Elliott S. Topkins Massachusetts Real Estate and Title Atty

Massachusetts, where I have been practicing real estate law for more than 40 years, is an extremely "tenant-friendly" state with many people able to survive in the location they live in for more than six months with out paying rent. There is no "self-help" in Massachusetts, and people whose mortgage has been foreclosed upon achieve the status of "tenants" when the gavel goes down, with all the formalities of an eviction required for the Mortgagee to regain possession of the premises.

With this in mind, and for some other anolmalies which exist in Massacusetts, I would suggest the following approaches if you are going to have tenants in a Massachusetts property:

1. Be generous when setting the rental price. What I mean by this is consider very carefully the rent you are charging. My advice to my clients is to take some time to determine the fair market rent, and then charge five per cent lower than that figure. While to some of you this may seem like throwing away money, I think it is a tactical maneuver that will pay huge dividends. More and more people have been forced into rental situations these days because of much more stringent lender mortgage loan standards and a still declining economy. That has caused people to have an awareness of rental prices which they may not have had before. If your tenant knows that the place he or she is renting is a bargain that they will not want to lose, they will do some positive things like paying the rent on time and keep the apartment or home in good condition. Do the arithmetic. if you have even a one month vacancy, you have lost, forever, eight and one-half per cent of annual rentals. Providing a discount in advance will keep your premises occupied.

2. Somewhere down the line, you are going to need tenant cooperation.There are many situations I can point to where this is the case. In Boston, if you convert Apartments to Condominiums, you need to give the existing tenant notice of same and the right to purchase. If you have cordial relations with your tenant, you can involve the tenant in the process. If they like you, they will cooperate. If they have a bad relationship with you, a resolute tenant can delay, or even prevent, a conversion. You may decide to sell the premises, either to an investor or an owner-occupant. In either case, your relationship with your tenant will be critical to the success of your sale. Having a tenant who is generally satisfied with the way he or she has been treated will promote your sale to an investor, who may want to keep the tenant in place. If the tenant needs to move out, your good relations will make that process non-confrontation, and the time and money you will save will be substantial.

I am sure that many of you are involved in rental property, either as Landlords or Tenants. In my over forty years of practicing real estate law, I continue to be amazed at some of the misconceptions and misunderstandings both Landlords and Tenants have over residential security deposits and last month's rent. These items are present in almost all residential rental situations. How they are treated, however, varies and, in truth, there is no reason for any deviation from statutorily approved rules. So, I am writing this post to inform all of you Landlords and Tenants what you should be doing.

Security Deposits:

There is a Massachusetts stature which governs security deposits, and it is precise. These are the salient aspects of the statute:

•1. The security deposit needs to be placed in a separate savings account, with at least one of the Tenant's Social Security Number thereupon.

•2. The Landlord is required to notify the Tenant as to the name of the Bank in which the security deposit is located.

•3. The Landlord should pay the Tenant annually the interest (which may not be large, but must exist) accrued on the security deposit.

•4. When the Tenancy is completed, the Landlord needs to return the security deposit to the Tenant within thirty (30) days of termination. If the Landlord intends to withhold all, or part, of the security deposit, it must inform the Tenant of that decision in that period.

•5. It is highly recommended, although not absolutely required, that the Landlord and Tenant execute a Condition Statement through which the parties agree about the conditions of the leased premises when the Lease begins. This will eliminate disputes about prior conditions when the Lease ends.

•6. The rules for security deposits are not governed by how many units are involved. If you rent out a single-family home and receive a security deposit, you must abide by the security deposit rules.

Last Month's Rent:

There is a statute governing this item as well, and it is not as stringent as the rules for security deposits:

•1. The Landlord can utilize these funds during the term of the Lease. There is no requirement that the funds be placed in a segregated account.

•2. On an annual basis, the Landlord needs to credit the Tenant with interest on the amount which has been paid for last month's rent. The rate of interest must be reasonable in light of current interest rate scenarios.

•3. The rules for last month's rent are not governed by how many units are involved. If you rent out a single-family home and receive last month's rent, you must abide by the last month's rent rules.

I am reasonably confident that many of my readers may not be aware of some of these rules. They can become very, very important when a property is foreclosed upon, and a Tenant is trying to get his or her security deposit returned. They are also very important to Landlords. Massachusetts courts have held that the failure to establish an appropriate, segregated security deposit account is a per se violation of the consumer protection law. That can get very expensive, since double or treble damages may be awarded.

My clients have been recently facing a dilemma. Should they raise their three small daughters in the South End of Boston, or should they make the "trek" to the suburbs, A common question facing many urban couples. There were "pulls" and "tugs" on both sides. They loved the urban life; they have the financial wherewithal to absorb the cost of private school, which, unfortunatley, is almost always dictated by the gereral malaise in the the Boston City schools system. They lived in the first two floors of an upscale brownstone condominium; floors three and floor were occupied by single people with whom my clients had little in common.

After much soul-searching, my clients decided to make a run at staying in Boston, but only upon the condition that they could de-convert the Building they live in from a Condominium to a single family residential dwelling. The challenges were great. They needed first to acquire the other two Units. Those acquisitions were effected late in 2010, with the third floor being a purchase from an absentee landlord, and the fourth flood being a purchase from a resident owner, who had fallen far behind on his mortgage payments.

By the end of 2010, my client owned all three Units. We are now in the process of "De-condominiumizing" the Building. In our case, this involves filing a document with the local Registry of Deeds which indicates at least 75% of the people owning Units in the condominium wish to change the status of the Building. There is a small filing fee. We are in the process of obtaining the consent of my client's Mortgagee to the transaction, which is required if the conversion from condominium to single family dwelling is to be effective. Given the difficulty most of us are having with dealing with Lenders these days, obtaining this consent [although the mortgage loan represents less than 25% of the combined value of the Units, may be the most difficult task facing us] is required if the conversion is to be legally effective.

There are financial "pros" and "cons" involved in taking the steps outlined above.

The positive aspects include a different kind of more gracious living and privacy, which condominium living does not allow. There will probably be a strong case for a tax reduction for the Building, since, in general, three condominium units would probably have more value than one Townhouse. The other "positive" is that my clients can now achieve "husband and wife, tenants by the entirety"status for the entire building, whereas beofre the conversion only the Unit they actually owned, and resided in, was afforded that status. On the negative side, there is the expense of the transaction, coupled with the relatively higher difficulty in marketing a multi-million dollar Townhouse as compared to three "lower-value" Condominiums. The ultimate value of the single family dwelling, moreover, will probably be lower than the three component units. Lastly, on the negative side, once the Building is no longer a Condominium, there may be restrictions on converting it to same in the future based upon statutory or zoning changes, or new local and state restictions or moritoriums.

This post is written to let all of you know that the process is legally available, and the steps that must be taken to effect the change are not insurmountable. If any of you have situations in any way similar to the one I have described, I would gladly try to assist you, or your clients, in the "De-condominiumizing" process. I guess the old adage "nothing is forever" comes to mind when I think about completing same.

Like most good sales ideas that have happened to me, this marketing opportunity arose quite by accident. I am a Massachusetts real estate attorney with more than 40 years of experience in my profession. One of the things I have lately started to do for out-of-sate clients is manage their investment Unit condominiums for them. For a small monthly fee, i collect the rents, pay the common area fee, and four times a year, pay the real estate taxes.

Mssachusetts taxes work on a quarterly payment basis, with a June 30 fiscal year. Accordingly, the taxes which are payable on the first day of August and November of each year are only "estimates" to be applied to the final tax bill, which comes out in late December, or early January, of each year. I received the FY June 30, 2011 tax bill for one of my clients on December 30, 2010. He is the owner of a luxury Unit in the Waterfront section of Boston. When I examined the bill, I realized that the assessed value of his Unit was more than $300,000 more than the price that he paid for same in 2008.

Even though Boston has not been hit as hard as other locales in terms of price erosion, there has been some erosion, even in the luxury market. It seemed to me that my client's assessment was "out of line", and I called an attorney I work with, who does only tax abatements, and asked him to do some research on the matter. He told me that his data indicated that the assessment was high, and he and my client worked out a contingent fee arrangement whereby he will pursue a Tax Abatement for my client, and get a fee only if he is successul.

This is a rather large condominium, and I showed my wife, who is just starting out as a Realtor in Boston, how to reference purchase prices at the Suffolk Registry of Deed (Boston's registry), and how to reference Real Estate tax bills at the City of Boston Assessor's office. She did her homework and discovered that there were two othe Unit owners in the Condominium who appeared to be paying too much for their Boston real estate taxes.

She developed letters to each of these owners, indicating that they might want to consider filing for a real estate Tax Abatement, and, if they did, she could direct them to an attorney who is doing at least one such Abatement application in the condominium in question. My wife asked nothing from the Unit owners in return. She indicated that she was providing this service as a way to introduce herself.

In my mind, this kind of marketing may well have "legs". Even if the people in question do nothing, will they not have some appreciation for that "thoughtful Joanne Topkins" who provided this useful information? When they go to sell their Unit, or a neighbor goes to sell a Unit, isn't there a chance that they would give a referral to her?

But the best part of the exercise is that my wife now has pertinent data about this Condominium that will help her in becoming the "resident expert" on this Condominium. That kind of knowledge cannot but help as she is building her body of information to advance her career.

By the by, for you Bay Staters, Abatement Applications need to be filed in Massacusetts by the later of January 31 of each year, or 30 days after the final tax bill is issued. There is no "waivering" on this date, so if you know of a property that is "over-assessed", you need to get your Application in by those dates.

This is day 2 of 2011. Many of us have sat down and, systematically, started to develop goals and objectives for this year. This is a time-honored tradition, and most of us go through the exercise, either on a formal basis by writing things down, or by at least thinking about things that we MUST do this year.

If any of you reside in Massachusetts, one of the things that you "must do" this year is draw a Will. Amending an outdated Will you already have will be the subject of a future post.

My reasoning for this admonition is simple. The Massachusetts legislature, in its wisdom in 2008, changed some of the provisions of the Massachusetts laws of intestacy in 2008 (Acts of 2008, Chapter 521, Section 9). The law goes into effect on July 1, 2011 (slippery, aren't these guys and girls?). It is my opinion that the revised law, while an improvement over prior law, does not come close to articulating the wishes of most Massachusetts domiciliaries.

In case you are not familiar with the term "laws of intestacy", let me inform you that the laws of intestacy come into play when a person dies without a Will. Set aside the added expense of probating an intestate estate (appointment of an administrator, added Court appearaances), the intestacy laws also decide "who gets what" if you have not drafted a Will.

Even with the changes which are coming into effect in July, 2011, the following rather anomalous results will ensue if you die without a Will:

1. If you are married without children, your surviving spouse will not receive your entire estate if you leave a surviving parent. In an era when many of us are involved in elder care planning to remove assets from the estates of our parents, how impractical is it to have your parents take a share? Heaven forbid, your parents are incompetent and cannot disclaim what share they are awarded under the new law. All of your elder planning can go for naught.

2. An entirely new category of people, "surviving decendants of the surviving spouse" now comes into play. If your spouse had "pre-owned" children when he or she married you, that affects his or her intestacy share. The net effect of this provision would be to give some portion of your estate to your children when they reach the age of 18 years. When I do estate plans for clients, I confirm with most clients that having children receive large sums of money at the age of 18 is almost always a bad idea. A well-drafted Will can delay the time when your children take; dying without a Will cannot.

3. Those self-same "surviving descendants of your survivng spouse" are now in line in terms of taking an intestacy share, where they had no standing before. Providing for these step-children may be something you wish to do. Maybe, you are aware that their "other parent" has more than adeqautely provided for them. In any event, the new law puts them into the picture, unless you do something to obviate that possibility.

There are more examples I can provide. None are pretty. In the days of email and Microsoft Word, I am now able to provide clients with a Will, and other estate plan documents, in less than a month, if everyone cooperates. The cost is not prohibitve; the feeling you get when you know you have made your own provisions for people you care about, on your own terms, "priceless".

PS: While the provisions of this post apply to the Commonwealth of Massachusetts, other states have equally confusing, and unsatisfactory, intestacy laws. Those of you in other jurisdictions almost certainly need Wills, too.