The Mortgage Buddy would like to welcome Attorney Scott Wrenn as a guest blogger this month. Attorney Wrenn is a real estate attorney that is centrally located in Auburn, MA in the heart of the Commonwealth. His practice helps people with real estate conveynancing, land lord, and tenant law, as well as will and estate planning. He is well know for is litigation prowess and helping Massachusetts residents protect themselves and their most important investment, their home.

Buying and managing rental properties can be a good source of income for anyone looking to supplement their normal income. Rental income is, for the most part, stable income however, like anything in life being a landlord comes with both risk and reward. In this article I will discuss several key issues every prospective landlord should know when assessing a property for purchase.As is customary when making an offer on a home, the seller will first present the buyer with a lead paint certification in which the seller makes certain representations about the house. In most cases unless a seller has a notice to correct lead paint from the local inspectional services department, board of health or other governmental entity and conversely if the seller does not have a de-lead certificate from a licensed professional then chances are the seller will represent to the buyer that they possess no knowledge as to the presence of lead paint. As the buyer you then have the right within 10 days to conduct a lead paint inspection on the property. Lead paint is one housing condition that has the ability to yield significant damages to the tenants and significant liability to the landlord. Similarly a landlord cannot refuse to rent to prospective tenant with a young child on account of a unit containing lead paint as this would constitute grounds for a discrimination suit. Best practices are to inspect for lead paint and base your offer and budget on having the lead paint removed or encapsulated as needed.

Beyond lead paint inspections there are several ways in which a buyer can further research into the condition of a rental property. It is recommended that a buyer always check with the local authority whether it be Inspectional Services or Board of Health to see if any housing reports have been made in the past and if so what the disposition of those reports are. A buyer should always look to see if the conditions have been rectified and if not, is there an outstanding order to correct the conditions. Landlords choosing to ignore orders to comply with the state sanitary code subject themselves to daily fines and in the most egregious of cases, criminal prosecution.

In my practice I see all too often buyers waiving their right to inspect a home in order to make their offer to sellers more appealing. I additionally see buyers choosing to have a friend or family member that may work in the construction industry take a look at the house. When buying a rental property neither of the above scenarios are remotely in a buyers best interests. A local licensed professional home inspector is the only way to truly assess the condition of the property. The condition of the property will dictate future costs for the landlord and possible liabilities for the landlord. To further this point every landlord should know the term, “implied warranty of habitability”. This is a warranty that is implied in law or more specifically the warranty is present whether you have a written or verbal lease agreement. A landlord makes a warranty or promise to the tenant that the rental unit and accompanying common areas will be in good condition from the inception of the tenancy until the end of the tenancy. A landlord’s failure to maintain a property in good condition can lead to a breach of the implied warranty of habitability. In general terms damages for a breach of this warranty are measured in diminution of value. For example, if a landlord rents a property out to a tenant for $1,000 per month and the tenant sues under the warranty, a judge can find a diminution of value commensurate with the conditions. If a judge finds a 50% diminution in value for a period of 6 months then $500.00 per month for 6 months is the measure of damages. Moreover if a landlord has initiated an eviction action for past due rent but the tenant’s damages are greater than the rent owed then a landlord will not be granted possession of the unit and the tenancy will continue. Paying for a local licensed home inspector and having a thorough inspection done will only serve to protect the landlord from undiscovered defects and help the prospective landlord plan a budget for repairs accordingly.

It is very common for a new landlord to inherit existing tenants in the rental property they are purchasing. This matter requires that the prospective landlord find out as much information about the new tenants as they can. First off, the buyer should always check in with the local inspection authority as described above. Next the landlord needs to inquire from the seller what deposits are being held whether it is first, last month and or security deposit these monies must be transferred over to the buyer. In my practice I generally require that the sellers have their tenant’s sign what is called an “estoppel certificate” whereby the tenants make representations as to what money is being held along with various other representations about the type of lease, the names of the tenants occupying the unit and the condition of the unit. Barring an estoppel certificate a buyer should request these same representations from the seller directly. I will discuss the complex rules of holding security deposits in another article however generally a buyer will need to identify the funds to be transferred and physically set up accounts in a bank in the Commonwealth and provide a receipt to the tenant within 30 days of receiving the funds. Liability for last month rent and security deposits can become the new landlord’s responsibility.

Lastly, a prospective buyer can run the tenant’s name in the court system records to see if they have been evicted before. This will allow the buyer to know if they are inheriting a tenant that has habitually failed to pay in the past or if they have litigious tendencies the landlord needs to be concerned about. This practice is not only good for tenants that are inherited but also for any new prospective tenants in the future. It is important to know that in Massachusetts both District Court and Housing Court have jurisdiction to here eviction matters. A majority of the housing cases are brought in housing court and to that end landlords can search the tenants name either locally at the housing court or online at www.masscourts.org.

Doing due diligence research upfront is the best way to shield oneself from future issues and liability. Buyers should always remember to surround themselves with a knowledgeable Loan Officer, Attorney, Home Inspector and Realtor. Buying a rental property is akin to buying a business and it must be treated as such.

Scott C. Wrenn is an attorney with the Law Offices of Scott C. Wrenn, P.C. specializing in real estate and landlord tenant law.

Scott C. Wrenn, Esq.
The Law Offices of Scott C. Wrenn, P.C.
1C Swanson Rd.
Auburn, MA 01501
Tel. 774.321.6200
Fax. 774.321.6204
www.wrennlawoffice.com

This Post is “Mortgage Buddy Approved”