With little debate, state lawmakers sent to Gov. Roy Cooper legislation Thursday that would allow landlords to continue to collect eviction-related fees from tenants who later settle up on the rent and stay in their homes. A state judge had recently found those fees unsupportable under state rental laws.
The legislation pushed by apartment owners and Realtors passed both chambers within a 24-hour period. The House voted 106 to 3 in favor late Wednesday night, while the Senate cleared it late Thursday afternoon with no opposition.
The stakes are big for apartment owners. Senate Bill 224 would turn back a recent ruling by a state Superior Court judge who found that nearly $200 in such fees shouldn't have been charged to a Raleigh man who had settled his rent issue before being evicted. The judge also found the tenant was eligible to claim triple damages under the state’s unfair and deceptive practices act.
That decision shocked apartment owners. They had been collecting the fees for several years, and the decision potentially stood to impact thousands of past and future eviction proceedings. Communities across North Carolina and the Southeastern United States are home to some of the nation’s highest eviction rates, according to a recent study.
Shortly after the judge’s decision, the Apartment Association of North Carolina talked of plans to have lawmakers run legislation to ensure the fees could be collected. State records show the association had six representatives lobbying state government this year, double the number in previous years. Four of the lobbyists were registered Tuesday.
The legislation emerged Tuesday night out of a House Rules Committee meeting, in an unrelated Senate bill that had been stripped out and replaced, thereby avoiding committee hearings in the Senate. During the bill’s speedy course toward passage, two lawmakers told their colleagues there was little controversy to letting landlords continue to tack on eviction-related fees to tenants who had fallen behind on their rents.
Rep. John Hardister told the Rules committee that stakeholders were in agreement on the legislation, but a representative with the N.C. Advocates for Justice that represents trial lawyers said they were not. After the meeting, he said his remarks were meant to convey that apartment owners and Realtors were in agreement on the legislation.
Two other stakeholders, the N.C. Justice Center and the N.C. Housing Coalition, told The News & Observer they were opposed to the legislation that emerged from the rules committee.
They said an amended version of the bill that passed the House was an improvement. The justice center remained opposed, while the housing coalition shifted to a neutral position. The amended bill stipulated that landlords could only collect on attorney fees actually incurred.
But it also removed a provision requiring landlords to strike from a tenant's record an eviction finding that was resolved by a settlement. Such findings serve as a stigma for tenants as they seek to move to other rental housing. Hardister, a Whitsett Republican, had said before the House vote that the apartment owners wanted the provision removed.
The bill then moved to the Senate floor. There state Sen. Floyd McKissick Jr., a Durham Democrat, told his colleagues that he knew of no opposition. Minutes later it passed by a 42 to 0 vote.
In an interview, McKissick said he knew “a lot of people who are really good, responsible landlords.”
“A lot of times they will work out a resolution if they can, but if they can’t then they obviously have the fees that they’ve incurred,” McKissick said. “It doesn’t seem unreasonable.”
McKissick reported in his most recent statement of economic interest that he received more than $5,000 in real estate rental income last year. It listed 17 properties he owns in three counties, but does not identify which are for rent. A legislative staff attorney has said it's not a conflict for lawmakers who rent properties to vote on the bill.
The legislation seeks to "reaffirm" that landlords are entitled to fees they pay that flow from starting the process of evicting tenants, which is called "summary ejectment." Those fees are for court costs, serving notice to tenants, and legal expenses.
Current state law says landlords can charge a "complaint-filing" fee equal to 5 percent of the rent when they seek evictions against tenants but then settle. That's on top of a late fee also equaling 5 percent of the rent.
The law, under a section entitled "Limitations on Charging and Collection of Fees," then goes on to say that it is "contrary to public policy for a landlord to put in a lease or claim any fee for filing a complaint for summary ejectment and/or money owed other than the ones expressly authorized . . . and a reasonable attorney's fee as allowed by law."
State Superior Court Judge A. Graham Shirley, in his order, found the law "unambiguous" as to what can be charged, throwing out the fees for court-filing and notice serving. He said the legal fees also couldn't be charged because the law only allows them when a landlord seeks to recoup money owed, not for evicting a tenant.
Shirley is a Republican from Apex.
The legislation creates a new section that would add those three fees to the law. A landlord would be allowed to charge a tenant legal fees that have been "actually incurred." They are capped at 15 percent of the rent or of the amount owed.
Dustin Engelken, a spokesman for the Triangle Apartment Association, said apartment owners worked with tenant advocates to craft that 2009 law to limit what landlords can charge. He said the law wasn't intended to prevent apartment owners from collecting the costs they incur in launching eviction proceedings, requiring lawmakers to pass a "clarification."
"Had this clarification not been made, landlords would have had less incentive to work with tenants, as accepting reimbursement for their out-of-pocket expenses from tenants who wish to 'pay to stay’ could have created significant legal liability for the landlords," he said in an emailed statement. "The passage of S224 ensures that landlords and tenants can continue to work together to reach settlements in these cases."
Lawmakers who voted in favor of the bill said it supported existing practice.
"I think people voted for it because we hadn't heard any complaints from anyone that this current system wasn't working well," said Rep. Verla Insko, a Chapel Hill Democrat.
Rep. Pricey Harrison was one of the three lawmakers who voted against the bill. She said she was aware that the justice center and others had concerns, and she didn't like how quickly it moved through the legislature as the session nears an end and lawmakers are asked to vote on scores of bills.
"It's at the point where we're rushing through these bills, and I would say for a majority of them, we have no idea what the contents are or what the contents mean," said Harrison, a Greensboro Democrat. "It's just no way to do the peoples' business."
Ed Maginnis, a Raleigh attorney who won the tenant case, said he was disappointed with the legislation, but it won't stop his firm from continuing several other cases on behalf of tenants.
"It's frustrating that landlords are now being allowed to use the court system as leverage," he said. "That's not what lawsuits are supposed to be about. I think it violates the statutes and at least one judge agreed."
Another law firm that worked with Maginnis on the case — Whitfield, Bryson & Mason — registered three lobbyists on Thursday to oppose the legislation, state records show.
Cooper, a Rocky Mount Democrat, can sign the bill or veto it, which would likely trigger a veto override vote in the legislature. If he does nothing the bill would become law in 10 days.