When and how can a Massachusetts landlord charge a tenant for water?

According to Massachusetts General Laws Chapter 186, Section 22, a landlord must follow very specific procedures before they can require a tenant to pay for water. When a unit is not directly connected to a meter installed by a water company, the law requires installation by a licensed plumber of separate submeters for the individual units and the common areas as well as a primary meter for the building so that all water being used in the building is measured by the primary meter and the individual submeters serving particular units or common area. 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. But that’s not all. A landlord must also have a licensed plumber install low-flow showerheads, faucets and toilets meeting statutory flowage requirements. The installation and subsequent maintenance of the equipment are solely at the landlord’s expense. When the metering and water conservation devices are in place, the landlord must certify to the local board of health or health department that they have complied with the statutory prerequisites. Once a building has been retrofitted with the proper equipment and the landlord has given their certification, a tenant may be charged for water usage subject to a few more requirements. First, a landlord may only begin charging a tenant for water usage at the commencement of a new tenancy. They cannot start charging a tenant for the first time mid-tenancy. Further, the landlord and tenant must enter into a written rental agreement that unambiguously discloses how the tenant’s water usage will be measured and details the billing arrangement between the parties. If a tenancy begins in the middle of a billing period before the landlord has received a bill from the water provider, the landlord must take a reading on the unit’s submeter on the first day of the tenancy and mail it to the tenant. The tenant’s first bill from the landlord for water usage must take into account this initial submeter reading. Each bill must include the current and last submeter readings with dates for each, the amount of water used by the tenant since the prior reading, the cost per unit of water, the total due and the payment due date. A landlord cannot recover from the tenant any additional servicing, administrative, establishment, meter-reading, meter-testing, billing, or submetering fee or other fee whatsoever, however denominated, that is charged to the landlord by the water provider. If a landlord bills the tenant for water usage on a monthly basis, payments are due from the tenant 15 days after the mailing date of the bill; if billed at intervals greater than a monthly basis, a tenant has 30 days after the mailing date of the bill to pay. While service cannot be shut off or refused to a tenant on the basis that they have not paid their bill, landlords can find some solace in the fact that a tenant’s failure to pay for water usage when due is a material breach of the parties’ written rental agreement subject to judicial action. 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. If a tenancy terminates in the middle of a billing period for which the landlord has not yet received their water bill, the landlord must take a reading on the unit’s submeter on the last day of the tenancy and provide a final bill for water usage that starts with the prior reading and ends on the last day of the tenancy. The rate charged in the final bill, which is immediately due and payable by the tenant, shall be the same charged in the prior bill. If not immediately paid by the tenant, the landlord may deduct the final billing amount from any security deposit paid by the tenant so long as procedures set forth in the security deposit law, and not discussed here, are followed. If, when the landlord is finally billed by the water provider, a lesser rate is charged, the landlord shall refund the difference to the tenant. Any landlord considering charging a tenant for water usage should carefully consider the ramifications of doing so. While this article is an overview of the subject, it is in no way comprehensive. Obtaining legal advice is recommended for any landlord considering submetering in light of the stiff penalties imposable for failure to follow the law’s burdensome requirements.

QUESTION: I’m selling my condominium and have to get a 6(d) certificate. What is this?

6(d) refers to Section 6(d) of Chapter 183A of the Massachusetts General Laws. A buyer of a condominium unit or their lender almost always requires that a seller obtain a 6(d) certificate in order to relieve any concerns about unpaid condominium fees and assessments, which could result in a title defect. It is basically a statement issued by the condominium association that indicates the amount of any condominium fees or assessments that the seller has failed to pay. In an ideal transaction, the seller will have a zero balance, which will be shown on the certificate. A buyer will want to ensure that the statement is valid thru the closing date. If a certificate expires or is not good thru the closing date because, for example, the closing date has been extended, the seller should request an updated one. The certificate must be signed by the appropriate association authority and notarized. The seller presents it to the buyer or their attorney at closing and it is recorded with the Registry of Deeds. The seller pays the recording fee, which is typically $75.00. If properly executed and recorded, the certificate discharges the unit from a lien arising out of unpaid sums. A seller is entitled to obtain a 6(d) certificate within 10 days of their written request to their association and payment of the fee, if any, set by their association.

LANDLORDS BEWARE: Think twice before putting that security deposit in an online bank account!

As online banking and internet-based banks become more popular and convenient, I’ve found many Massachusetts landlords utilizing them to hold security deposits for the duration of a tenancy or lease period. Of course this is a practical solution to managing these kinds of funds. A landlord can view and receive statements electronically, manage several accounts with a click of the mouse and calculate annual interest payments to tenants without having to step foot in a brick and mortar bank to have a passbook balance updated. But, Massachusetts law sets some very firm restrictions on security deposit escrowing that pretty much prevents the practice of placing these funds in internet or online banks.

In addition to a laundry list of other prerequisites, the Massachusetts Security Deposit Law requires that security deposits be placed “in a separate, interest-bearing account in a bank, located within the commonwealth.” Presumably a landlord could be sitting in front of their computer in Massachusetts and transfer the security deposit funds into an online bank account. But, if the online bank isn’t established in Massachusetts, then such a deposit would violate the Security Deposit Law. And, simply having a branch in Massachusetts probably isn’t enough to qualify a bank as being “located within the commonwealth” for purposes of the statue. Additionally, the act of physically depositing funds in a Massachusetts branch of an out-of-state bank may not be enough to satisfy the law’s requirements. The Massachusetts Appeals Court touched on this possibility back in 2007 in a case where a landlord deposited funds in a New Hampshire branch of Citizens Bank – a bank with branches located throughout New England.

Failure to properly deposit a security deposit in accordance with the Security Deposit Law has serious ramifications. First, a landlord forfeits their right to retain any portion of the Security Deposit – even if there is outstanding rent or property damage. In fact, as soon as the violation is discovered, even during the tenancy, the tenant can demand the return of the security deposit. Second, if a landlord attempts to retain the security deposit or any portion of it after thirty days have passed since the termination of the tenancy then treble damages apply - that’s a penalty of up to three times the amount of the security deposit, plus the return of the retained amount to the tenant and attorney’s fees and costs.

There remains really only one way to comply with the bank location dilemma – deposit the security deposit in a true Massachusetts bank – one that is not only located in Massachusetts, but is established under the laws of Massachusetts. But, make sure the deposit is put into a landlord/tenant trust account and not just any old savings account. And, never commingle a tenant’s security deposit with the landlord’s other funds. Remember, a security deposit remains the property of the tenant throughout the tenancy or lease period and only becomes the property of the landlord under limited circumstances – those of which will surely be the topic of a future blog post!

How much can a Massachusetts landlord collect from their tenant up front?

I get this question all the time and the answer is really very clear. A Massachusetts landlord can collect amounts for only 4 different items in advance of a tenancy:

1) First month’s rent;
2) Last month’s rent (calculated at the same rate as the first month);
3) A security deposit equal to the first month’s rent; and
4) The cost of a the purchase and installation for a key and lock.

Can the landlord seek reimbursement from a tenant for the fee the landlord had to pay a broker to fill their vacancy? Absolutely not. Again, see the 4 items that may be charged above. But, before a landlord goes and takes these items from a new tenant, they need to remember that there are very specific rules for handling last month's rent and security deposits. Failure to follow them could lead to very harsh penalties, like triple damages (that's 3 times the amount of the security deposit) plus attorney's fees and court costs.

Sizing Up Short Sales: What a Debtor Needs to Know

First off, HAPPY NEW YEAR! May 2010 be good to you and yours and may you not have to consider what I'm going to blog about next - short sales.

As a real estate attorney, I've been in the fortunate position to assist clients in the successful short sale of their property in a market that has been less than kind to most of us. With the recession has come the rise in unemployment and decline of property values resulting in borrowers' inability to pay their current mortgage(s) or to refinance. Many borrowers are forced to walk away from their properties after the lender forecloses its loan. One alternative to this desperate situation is the short sale. In a short sale scenario, a borrower obtains the lender's approval to sell the property for less than what's owed on the property. The ultimate goal for the borrower is for the lender to forgive the debt that remains outstanding after the property is finally sold. This varies from a foreclosure sale after which a debtor is still technically responsible for any deficiency amount. Short sales sound simple, but they're all about timing. Typically, a borrower must be in default of their loan before a lender will even consider approving a short sale. Lenders are also only willing to lose 20 to 25% on the transaction including broker's commissions and other fees incurred to close the transaction. So, the numbers really have to be just right for the transaction to work. A debtor should be actively marketing the property for sale and only a legitimate offer to purchase the property will put the brakes on the foreclosure process. In order for a short sale to succeed, the cooperation of all the parties, including the buyer, seller and their agents, is required. A prospective buyer must know that the lender's approval of the transaction won't be immediate. A significant amount of paperwork will need to be submitted by the debtor and the status of all liens, including those for utilities and property taxes, will need to be obtained and provided to the lender. The debtor's attorney will have to prepare a HUD-1 settlement statement showing all of the debtor's anticipated transaction-related costs, including lien payoffs, brokers' commissions, attorney fees, etc. This will also be submitted to the lender. The HUD-1 should show no proceeds coming from the sale going to the debtor/seller and in a best case scenario, no funds being brought top the closing table from the debtor/seller. This means that the lender actually absorbs the expenses of the debtor/seller such as brokers' commissions and legal fees, etc. Therefore, a short sale can be very appealing to a debtor

BUYER BEWARE 2: Closing Costs Exposed

Okay, so you've put an offer on your dream house and it's been accepted by an elated seller. Both parties have executed an iron clad purchase and sale agreement with the assistance of legal counsel and the home inspection has been completed and there's no bad wiring or leaky pipes. You may have already received the much anticipated mortgage commitment from your lender. Now you just have to sit pretty and await the closing date, right? WRONG! Now it's time to hustle and get the money together to complete your purchase. You're thinking, "Duh, I know I've got to come up with rest of the purchase price less the loan amount. This lawyer's not telling me anything new."

No, what I mean is that in addition to the purchase price funds, you've got closing costs, prepaids and escrows that most buyers don't even think about and often don't learn about until 24 hours before the closing because of lenders that don't communicate well with borrowers. Most buyers can expect to come up with several thousand dollars to cover these extra items, which typically include: legal fees; title insurance; title examination; private mortgage insurance; lender fees; reimbursement to the seller for home heating fuel and prepaid taxes; mortgage plot plan; courier fees; homeowner's insurance; and interest.

While closing costs really can't be avoided. There are ways to make them a little easier to swallow. One possibility is to ask the seller for a closing cost credit at the time the offer is made. If the seller agrees, the closing cost credit is applied at closing to reduce the closing costs payable by the buyer. Another option is to request that the seller pay for certain of the closing costs such as the homeowner's insurance policy. While a seller doesn't have to agree to give a credit, doing so costs him or her virtually nothing since it doesn't necessarily have to reduce the purchase price and it can help to ensure that the buyer has enough money at the closing table so that the deal ultimately goes through. One caution to buyers has to do w/FHA mortgages, which place limitations on how closing cost credits are applied. For instance, they can't be applied to prepaid annual PMI and often can't result in the buyer getting cash back at closing.

So what's the bottom line - think about your bottom line from day one of your real estate transaction so that you'll have enough money to close the deal or else you'll be left without a roof over your head!

BUYER BEWARE 1: Mortgage Contingency Secrets Revealed*

Caveat emptor, Latin for "buyer beware," are two words every buyer should take to heart when embarking on their first or even subsequent real estate purchase. Since gone are the days when buyers were lining up for overpriced property, when loans were freely given and open houses heavily attended, it's important now more than ever to make sure that the proper mortgage or financing contingency is included in the initial offer and carried through to the Purchase & Sale Agreement.

As an attorney that represents real estate buyers, I can't tell you how many times I'm stuck in the unglorified position of trying to fix a mortgage contingency gone astray in an offer. Often it's a lack of planning and homework that causes the problems like when a buyer hasn't been preaproved and, therefore, doesn't know what they're even qualified to borrow. Other times, a realtor has assisted with the drafting of the offer and instead of specifying that the buyer is going to get a mortgage with 3% down, they do the reverse and specify that the buyer is putting 97% down. It often takes some negotiating on my part to convince the seller or their attorney that there's no way the buyer intended to get a loan for 3% of the purchase price!

Another common error I see buyers make is the failure to include specifics about the type of mortgage they will be seeking. For instance, a buyer trying to get an FHA mortgage should specify that as a possible type of financing they will be seeking and should also require the seller's cooperation with any FHA required paperwork. Since FHA borrowers pretty much always finance mortgage insurance, this boosts the loan amount up. The offer should also include this fact. It's key to include the core terms of the deal in the offer not only because they carry over into the Purchase and Sale Agreement, but also because an accepted offer, depending on its terms, can become a binding contract.

Financing contingies are important to all of the parties. For buyers, they function as an escape valve out of the deal if financing can't be obtained. For sellers, they provide assurance that the buyer is going to be taking the necessary steps within certain timelines to get financing to buy their house. If a buyer fails to takes those steps, they can say "bye, bye" to their good faith deposit. In this economy, I can't imagine anyone wanting to part with what may be tens of thousands of dollars of hard earned money.

The moral - take some time to get the financing contingecy just right when you make your offer. Be sure to communicate with your proposed lender so that you know how much you can borrow and how long it will take to process your application and when a mortgage commitment will be provided. And, don't forget to put the important dates in your calender. You don't want to miss a beat.


*This blog is the first in a series of posts geared toward real estate buyers, applies Massachusetts law, and is for informational purposes only. Always consult legal counsel for guidance.