Raleigh-Durham Real Estate Blog

So...the North Carolina General Assembly's session has closed and with it comes a wave of legislation that will affect inveestment property owners across the state.  The following is a summary of items you should be aware of as they may have tremendous effect on your investment properties, current and future.  Consider this a summary and check with your property manager and/or the NC state legislature website for full details.

1.  Federal "Protecting Tenants Fron Foreclosure" Act

This act likely came about because of landlords, who after collecting rents, failed to pay their mortgage lenders, resulting in a foreclosure on the home.  In some cases, tenants weren't notified and were left with few options after the sheriff came to evict anyone living in the home after the foreclosure sale.  The new law, which expires in 2012 offers additional protection for tenants in these situations:

• Only affects federally-funded loans in foreclsoure (FHA, VA, Fannie and Freddie)
• The purchaser must buy the property subject-to any existing lease
• The lease can only be terminated with 90 days advance notice if the property will be the buyer's primary residence.

Suggestion: Be very aware of what you are buying at a foreclsoure sale and take additional steps to verify if the property is, in fact, occupied (i.e. check to see if the utility meters are running, lights on in the evening, evidence of furniture or other belongings onsite).

This is a definite win for tenants, and a possible drawback for Landlords, so Score "1" for Tenants.  We'll keep a tally to see who comes out as the overall winner below.

2. NC General Statute 42

• Goes into effect on October 1, 2009
• Creates a new class called "eminently dangerous conditions" (i.e. "The dirty dozen").  These are unsafe conditions that can affect the tenant's enjoyment/safety in the  rental property and include the following (to name just a few):
• unsafe wiring, flooring, steps, ceilings, roofs
• broken windows
• lack of operable locks on exterior
• lack of adequate heating

Of course, keeping these items in a safe condition is areasonsble request of any landlord, and hopefully your properties will not suffer deficiencies in these areas.  The kicker, however, is that these repairs must be remediated when they surface, EVEN IF YOU SUSPECT YOUR TENANT CAUSED THE CONDITION.  There is a provision, however by which the property owner can bill the repair cost back to the tenant.

Be forewarned, there is a lot of ambiguity in the definition of "unsafe" so be prepared for a discussion on this if your tenant brings this up.  Also be prepared to remediate any issues immediately as you can not wait for the tenant to resolve any "eminently dangerous conditions" they may have caused.  The owner must cure these immediately.

(Score 1 for Tenants...again.)

 3. Additional "New" Fees for Evictions

Have you ever lost time from your workday stuck in eviction court because of a tenant who failed to follow the guidines in your lease?  Well now there may be additional compensation available to you for time lost.

1. A complaint filing fee of $15 or 5% if you have to file an eviction complaint.

2. A court appearance fee of 10% of the monthly rent (if you win the case).

3. A 2nd trial fee of 12% of the monthly rent if your case is appealed to district court (i.e. a 2nd day in court for you) and you win.

These fees are in addition to the 5% late fee, court costs and reasonable attorney fees you are already allowed to charge to a tenant.

    BEWARE:

• You can only charge ONE of the above fees (you can not stack them).
• No other fees can be charged for an eviction.  If your lease provisions that dictate any other fees to the tenant upon eviction, you may be frowned upon in court and the lease provision will be considered void. (i.e. get rid of your "eviction administrative fees").
• You can not collect any of these fees unless your lease states it.
• Existing leases will be grandfathered in until the end of their initial tems (i.e don't try to get around it by keeping your tenant in on a month-to-month lease after the initial expiration).

So, prepare to edit your leases, and/or be sure that your property manager's lease reflects these new laws.  You might also need to have a discussion with your property manager as to who the fees go to in the case of an eviction (to you or to the property manager).

(Score 1 for Landlords)

4. MORE TIME TO PROVIDE SECURITY DEPOSIT ACCOUNTING:

Until now, Landlords had 30 days after a tenant lease termination to send an itemization for costs to be taken our of the tenant's security deposit (for repairs, unpaid rent, etc...)

The new law allows for more time:

• 30 days for an initial (interim) itemization
• 60 days for a final (complete) itemization

So in the case of repairs that need to be estimated, and bills still owing but not yet collected, the landlord now has a bit more time to get final numbers for these items.

(Score 1 for Landlords)

5. Stronger Penalties for Security Deposits

A Landlord who willfully fails to itemize and return a deposit, or who fails to put the deposit into a trust account and notify the tenant of the banking institution holding the account loses the right to retain the deposit.

I'd say this one is a wash as current law requires security deposits to be held in a trust account so that they are not comingled with the owner's operating and/or personal funds.  If you work with a property manager, you're probably ok as most property managers hold these funds in trust.  If you manage your properties yourself, be sure to get to your bank, and ask them to open a trust account for tenant security deposits, if you haven't already done so.  They'll know what you are talking about and can guide you from there.

So, overall we came out with a tie in the new legislation.  2 points for Landlords, 2 points for Tenants and a wash.  Not bad. 

Oh, and 1 final note:

Believe it or not, I am sometimes wrong (on rare occasion; and if you bring up this blog I'll deny ever saying this!), so please consider this a short "Tiffany Summary" of the new legislation, which was gathered from a quick skim of the bill and a conversation with a local landlord-tenant law attorney.  I urge you to visit the NC General Assembly website and search on these topics by inputting "S661" in the "Find Bills By Number" searchbox .  This will pull up Senate Bill 661.  The NC General Assembly website is at http://www.ncleg.net/

 Until next time...