Learn Your Landlord-Tenant Laws
BATTLECALL GUEST EXPERT: Attorney William Bronchick
Of LegalWiz.com
As an investor working with tenants, you should be very familiar with the
laws of your business. These laws apply whether you own a property and rent it,
or you do a "sandwich" lease.
An eviction proceeding, usually called a "summary proceeding" or "unlawful
detainer" proceeding, is a lawsuit to obtain a court order to remove the tenant.
It is not lawful to physically or constructively remove the tenant from the
premises. No matter how upset you are, don't even consider changing the locks,
shutting off the power or taking the front door out for "repairs."
Before you can commence the proceeding, you need to terminate the tenancy.
You do this by serving notice on the tenant as required by your state law. For
nonpayment of rent, the notice is typically three to five days. If the tenant
has not paid the rent in full or moved out after that time, you can commence
proceedings in court. A typical summary proceeding takes anywhere from ten to
thirty days, depending on the backlog of cases in your County. The proceeding is
informal, much like small claims court.
Once the court declares you the winner (called a judgment or order), a
warrant (called a "writ" in some states) is issued. A warrant is a legal
document that directs a sheriff, marshal, constable or other local official to
forcibly remove the tenant from the premises. Few tenants are actually thrown
out; the official usually changes the locks and removes the tenant's personal
property. In some counties, you are required to hire the movers and store the
tenant's property.
I recommend that you learn the landlord--tenant laws and the timetable for
evictions in your county. However, I also recommend that you hire an attorney to
file the court proceeding. Landlord--tenant law is not difficult to understand,
but it is very technical. A minor flaw in your paperwork or procedure could mean
having your case thrown out and having to start all over. Thus you should
consider paying an experienced landlord--tenant attorney to do the job (make sure
it is an attorney that specializes in landlord--tenant practice).
Lastly, join a local landlord's association and meet other experienced
landlords. If you are not familiar with the law, you will eventually run across
a "professional" tenant who will teach it to you.
CONSIDER BRIBING THE TENANT TO LEAVE
Time is money when it comes to evictions. The longer the defaulting tenant
stays in possession, the more money you lose. Consider waiving the rent owed and
offering the tenant cash to leave immediately. This may seem contradictory to
the "tough landlord" attitude, but it makes financial sense. Court is the last
place you want to be. If you can settle the matter quickly without litigation,
do it! Do not pay any money to the tenant until he vacates, cleans the unit,
hands you the keys and signs a written release of liability against you (called
"general release").
RECONCILE THE SECURITY DEPOSIT
Whether the tenant leaves voluntarily or by legal force, you need to deal
with the security deposit. Whether or not you are entitled to keep the deposit,
you must comply with state law. In most states you must return the security
deposit within 30 days or send a certified letter to the tenant stating why you
are keeping it. Even if you are entitled to keep the deposit, your failure to
comply with proper procedure will result in a lawsuit against you for improper
withholding. You can always sue the tenant in small claims court for rent owed
and damages to the property, but you cannot withhold the security deposit
without following the rules.
COMPLY WITH STATE & FEDERAL DISCLOSURE LAWS
A minor "detail" that most lease/option gurus forget to mention is that if
you sublease a rental unit, you are a landlord. As a landlord, you have state
and federal disclosure requirements. At the federal level, you must disclose the
existence of lead--based paint hazards and give your tenant an EPA pamphlet (see
www.epa.gov). State law disclosures vary greatly, from radon gas disclosures to
"Megan's" law (disclosure of known sex offenders in your area). Check with your
state and county housing authority for the required disclosures. Also, keep in
mind that some states might consider a lease/option to be a sale for the
purposes of disclosure. Thus, you would need to disclose the same items on a
lease/option that you would on a sale.
The first law you need to become familiar with is "Truth--in--Lending." Truth
in lending, also called "Regulation Z," applies to anyone who "regularly"
extends credit. Litigation of this definition has come up with a liberal
definition; if you are selling properties on an owner--carry basis more than a
few times a year, you are lender within the statute.
Truth in lending applies to all consumer loans, not just home loans. Under
the law, a lender must disclose certain financing terms, such as the Annual
percentage rate, amount financed, total interest paid.
If you extend credit exceeding $1,000,000 per year secured by real estate
used for the borrower's residence, you must comply with the Real Estate
Settlement Procedures Act ("RESPA"). RESPA is one of the most complicated and
confusing Laws ever created, is constantly changing and few lenders are ever in
strict Compliance with the law. Nevertheless, you should at least make an
attempt at "core" compliance, which involves:
- Giving the borrower/buyer a "good faith estimate" of closing costs within 3
days of the accepting a loan application (or signing of a purchase contract, in
the case of an owner--carry sale).
- Preparing a HUD--1 Settlement Statement at Closing (usually done by the title
company or escrow agent at closing).
- Disclosing what percentage of loans you sell vs. keep
- Disclosing what amounts, if any, you are escrowing up front for property
taxes and hazard insurance
RESPA does have a nice loophole; it does not apply to "short--term"
financing. RESPA does not apply if the loan has a balloon or less than 2 years,
with no promise to extend. I have always recommended a 2 year balloon on land
contract sales for the purposes of control. Now there's another good reason!
For more information, please visit LegalWiz.com.
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