Overview of the Massachusetts Security Deposit Law

 

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Ask a room full of lawyers a legal question, and you will likely get a handful of different responses.  I would bet, however, that there is a major exception to this on the question of whether a landlord should accept a security deposit from tenants in Massachusetts.  On that question, Massachusetts landlord attorneys (including your’s truly) would likely uniformly answer no.  A Massachusetts landlord should never accept a security deposit from a tenant.

Why?  The Massachusetts Security Deposit Law is one of the most complex and detailed consumer laws on the books in Massachusetts.  Few lawyers and judges understand the detailed requirements of this law, and I imagine even fewer landlords actually comply with every part of it.  The Massachusetts Security Deposit Law has lengthy provisions for accepting, holding, and returning a deposit, making the acceptance of a security deposit a huge hassle for landlords.

The danger for landlords under the Massachusetts Security Deposit Law are the penalties associated with a landlord’s failure to comply with this law.  Several specific violations will result in a tenant being entitled to treble damages (three times the tenant’s security deposit), costs, and attorney fees.  This means, for example, that a violation of a tenant’s $500 security deposit can result in over $2,000 of damages, if the security deposit is not handled correctly.  If the tenant is represented by an attorney, expect these damages to be even higher.

An even greater danger to landlords is the use of the Massachusetts Security Deposit Law as a defense to a eviction case.  A recent Supreme Judicial Court decision has held that violation of this law not only entitles a tenant to monetary damages, but also serves as a defense to an eviction.  In other words, if a landlord fails to comply with the Massachusetts Security Deposit Law, he or she likely will not be able to evict a tenant, and may face a huge penalty from the court.

What can a landlord do to avoid the Massachusetts Security Deposit Law but still get some security from their tenants?  Plan accordingly by incorporating a “security deposit” into your monthly rent.  For example, say you wish to rent an apartment for $1000/month, and want a security deposit.  Instead of renting for $1000/month, add $80-$100 more to the rent ($1000/12 months = $83.33) , and set that money aside.  If, at the end of the lease, there is damage in the apartment, you’ll have the funds to deal with it, without the burdens of the Massachusetts Security Deposit Law.  Even better, if there are no damages in the rental property, you’ll have some extra cash at the end of the tenancy.

If you’re a landlord and think you have violated the Massachusetts Security Deposit Law, don’t despair: it may be possible to remedy the situation by returning the deposit or reaching a resolution with the tenant.  To do so, contact an experienced landlord/tenant attorney as soon as possible.

 

Guest Blog Post: Meikle v. Nurse (Defenses in Massachusetts Eviction Cases)

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The Massachusetts Landlord Tenant Blog is proud to have Attorney Joseph N. Schneiderman guest blog on the Massachusetts Supreme Judicial Court’s recent Meikle v. Nurse decision, an appeal involving the important issue of defenses in Massachusetts eviction cases.  Attorney  Schneiderman is an appellate attorney licensed in Massachusetts and Connecticut and may be contacted at connlawjoe@gmail.com.

Supreme Judicial Court:
Violation of the Security Deposit Statute is A Defense to Possession In An Eviction Case

On April 27, in Meikle v. Nurse, Slip Op., SJC-11859, 474 Mass.—, the Supreme Judicial Court held that a residential tenant could assert a violation of the security deposit statute (G.L. c.186, §15B) as a defense to possession in a summary process action (a copy of the decision is posted below).

In October 2011, Ms. Nurse executed a one-year lease to live in a residence Mr. Meikle owned and paid a $1,300 security deposit equivalent to one month’s rent. Although Mr. Meikle acknowledged receipt of the deposit, he neither informed Ms. Nurse where he deposited the lease-nor paid her interest. Ms. Nurse lived there until April 2014, when Mr. Meikle commenced the instant summary process action. Ms. Nurse counterclaimed on multiple grounds, including a violation of the security deposit statute.

A Judge in the Boston Housing Court held for Ms. Nurse on her security deposit claim because Mr. Meikle failed to provide proper receipts and interest. However, in conflict with at least three past Housing Court rulings, the Judge ruled that the violation would only offset the unpaid rent and was no defense to possession. Ms. Nurse appealed and the Supreme Judicial Court took the case directly on their own motion.

 Writing for the Court, Justice Geraldine S. Hines distilled the case to the interplay of G.L. c.186, §15B and G.L. c.239, §8A, establishing defenses to eviction. The Court applied two established interpretive principles to resolve this issue. First, the Court interprets statutes to effectuate the intent of the Legislature based on the language of the statute and its purpose. Plain and unambiguous language in a statute was “conclusive of the intent of the Legislature.”  Second, the Court interprets remedial statutes broadly to best effectuate their purposes.

 Against this backdrop, the Court noted that the fifth paragraph of Section 8A provided that “a tenant may retain possession if: (1) the tenant prevails on a counterclaim or defense brought “under this section; and (2) the damages on that defense or counterclaim exceed the amount due the landlord, the tenant pays to the court the amount due within one week.” Construed harmoniously, the phrase “under this section” referred back to the first paragraph of Section 8A to assert a defense or counterclaim “arising out of such property, rental, tenancy…occupancy of breach of warranty, for a breach of any material provision of the rental agreement, or for a violation of any other law.”

The Court held that violation of the security deposit statute “fits squarely within this framework [as relating to or arising] out of the tenancy” and its violation was one “of any other law.” The Court emphasized that security deposits were a “prerequisite to most residential tenancies” the security deposit statute was “part of an elaborate scheme of rights and duties to prevent abuses and to insure fairness to the tenant.” Moreover, a contrary interpretation would frustrate both statutes, especially the historic expansion of Section 8A leading to the language “violation of any other law” in 1977. Finally, Mr. Meilke was not without a remedy. If he ameliorated the security deposit violation, he could later bring a new summary process action-even if Ms. Nurse paid the amount due.

The Court’s decision reflects a thoughtful balance. First, the Court broadly effectuates two remedial statutes as a harmonious whole to protect residential tenants. Security deposits are a sine-qua-non of residential tenancies and the Legislature enacted a broad constellation of rights to protect tenants. Holding that a security deposit violation was not “a violation of any other law” ignored two lessons of history: the expansion of defenses to tenants and robust protection of security deposits.

At the same time, the Court establishes a key limit for future cases by interpreting “any other law” to invariably correlate to the landlord tenant relationship. Future tenants will therefore need to make this showing to have a defense to possession.  Landlords also may remedy their violation and bring a new summary process action; indeed, “the Legislature’s [was to provide…] a time limited equitable remedy.” The open question thus potentially becomes how long a tenant may retain possession for a security deposit violation-or, conversely, how long a landlord has to remedy a security deposit violation before commencing a new summary process action.  Hopefully, despite the summary nature of summary process, the SJC will address these issues again strike a balance.

Joseph N. Schneiderman has an appellate practice “on circuit” in Massachusetts and Connecticut, and argued his first civil appeal in the SJC on March 10. See Goodwin v. Lee Public Schools, SJC-11977. Joe gratefully thanks Adam for the opportunity to guest blog (again)!

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Overview of Robo-Signing as a Foreclosure Defense

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The recent foreclosure crisis brought to light a term that is now synonymous with foreclosure defense: “robo-signing.”  A “robo-signor” is someone who signs documents on another’s behalf in massive quantities.  The charge of robo-signing came to light largely due to CBS’s 60 Minutes segment on “Linda Green”, a bank vice president whose signature was made by dozens of low level bank employees.  The segment offered conclusive evidence that thousands of land records across the country have forgeries.  Here in Massachusetts, the Southern Essex Registry of Deeds has taken an active role in fighting robo-signing, through a list of alleged culprits on its website.

Successful claims against robo-signors have mostly come from state and federal lawsuits against lenders, alleging that these practices are in violation of land recording laws and other consumer protection statutes.  Many of these lenders have settled these claims through huge cash settlements.

Can Massachusetts homeowners use robo-signing as a viable foreclosure defense?  The overwhelming response by courts is “no.”  Massachusetts law gives recorded land documents a large presumption of validity, making such challenges nearly impossible to succeed.  I, personally, am aware of no successful foreclosure defense case made upon such a claim.

Robo-signing is attractive to many foreclosure defense claimants because it comes across as a “sexy” issue, filled with claims of fraud and deceit.  The reality, though, is that it isn’t going to get very far as a foreclosure defense.  This is one reason, among many others, why struggling homeowners should speak with an experienced attorney on these matters.

Attorney Adam Sherwin Nominated to the U.S. Supreme Court

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This will be my last blog post for a iteawhile.  President Obama has named me to the U.S. Supreme Court, as a replacement nominee for Judge Merrick Garland, to fill the seat of the late Justice Antonin Scalia.  Garland, I’m told, has decided to withdraw his name as a nominee to the Court, in fact of opposition from Senate Republicans.  

I’m deeply humbled by the confidence that President Obama has shown in me and will do my best to serve my country well.  

The White House will be released a statement soon, but gave me permission to break the news here.

The White House

FOR IMMEDIATE RELEASE

I would like to first thank Judge Garland for his outstanding service to our country.  Although I am disappointed that the Senate would not consider Judge Garland’s nomination, I know America will continued to be well served with his tenure on the U.S. Court of Appeals.

In his place, I have nominated Attorney Sherwin of Massachusetts.  Attorney Sherwin has a long and distinguished career as a Massachusetts litigator and will bring a wealth of experience to the Supreme Court.  I am confident that Democrats, Republicans, and Independent alike can agree that he will be a strong addition to the federal judiciary.

President Obama

For more information on this, click here.

Sherwin Law Firm To Argue Foreclosure Defense Appeal Before Supreme Judicial Court

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The Supreme Judicial Court has granted direct appellate review for one of my upcoming foreclosure defense appeals.  Direct appellate review allows the Supreme Judicial Court (Massachusetts’s highest court) to hear an appeal pending before the Appeals Court (the appellate court that is responsible for initially hearing appeals).  Direct appellate review is often granted for pressing issues of law that the Supreme Judicial Court believes is necessary to resolve as soon as possible.

This appeal is whether a mortgagee’s failure to comply with G.L. c. 244, § 15A (which requires notices to be sent after the foreclosure sale) invalidates a foreclosure.  This law has been included as among the requirements for a Massachusetts foreclosure and trial courts are divided as to whether this is a valid foreclosure defense.  Stay tuned!

Guest Blog Post: Clark v. Leisure Woods Estates, Inc.

 

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The Massachusetts Landlord Tenant Blog is proud to have Attorney Joseph N. Schneiderman guest blog on the Massachusetts Appeals Court’s recent Clark v. Leisure  Woods Estates, Inc. decision, an appeal involving the important issue of damages in landlord tenant cases.  Attorney  Schneiderman is an appellate attorney licensed in Massachusetts and Connecticut and may be contacted at connlawjoe@gmail.com.

Appeals Court Partially Affirms and Vacates Damages To Tenants At Manufactured Housing Community in Orange

On February 23, 2016, the Massachusetts Appeals Court decided Clark v. Leisure Woods Estates, Inc., 89 Mass. App. Ct. 87 (2016). (full copy of the decision is below).  Justice Gregory Massing wrote for a unanimous Court and held that a Housing Court judge properly awarded treble damages under G.L. c.93A for breaches of the covenant of quiet enjoyment but erroneously awarded each household two triple rent awards under G.L. c.186, §14.

Leisure Woods Estates is a large manufactured housing community in Orange, Franklin County, home mainly to senior citizens.  Id. at 88. Residents own their own units but pay a monthly rental fee for the lots. Id.  Twenty-two residents sued Leisure Woods in the Western Housing Court over conditions there and a three-day bench trial followed. Id. at 89. On the last day, Leisure Woods’ president, Glenn Gidley, was set to testify but did not arrive at court until plaintiff’s counsel began her summation. The judge refused to reopen evidence to permit Gidley’s testimony.  Id. at 95.

The judge found that Leisure Woods committed “three distinct violations” of the convent of quiet enjoyment codified in Section 14. First, since 2007, Leisure Woods blocked access to common walking trails, which had been their selling point. Second, Leisure Woods permitted retaining walls to collapse, walkways to deterioriate, and flooding, which were particularly aggravating to Leisure Woods’ aged population. Third and finally, Leisure Woods “chronically failed” to clear snow and ice, causing potholes and impassable roads. Id. at 89. Leisure Woods appealed, asserting that (1) the Housing Court judge erred in determining damages and (2) in barring Gidley’s testimony.

The Appeals Court recalled that “an injury party may recover damages for claims or injuries that are ‘factually separable and distinguishable [but not] multiple awards for the same injury based on different theories.” 89 Mass. App. Ct. at 90-91. Section 14 permitted a tenant to recover either “actual and consequential damages [of] all reasonably foreseeable [personal and economic] losses”, or, three months rent, if the tenant could not calculate actual damages. Id.  Against this backdrop, the  plaintiffs had not received “repeated [or otherwise duplicative] damages for each rental period, but rather one triple rent award for each of two factually distinct breaches.” Id. at 92.

However, the Appeals Court held that “only one triple rent award is available in a single proceeding under §14, no matter how many ways the landlord interferes with the tenant’s quiet enjoyment.” Id. at 92-93, citing Simon v. Solomon, 385 Mass. 91, 112-113 (1982).  Since the plaintiffs could not prove actual damages, only one triple award was proper-unless Leisure Woods continued to violate Section 14.  Id. at 93, n.6.

Turning next to c.93A, the trial judge had found that Leisure Woods willfully and knowingly failed to repair extensive pot holes and permitted snow and ice to accumulate. 89 Mass. App. Ct. at 89. Leisure Woods contended that natural snow accumulation in and of itself could not constitute a defect. Although the Appeals Court noted that this specific position was of dubious merit in light of recent caselaw, the Appeals Court instead concluded that Leisure Woods’ conduct violated the Attorney General’s regulations on manufactured housing requiring maintenance of community roadways promulgated pursuant to c.93A. Id. at 93, and n.7. Because the regulations required removal of snow and pothole repair,  “overwhelming evidence” of damaged roads caused by these conditions made the treble damages award appropriate. Id. at 94.

Finally, the judge did not abuse his discretion in refusing to permit Gidley to testify. The defendants had multiple opportunities to bring Gidley to court timely that they missed, despite the judge calling a recess and tending to other matters. Because Gidley did not arrive until summations, the judge correctly precluded his belated testimony because it would likely prejudice the plaintiffs. Id. at 95-96.

Two open issues emerge from this case. First, although a landlord may commit multiple breaches of the covenant of quiet enjoyment, only one default award of triple rent is available under Section 14, unless the breach survives the initial suit-or actual damages can be calculated. 89 Mass. App. Ct. at. 93, n.6. Although this rule will avoid duplicative damage awards, it does not appear to incentivize the landlord to remedy the breach-and may undervalue a tenant’s damages, frustrating the purpose of Section 14.

Second, does negligent snow accumulation in and of itself breach the covenant of quiet enjoyment? As the Court noted, the law of premises liability no longer distinguishes between natural and unnatural snow accumulation. 89 Mass. App. Ct. at 93, n.7, citing Papadopoulos v. Target Corporation, 457 Mass. 368 (2010). In light of that case and the attendant hazards of snow accumulation to tenants and visitors from snow accumulation, such accumulation should constitute a freestanding breach of the covenant of quiet enjoyment. Papadopoulos, 457 Mass. at 382-384. Given the severe winters of 2014-2015, landlords should take care to clear snow or risk a litany of litigation.

Joseph N. Schneiderman has an appellate practice “on circuit” in Massachusetts and Connecticut.  Joe gratefully thanks Adam for the opportunity to guest blog!

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The Big Short – Origins of the Foreclosure Crisis

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Last weekend, I went to see The Big Short, which portrays the origins of the foreclosure crisis.  As a foreclosure defense attorney, I was interested in seeing how the movie explained the events of the financial meltdown and its effect on residential foreclosures across the United States.  Notably, this is the second foreclosure defense movie that has come out in the past two years.  Who knew foreclosure defense could ever be so entertaining? 

The Big Short has an all star cast (Christian Bale gives a great performance) and a compelling story line.  Unfortunately, the movie is a bit long, even for someone highly interested in the origins of the foreclosure crisis.  The movie would have been much, much better if it was shorten and focused on fewer characters.   With all of the good movies out now, you are best waiting to see this one on video.

Nonetheless, if you are interested in the origins of the foreclosure crisis, The Big Short is worth watching.  The movie does a good job of explaining how the secondary mortgage market, securitization, and incompetent bankers lead to the mortgage meltdown.  The short answer to the origins of the foreclosure crisis is that bankers were given enormous incentive to give out mortgage loans, because these loans could be easily sold on the secondary market (allowing the loan originator to “wash their hands” clean of the original lending transaction).  Securitization, which I have written about before, played an important role as well: these complex financial transactions allowed investors to diversify risk, giving a great incentive for lenders to make toxic loans.  If you are interested in reading more about this, check out this op-ed from the New York Times, written by Michael J. Burry, one of the characters from The Big Short (played by Christian Bale).

I liked The Big Short because it provides important ammunition in fighting big banks in foreclosure defense cases.  Bank like to blame everyone but themselves for the origins of the foreclosure crisis, but this movie shows where the real blame lies.  I’ve seen first hand the effects of these toxic loans from the early 2000s, with homeowners having been given loans and refinances despite no supporting income and documentation.  Many of these borrowers were “setup to fail” from the beginning.

An important word of caution about The Big Short.  I know some will see this movie and think that these origins of the foreclosure crisis alone are enough to beat foreclosure.  A few, unfortunately, may even believe that foreclosure defense can result in a free home.  Foreclosure defense is much, much more complex than that and struggling homeowners should consult an experience attorney in handling one of these cases.

Paragraph 22 of the Standard Mortgage

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An important foreclosure defense is paragraph 22 of the standard mortgage.  The “standard mortgage” is the mortgage agreement used by Fannie Mae and Freddie Mac, two of the largest holders of residential mortgages in the United States, making it a widely used form for residential home transactions.  If you borrowed money for a residential home, chances are excellent that your lender used the standard mortgage.

Paragraph 22 of the standard mortgage requires the lender to provide the borrower a default notice prior to foreclosure.  This default notice provision, often found in paragraph 22 of the standard mortgage, requires the following for a non-judicial foreclosure state like Massachusetts (where the lender does not need to go to court to foreclose):

Acceleration; Remedies.   Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise).  The notice shall specify:  (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale.  If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and those remedies permitted by Applicable Law may be invoked.  Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.

NOTE:  I have included, as a PDF below, an excerpt from the standard mortgage with this provision, as it applies to a non-judicial foreclosure state.  Note that this default requirement is not always found in paragraph 22; I have seen some mortgages include it in other paragraphs of the mortgage.

Paragraph 22 requires lenders to provide borrowers with an opportunity to cure their mortgage loan default prior to foreclosure, and requires in this notice specific disclosures.  This paragraph is also referred to as the “right to cure” notice or the “default” notice.

Not surprisingly, lenders often mess up these simple notices.  Can a paragraph 22 defect be a valid foreclosure defense?  In Massachusetts, only a notice with a defect sent after July 17, 2015 will invalidate a foreclosure (per the Supreme Judicial Court’s Pinti v. Emigrant Mortgage decision).  Interestingly, other states interpret the paragraph 22 requirement differently; many Florida courts require “substantial compliance” for paragraph 22 of the standard mortgage, in which a minor defect will not void a foreclosure by itself.

While the Supreme Judicial Court in Massachusetts made the paragraph 22 defense only applicable to those notices sent after July 17, 2015, I think there is a good argument  to be made that this only applies to post-foreclosure cases, and not pre-foreclosure.  In other words, if a homeowner has received a deficient paragraph 22 notice and raises a challenge before foreclosure, there is a strong argument to be made on equitable grounds that the foreclosure should be stopped.

Facing a foreclosure?  Contact me to see if a paragraph 22 defense can be used to help you save your home.

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Abandoned Tenant Property

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A common problem for landlords is abandoned tenant property.  When a tenant leaves an apartment, what should the landlord do about any property left behind?

If the landlord is certain that the tenant has completely moved out of the apartment, the problem is easy to solve.  A landlord should first contact the tenant and see if they want the property.  If the landlord can’t get an answer from the tenant, the landlord should store the property for as long as they can.  I recommend that landlords wait a minimum of sixty days before discarding any left behind possessions.  Landlords should take pictures of abandoned tenant property and contact the tenant in writing.

If it isn’t clear whether the tenant has moved out of the apartment, discarding abandoned tenant property becomes tricky.  Landlords need to avoid the worst possible mistake a landlord can make: self-help (where a landlord attempts to evict a tenant outside of the law).  In other words, landlords need to be sure that the tenant has left the apartment before discarding abandoned tenant property.  Common sense is the best test for this: if the tenant hasn’t been back to the property in months, has taken most of their items with them, and has made no contact with the landlord, it is likely the tenant has left the  apartment for good.

However, if the landlord has any doubt about this, the landlord should proceed with caution.  The safest approach is an eviction proceeding against the tenant.  In most cases, the tenant will never show up to court, allowing the landlord to get a default judgment (an automatic win).  An eviction isn’t a quick process; even if uncontested, an eviction will likely take up to two months.  However, if it is possible for a tenant to ever claim that they never left the apartment, this extra time may be well worth it for the landlord.

If you are a landlord with a case of  abandoned tenant property, contact me for a consultation.

Recommended Resource: Understanding the Secondary Mortgage Market

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As I have written before, many homeowners are surprised to learn that the local bank they borrowed money from to buy their home often no longer owns their loan.  The reason for this is the secondary loan market: lenders routinely sell mortgage loans not long after the promissory note is executed.  The reason for this is that the lender gets a better return on their investment by selling the loan early, which provides them with more money to lend for new mortgage loans.

I recently came across a blog post from Freddie Mac’s website explaining the secondary mortgage market.  The blog post is obviously pro-Freddie Mac, but does provide a good overview of this process.  I recommend it for anyone interested in learning more about mortgage lending.