REFUSING ELECTRONIC PAYMENTS

 

Acceptance of Payment. The manager’s acceptance of payment from the resident waives the pursuit of any other lease noncompliance known to the manager at the time of acceptance. The manager’s acceptance of resident payment after a failure to pay waives that payment noncompliance as a basis for terminating the lease. If a Three Day Notice has been delivered, the acceptance voids the Notice and requires the service of a new Three Day Notice. The manager’s acceptance of resident payment after learning of a noncompliance other than nonpayment (such as illegal parking or the assault on another resident) waives that noncompliance, no matter how serious the noncompliance. If a Seven Day Termination Notice has been delivered, the payment acceptance voids the Notice.

 

The Gray Area. The basis of waiving the noncompliance is “acceptance” of the resident payment. Within the two clear boundaries of an accepted payment and a refused payment is the gray area. In this gray area are electronic payments: the on-line payment by credit or debit card, the electronic check, and the automatic charge to a credit card or debit to an account.

 

The obvious answer is to avoid the gray area altogether. Terminate the ability to pay on-line. Establish procedures and checklists to insure that electronic payment authorization is withdrawn or blocked. That being said, mistakes will happen. The size and complexity of manager organizations, the shifting of staff and plain human error are among the factors contributing to mistakes.

 

Judicial Discretion. In any legal gray area judicial discretion is paramount. In the exercise of its discretion a court will consider the intent of the parties, their business sophistication and any mitigating factors. The more sophisticated the manager, the less the court will be inclined to understand mistakes from failure to follow established policy, lack of adequate staff training, and disorganization. The presence of mitigating factors can be important. A resident following his established practice of paying on-line has a better chance of claiming acceptance than a resident that used the electronic payment to circumvent an in-person refusal.

 

Speed and Documentation. The most important factor evidencing the manager’s intent to refuse an electronic payment is the speed with which it is returned. The moment a manager discovers the payment, it should be credited back. The manager should document the file with the date and time of payment, when and how it came to the manager’s attention, and when and how it was returned. Written, dated and initialed notes are more persuasive in court then a hazy recollection.

 

A cautionary note to managers: while notice of an electronic payment may be nearly instantaneous the payment itself doesn’t clear instantaneously. The dilemma is that waiting for the funds to clear may be construed as acceptance, while issuing an immediate credit may result in an overpayment if the electronic payment is rejected and doesn’t clear.

 

The Three Day Notice. Given the uncertainty of the judicial response, I advise some common sense guidelines can be followed. If it’s a Three Day Notice, the manager should accept the payment even if it’s a prohibited partial payment, including the $25 on-line payment designed solely to buy three more days. The manager should accept that the resident took advantage of the mistake, serve a new Three Day Notice and notify the resident that electronic payment privileges are withdrawn. Note that if the lease has delivery method and timing requirements for the notice regarding withdrawal of electronic payment privileges, these must be followed.

 

The Seven Day Termination Notice. If it’s a reoccurring noncompliance, such as loud music late at night, the manager should accept the payment and wait for the next noncompliance. If the manager has sent a Seven Day Termination Notice, he should send a letter noting the payment, withdrawing the Notice in view of the payment and stating that electronic payment privileges will be withdrawn in the case of any future termination for noncompliance. If the current noncompliance is of such a serious nature that the manager does not wish to waive it, then the manager must accept the risk of an adverse litigation result. This includes paying the resident’s attorney’s fees, which can be substantial, and facing a fair housing complaint arising from the unsuccessful litigation.

 

Eviction Proceedings. If eviction has been filed, the above analysis can only be competently made by the eviction attorney. The attorney should be consulted immediately upon discovering the electronic payment. The attorney is in the best position to draw upon his experience in the particular county before the particular judge.