. The client finally hires me.
Typically, this type of case would be filed as a standard eviction case in busy pro-tenant Boston Housing Court. The tenant’s attorney is also well known there. Accordingly, I needed to find a way to bypass Housing Court and take away this lawyer’s home court advantage.
So I came up with an creative approach. I filed a restraining order application in Superior Court to remove the son as an illegal trespasser. Although Superior Court typically handles major civil cases, it does share jurisdiction with the Housing Court over trespass cases requesting equitable relief. I served the interloper with a formal trespass notice, then filed the Superior Court application a few days later. The judge granted the move out order, after which my client and I had the pleasure of taking a victory walk down Tremont Street to serve the move out order. We were able to have the management company immediately change the locks and remove all the kid’s possessions. He is now permanently barred from entering the building. And the best part was that he left his wallet and passport in the unit! My client is now preparing the unit for rent to a better tenant.
Court Halts Eviction For Distressed Homeowner, Validity of Foreclosure In Question (Wells Fargo v. Cook, Mass. Appeals Court May 19, 2015)
In response to the foreclosure crisis, HUD enacted regulations requiring lenders to provide distressed borrowers with a meaningful opportunity to settle their FHA-insured mortgages and obtain a loan modification during a face-to-face interview. In an effort to accommodate the hundreds of Wells Fargo clients facing foreclosure in Massachusetts, the San Francisco based lender held a mass “homeowner’s workshop” at Gillette Stadium in August 2008.
Three months behind on their Mattapan mortgage, Nancy Cook and her daughter showed up to the stadium with a little over $10,000 in cash, in anticipation of signing a repayment plan. After waiting in a long line, Cook received a ticket and sat down with a bank representative. Despite HUD guidelines requiring that loan representative have actual authority to settle accounts and enter repayment plans, the Wells Fargo representative said that he was unable to accept any payments at the event. The counseling session lasted only 15 minutes, but the reprepresentative promised that Ms. Cook would receive a loan modification package in the mail.
Ms. Cook did receive a Special Forbearance Agreement in the mail, which she accepted, and made the first three payments under the agreement. When she went to make the fourth payment, Wells Fargo rejected it, claiming that Cook owed it $2000 more than the scheduled payment. Wells Fargo then issued a default notice, accelerated Cook’s debt, and foreclosed her home.
Several years after completing the foreclosure sale, Wells Fargo brought an eviction case against Cook and her daughter, who at this time were represented by lawyers from Harvard University Legal Aid. (The reason for the long delay is unclear). Boston Housing Court judge Marylou Muirhead ruled against Cook, clearing the way for her eviction.
On appeal, Appeals Court Justice Scott Kafker halted Cook’s eviction, ruling that the Housing Court judge should reconsider whether the Gillette Stadium mass counseling event complied with HUD guidelines. Justice Kafker noted that a reoccurring theme of the HUD rules is to provide personalized consideration for each homeowner. That apparently was not done, said the justice, or at least there is a dispute as to whether the mass Gillette Stadium event could satisfy that guideline.
Of particularly interest to the real estate conveyancing community, the Court held that if the lower court ultimately rules that the counseling session was insufficient, the lender could be found in noncompliance with the mortgage terms and foreclosure power of sale, and its foreclosure could be deemed defective and invalid. A court holding to this effect could potentially invalidate completed foreclosures of FHA insured mortgages over whether the lenders complied with the face-to-face meeting requirements of the HUD guidelines. Ensuring a lender’s compliance with HUD rules is not typically part of a title examiner’s scope of examination. Lenders would need to provide an affidavit certifying that all pre-foreclosure counseling requirements were complied with. Accordingly, this is yet another reason why obtaining an owner’s title insurance policy is a prudent choice for all buyers of foreclosed properties.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 25 years in practice, he is a four time winner of the "Top Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Proposal: 5%-10% Tax, Plus Comprehensive Regulations
