Facts: A Section 8 resident signed a one-year lease with the owner that began on July 1, 2009, and required the resident to pay a $700 security deposit. The rent was $538 per month; the amount to be paid by federal public housing assistance was $446 per month, and the resident’s monthly payment was $92. If the rent wasn’t paid in full on the first day of the month, the lease authorized the owner to charge a $35 late payment fee. The lease also permitted the owner to terminate the tenancy if the resident committed a serious violation of the lease or a violation of federal, state, or local law. It also permitted the owner to terminate the lease for other good cause, but only after the completion of the first one-year term of the lease.

     The resident moved into the unit on June 28, 2009, after paying $100 of the security deposit. She was told that she owed $74 in rent for the three days that she occupied the premises during the month of June. In June, the resident wrote two checks to the owner in an attempt to pay rent for the month of June and the $600 balance remaining on the security deposit. In July and August, the resident’s rent payments were delivered after the first day of the month and were subject to a late charge under the lease, and the resident didn’t pay the $600 remainder of the security deposit until Oct. 1, 2009.

     The resident claimed that her July rent payment was late because the local housing authority didn’t mail the resident her federal public assistance check and the letter advising her what her monthly rent payment was until July 13, 2009. She mailed her portion of the August rent on Aug. 3, 2009, the same day that she received her federal public assistance check. By early October 2009, the resident had fully paid the security deposit and was current on all her monthly rent payments under the lease.

     The owner tried to terminate the lease in August 2009, during the first one-year term of the lease, based on the late rent payments.

     After hearing testimony from both parties, the metropolitan court found that the case came down to credibility. It found much of the resident’s testimony troubling. Although the court heard testimony regarding her prior criminal convictions involving bad checks, theft, and fraud, its findings related to the resident’s credibility were based on the substance of her testimony, not her prior criminal convictions. Ultimately, the metropolitan court found that the testimony from the owner and his wife to be more credible than the resident’s testimony. As a result, the metropolitan court entered a judgment for restitution in favor the owner and terminated the lease. The resident appealed.

Ruling: A New Mexico appeals court reversed the lower court’s decision.

Reasoning: The language of the lease permits the owner to terminate a tenancy if a resident commits a “serious violation” of the terms and conditions of the lease. Therefore, the only material issue in this appeal is whether the resident committed a serious violation of the lease. The court concluded that the resident didn’t commit a serious violation. In this case, although the resident’s payments may not have been timely, she had fully paid all of her obligations under the lease by October 2009. Also, there was no evidence to support a finding that the resident’s failure to pay rent on the first of the month was based on anything other than the date she received her public assistance checks. HUD has explicitly stated that it didn't intend to allow a private owner to terminate a tenancy for untimely rent payments where it’s evident to the owner that the resident was unable to pay until she received public assistance.

     With regard to the delay in paying the security deposit, the court decided that nothing in the record indicates that the timing of the resident’s payment of the security deposit had any significant or material adverse effect on the owner’s property or economic benefits. Therefore, it wasn’t a serious violation.

• Serna v. Gutierrez, December 2012