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!
Sunday, January 23, 2011
Wednesday, December 29, 2010
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.
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.
Friday, January 1, 2010
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
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
Saturday, December 26, 2009
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!
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!
Thursday, December 10, 2009
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.
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.
Thursday, November 26, 2009
Happy Thanksgiving!
Wow, I can't believe the holiday season is here. It's amazing how fast time goes by. With two little ones and a busy practice, I have no sense of time anymore. I look outside my window and think it's March. But, the holidays tend to bring me back to center with the focus on family and celebration and embracing the season. I hope that you are also getting a chance to find your center among all that's going on in the world. It seems a little bleak out there right now. But, we are all masters of our domains and can choose to make our realities are little brighter. Instead of thinking about what we don't have and what's missing, we can be thankful for what's right there in front of us. That's what I'm going to be doing this Thanksgiving - taking in what's already on my plate and enjoying it for what it is.
Wishing you and yours a happy and safe holiday filled with relaxation and laughter (and a little pumpkin pie!),
Jen
Wishing you and yours a happy and safe holiday filled with relaxation and laughter (and a little pumpkin pie!),
Jen
Tuesday, November 24, 2009
Welcome to the launch of my blog!
As I embark on this new way of communicating with my friends, colleagues and clients, I welcome you to join me. I am very excited about sharing insight and information as I navigate the legal process. As you probably can already tell, I'm a lawyer practicing in Massachusetts where I've lived most of my life. I handle a range of matters mostly involving real estate in one way or another. These include representing parties in residential transactions, representing landlords or tenants in eviction proceedings, creating estate plans for the young and not so young, and handling divorce actions. I love what I do - especially because I am constantly learning. It's this knowledge that I hope to share on this blog along with the occasional vent. Hopefully you will find it helpful and insightful and maybe sometimes a little amusing. Thanks for coming along for the ride!
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