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Can Massachusetts Landlords Collect Application or Credit Fees?

The answer is: The Legislative Law suggests that it is OK but at least one Housing Court judge has misinterpreted, in my opinion, the Legislative Law to state that it is not OK. There are no Appellate or SJC decisions on the issue.

In 2005 in a case called Goran ‘s Investors, Inc. v. Luis Ortiz and Rosa Mercado, Western Division Housing Court No. 04-CV-0318 Judge Fein interpreted the legislative law to mean that no tenant can be charged any other fees other than for First Month, Last Month, Security Deposit and Lock Installation Costs and since then there have at least one judge to follow her interpretation. (See Hermida v Archstone, Civil Action No. 10-12083-WGY., United States District Court, D. Massachusetts., 2011 but also note that I am told that US District Court does not set precedent in MA).Can MA Landlord Collect Application and Credit Fees

 

This is one way to interpret this law – the most anti-landlord way.

 

Here is the actual law MGL 187 15B 1 (b):

“At or prior to the commencement of any tenancy, no lessor may require a tenant or prospective tenant to pay any amount in excess of the following:

(i) rent for the first full month of occupancy; and,

(ii) rent for the last full month of occupancy calculated at the same rate as the first month; and,

(iii) a security deposit equal to the first month’s rent provided that such security deposit is deposited as required by subsection (3) and that the tenant is given the statement of condition as required by subsection (2); and,

(iv) the purchase and installation cost for a key and lock.”

…………………………………………

It doesn’t say “any items in excess of the following” or “any amountS in excess of the following” or “any amount different than the following”.  It simply says “any amount in excess of the following”. My point is that the Legislature was not concerned with particular items. They were most likely concerned with the total dollar amount not the number of items because they were trying to improve the affordability of the entry into the apartments in MA. Who cares how many items a landlord charges if it only costs a tenant $5 to get in? So it seems to me if a landlord charges for First Month, Last Month and Security Deposit but does not charge $50 for a lock fee, for example, they certainly can charge $30 for a background check as that will not exceed the amount allowed by the above law.

In other words, if the First Month is $500, Last Month is $500, Security Deposit is $500 and it costs $50 to install 2 new locks, the total amount that one cannot exceed per statute is $1,550, right? What happens if a landlord doesn’t charge LM or Lock Fee? Why can’t they charge $30 for a background check? They would still be way below the maximum $1,550.

Another clue into the Legislature’s intent is that MA Realtors are allowed to collect the credit check fee from prospective tenants (254 CMR 7.00). Also banks are allowed to charge for credit checking. It doesn’t make any sense that if you are a realtor/landlord renting an apartment you can recover the cost to check the background of a prospective tenant but if you are only a landlord engaged in the same activity but doing the checking yourself without having a realtor’s title or hiring a realtor you somehow can’t.

Landlords should not be forced to “eat” the cost of background checks for people who lie on their applications about their creditworthiness or shop around for apartments with very little intent on becoming our tenants. We don’t want to encourage these people by sponsoring bad behavior like that. The money out of our pockets quickly adds up to thousands of dollars and it’s not like we are making a lot of money to begin with. The average landlord makes about 10% of the rents. That means that if your collected rents for the year are $100,000 (and, by the way, most landlords collect less than that) your “salary” is only $10,000. The cost of a credit/criminal report is $30 and even if you have 2 applicants a month who lie on their application that’s $720 or 7.2% of your income!!!!!!

Because some of our judges choose the most anti-landlord interpretation of the law, we only have two options now – to ask the Legislature to clarify the law or to appeal this Housing Court Decision. We also have the option to know who is proposed to be appointed as a Housing Court Judge and oppose nominees we think are unbalanced or out-of-the-mainstream or logic-challenged or come from mostly tenant-advocacy firms.

Just to be on the safe side here is what I do. I use a free service called http://www.mysmartmove.com provided by one of the 3 Credit Reporting Bureaus in USA – TransUnion Credit Bureau – a completely unrelated 3rd party. The tenants pay me nothing. They pay TransUnion the $30 to authorize their credit and criminal background released to me and if I take them as tenants I reimburse them for their expense but if I don’t take them because what they put in their application does not match with their actual credit/criminal report, then it’s on them. That way I get only applicants who are honest about their credit background and are willing to put their money on the line. If they know they have poor credit and they know my credit guidelines they don’t bother risking their money.

A 05-07-13 Update: Over the past couple of months I have been using Experian Connect – a similar service provided by Experian Credit Bureau and I have been very happy with them. While TransUnion is asking $30 they are only asking $14.95 and so are much more affordable to tenants.

Another update: Since I wrote this there was a Federal Court decision that ruled that application and credit fees are illegal. In 2004 I simply started asking tenants to pull their credit report on their own and email it to me. There are a couple web sites that provide credit report for FREE. The most important one is http://www.annualcreditreport.com. Another one that is free is http://www.creditkarma.com