Friday, August 16, 2013

Unconventional Legalizing

Did you ever agree to help a friend and later regret it? Herein lies the origin of the phrase, "No good deed goes unpunished."

Consider the possibilities. A friend who owns a few residential rental properties in Louisville decides to move out of state and needs someone to mow the grass, pay the utility bills and collect the rents. Things start off easy. It is Fall and there is no grass to mow. Just collect the rents and pay the utility bills. Then there are apartment vacancies that need to be filled. Still, fairly standard and expected chores. We do things the way they were done before by our friend, without much question.

Then, about ten months into the project we become curious and read the Uniform Residential Landlord and Tenant Act (URLTA).

Notes on Kentucky's URLTA - Security Deposits

Oh shit. We have been doing it wrong.
"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number."  
K.R.S. §383.580(1)

With a little cajoling, we persuade our friend to put a dollar amount equal to all outstanding tenant security deposits into a savings account used for nothing else.

Just as we are patting ourselves on the back, disaster strikes.

Foreclosure! Commissioner's Auction! Deficiency Judgment! Oh, my!

This tectonic shift in circumstances puts our friend's bank accounts at risk of garnishment by the deficiency judgment creditor, and the risk extends to the tenants' security deposit money. Fending off a garnishment of the tenants' money held by a landlord is no big deal in theory, but in actual practice it would be a monumental pain in the ass.

Again. Shit! What to do?

The top of my list of Bright Ideas, is to quickly form a Kentucky non-profit corporation for the sole purpose of opening a savings account in which to hold the tenants' security deposits. We do not want the money in our friend's name. We do not want the money in our name. We do not want to hold the money as cash. And, we would like to be in compliance with the URLTA.

Think about it.

K.R.S. §273.167, the "purpose" section of Kentucky's "Nonstock, Nonprofit Corporations" statute, provides:
"Corporations may be organized under KRS 273.161 to 273.390 for any lawful purpose or purposes, including, without being limited to, any one or more of the following purposes: charitable; benevolent; eleemosynary; educational; civic; patriotic; political; governmental; religious; social; recreational; fraternal; literary; cultural; athletic; scientific; agricultural; horticultural; animal husbandry; and professional, commercial, industrial or trade association; but labor unions, cooperative organizations, and organizations subject to any of the provisions of the insurance laws or banking laws of this state may not be organized under KRS 273.161 to 273.390" [emphasis added]
Sure, it's not a charity or any of those other things commonly thought of as being non-profit, but;
  1. It's not a labor union;
  2. It's not an insurance company;
  3. It's not a bank, and;
  4. Complying with K.R.S. §383.580(1) of the URLTA is clearly a lawful purpose.
Looking further, at K.R.S. §273.161(4) defines "Nonprofit corporation" to mean:
". . . . a corporation no part of the income or profit of which is distributable to its members, directors or officers."
Thinking about that, security deposits either go back to the tenants or they go to the landlord, so neither can be members, directors or officers of the corporation. The security deposits are not income or profits anyway, but there's no good reason to cloud the issue.

This is not a problem.

Forming a Kentucky nonprofit corporation and getting a Federal Employer Identification Number (EIN) is quick, cheap and easy, so there is not a lot of work or expense involved.

Bank savings accounts are paying only about one-tenth of a percent interest these days, so filing tax returns for the corporation probably would not be necessary,

So, why not? I like the idea of doing something nobody has ever done before. The main downside is that bureaucrats really detest things that have never been done before.

I'll talk it over with my old friend Mr. Bourbon later on this evening and see how it looks from a slightly different perspective.

Thursday, August 15, 2013

Effect of Foreclosure on Preexisting Tenancy - The Pesky Details

I've written about this before, sort of:

PTFA does NOT expire December 31, 2012

 Conundrums, Foreclosure and Tenant Security Deposits Under URLTA and PTFA

Generally, the Federal Protecting Tenants at Foreclosure Act of 2009, as amended, gives rights to innocent bona fide tenants caught up in a foreclosure of the landlord's rental property.

The interesting language of PFTA is this:

".... under any bona fide lease entered into before the notice of foreclosure .... "

  12 USC § 5220 note. Seriously, it's in the damn notes to that Code section

One might wonder what "before notice of foreclosure" means, and rightly so. In 2010 Congress amended the 2009 law to provide:
“For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.”

12 USC § 5220 same damn note.
Thus, before "notice of foreclosure" means before "complete title to a property is transferred to a successor."

See also: A New Amendment to the “Protecting Tenants in Foreclosure Act” by William A. Robinson, Esq. Colorado

This is only one of many reasons why the suicide rate among lawyers is so high.

The obvious next question is:  When does transfer of complete title to a successor after foreclosure happen in Kentucky law? That must wait for another day.

What I don't know about Environmental Law fills many books

What I learned today.

The Resource Conservation and Recovery Act of 1976, Title 42, USC §6901, et seq, was enacted by Congress to require a safe means of managing hazardous waste from cradle to grave, including its generation, transportation, treatment, storage, and ultimate disposal.

 The United States Environmental Protection Agency (“EPA”) regulates the storage, disposal and export of hazardous waste. This includes the disposal or export of unwanted electronic devices that contain hazardous or toxic materials.

Nearly all laptop computers, cell phones, televisions, tablets . . . and on and on, contain toxic materials that must be recycled or disposed of responsibly.

Throwing unwanted electronic devices into the garbage along with the used Q-tips is irresponsible and probably illegal under local ordinance. Louisville Metro Solid Waste Ordinance 44 (Series 2005) seems to be controlling, but frankly, I have not read it. Kentucky statutes and administrative agencies probably have something to say about it too.

Putting them out with general plastic or metal recycling is not acceptable. They will not take it.

Oh my!

Thursday, August 8, 2013

Letter To a Tenant

Hmmmm. I hope this helps.

Dear Tenant

 We want to avoid any misunderstandings about your rental contract. The written lease agreement you signed on July 12, 2012, provides:
“After 1 year(s), the lease will become a month to month lease subject to 30 day notice by either party of non-renewal.” 
 This means that the original agreement is still fully applicable at the present time. It automatically renews for one month periods beginning on the first day of each month. You have the option, as do we, to terminate this agreement by giving written notice at least 30 days before the beginning of the month.

A thirty-day notice usually requires more than 30 days in actual practice..

We have not received a written 30 day notice of non-renewal from you, and it is now too late in the game for you to avoid paying a full month’s rent for September. September 1st is less than 30 days from today.

If you plan to move out anytime before September 30, and wish to stop the automatic lease renewal for October, we need to receive your written 30-day notice before September 1st. If that is your intention, you can use the form below.


Date: _______________

To: Landlord

Notice to Terminate Rental Agreement

Please consider this my notice under the written lease agreement dated ____________ that I am exercising my option to terminate the month-to-month tenancy at _______________ effective at the end of the month of _____________, 2013.


When 30 Days Is Not Thirty Days - More Landlord & Tenant

There are three types of month-to-month residential tenants. First, there is the type who understands a 30-day notice means thirty days before the beginning of the next month. Second, there is the type that thinks a 30-day notice means thirty days from the date of the notice, whenever it is given. Finally, there is the type that believes notice is for suckers and who reads stinking rental agreements anyway?

Kentucky's Uniform Residential Landlord and Tenant Act (URLTA) K.R.S. §383.695(2) - Periodic tenancy - Holdover remedies, provides:
"The landlord or the tenant may terminate a month-to-month tenancy by a written notice given to the other at least thirty (30) days before the periodic rental date specified in the notice." [Emphasis added]
I'll stick my neck out and surmise this means a month-to-month tenancy that runs from the first of each month can be terminated by written notice given thirty days or more before the beginning of the next month. So, if this is the case and notice is given, say for example, on the 7th of any month, the tenant is still contractually obligated for a full month's rent in the following month. (See note below.)

Apart for the statutory language, "(30) days before the periodic rental date," reference to a rental date, also consider  K.R.S. §383.675 - Waiver of landlord's right to terminate:
"Acceptance of rent with knowledge of a default by the tenant or acceptance of performance by him that varies from the terms of the rental agreement constitutes a waiver of the landlord's right to terminate the rental agreement for that breach, unless otherwise agreed after the breach has occurred."
Imagine the hypothetical where a landlord wishes to terminate a month-to-month rental and gives a 30-day notice on the 15th of a month. If the rental terminated 30 days after the notice, the landlord would clearly be entitled to demand and receive pro-rated rent for the two week spill-over into the following month, but accepting less than a full month's rent would work as a waiver of the termination.

The 30-day notice is not a termination of the rental agreement. The 30-day notice is a termination of a right to renew the rental agreement for another month.

You might think this is easy to understand it this way, but apparently that is not always so. I have seen rental agreement provisions like this:
" . . . . the lease will become a month-to-month lease subject to 30 day written notice by either party of non-renewal."
This says basically the same thing as §383.695(2), but it is not an improvement.

Questing for clear understandings, I tentatively propose the following rental agreement language:
"At the end of the rental period covered by this agreement, this lease will automatically renew in one month increments beginning on the ___ day of each month. Either party may stop this rental agreement from renewing automatically by giving written notice of non-renewal to the other party at least thirty (30) days before the beginning of the next rental period. If notice is not delivered to landlord a full 30 days before the beginning of the next monthly renewal date, tenant remains obligated to pay rent for the next full month."
Another variation:
This lease shall be for a term beginning ______ and ending ______, after which time this lease will become a month-to-month lease from the first day of each succeeding month, subject to written notice of non-renewal by either party. To be effective, such written notice must be delivered to the other party at least thirty (30) days in advance of the first day for any month for non-renewal. This provision may be waived by mutual agreement of the parties.
As always, there are weird permutations I have not considered. Caveat emptor.

Note: One hitch in this is the seven-twelfths of the year with 31 day months. A thirty day notice given on August 1, for example, will be effective before the beginning of September.

Saturday, August 3, 2013

I'm Glad I'm Not an Attorney

K.R.S. §383.580(1), part of Kentucky's version of the Uniform Residential Landlord and Tenant Act, provides that tenants are to be informed of the dedicated Security Deposit Trust Account bank and account number.
"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number." [emphasis added]  
Were I an attorney and sworn to uphold the laws of the Commonwealth, I couldn't say,


But, I'm not, so I can and I did.

I've only recently arrived at this rebellious position. It was just last month that I created my first draft of a Notice of Residential Security Trust Deposit: Form and it had provision for disclosing the bank account number, with the implicit suggestion that doing what the statute says to do might be smart, It isn't.

The Uniform Residential Landlord and Tenant Act was drafted in simpler times and it reeks of its Twentieth Century origin. Now, in the Age of Identity Theft, handing out complete bank account numbers to total strangers is not a smart thing to do.

Rather, do as banks do. Provide the last four digits of the account number only, in the form "xxxxxxxx1234."

If any tenant objects to my less than literal observance of the statute, they can do as Sages of all ages suggest and "Sue me!"