Feb 09

For the past couple of years, we have sold out both the spring and fall sessions of Attorney Tristan Pettit’s AASEW Landlord Tenant Law Boot Camp.

It looks like we are on track to do the same for the upcoming February 18th, 2017 Boot Camp.

Last fall I waited too long to sign up my new staff members and could not get them in. I signed up three staff people very early for this one. ūüėČ

You may ask ‚ÄėWhy would Tim pay $537 plus wages to send three people to Boot Camp when he knows the laws so well?‚Äô

The answer is easy: One small mistake or missed opportunity will cost us far more than this. It is important that my folks know the law as WI landlord Tenant Law is not always what a reasonable person would assume it to be. And this is ever evolving, with both new laws, new interpretations by courts and new tricks by tenant advocates*. This is not the first time we’ve sent staff either.

This course is presented by Attorney Tristan Pettit. Tristan’s law practice focuses on landlord-tenant law, he is a current board member of the Apartment Association as well as former president, and drumroll please, he writes all the standard landlord tenant forms for Wisconsin Legal Blank.

If you want to go, now that my seats are secure ;-), you can sign up online or call Joy at the Association 414-276-7378 and reserve a spot.

http://www.landlordbootcamp2017.com

* Most “tenant advocates‚ÄĚ only advocate for tenants that break the rules. This ultimately costs the rest of the good tenants more in increased rents and decreased service or more noise and disruption‚Ķ but this is another story for another day.

Jan 19

The follow-up question:

Thanks Tim,
Can we charge a “general ” application fee to the prospective tenant to cover our office costs to process an application and keep the fee? Other people are doing it. How?
No, the law is clear on this.  If you do not accept the tenant, then all the money collected except for the actual amount you paid for a national bureau credit report, must be refunded.
 
If people are charging a non-refundable application fee in excess of what they paid for a credit report or more than $20, they are in violation of ATCP 134.05 (2)  Some owners try to be clever by calling the earnest money by some other name.  That fails.(See the legal definition of Earnest Money below)
 

However, if the prospective tenant fails to pay the balance and move in, you may retain the earnest money to cover and costs and lost rents you incurred due to their failure to take possession. In fact the prospective tenant could owe a lot more than the earnest deposit. See ATCP 134.05(3)(b) below.

 
Earnest Money is legally defined as:
 
ATCP 134.02¬†(3)‚Äā”Earnest money deposit” means the total of any payments or deposits, however denominated or described, given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord. “Earnest money deposit” does not include a fee which a landlord charges for a credit check in compliance with¬†s.¬†ATCP 134.05 (3).
The requirements to refund the earnest deposit if the tenant withdraws the app or the landlord rejects the app either explicitly or by nonaction:
 
ATCP 134.05 (2) Refunding or crediting an earnest money deposit.
(a) A landlord who receives an earnest money deposit from a rental applicant shall send the full deposit to the applicant by first-class mail, or shall deliver the full deposit to the applicant, by the end of the next business day after any of the following occurs:
1. The landlord rejects the rental application or refuses to enter into a rental agreement with the applicant.
2. The applicant withdraws the rental application before the landlord accepts that application.
3.¬†The landlord fails to approve the rental application by the end of the third business day after the landlord accepts the applicant’s earnest money deposit, or by a later date to which the tenant agrees in writing. The later date may not be more than 21 calendar days after the landlord accepts the earnest money deposit.
 

Law permitting witholding of Earnet Money for failure to take possession:

 

ATCP 134.05 (3)‚ÄāWithholding an earnest money deposit.

(a) A landlord may withhold from a properly accepted earnest money deposit if the prospective tenant fails to enter into a rental agreement after being approved for tenancy, unless the landlord has significantly altered the rental terms previously disclosed to the tenant.

(b) A landlord may withhold from an earnest money deposit, under par. (a), an amount sufficient to compensate the landlord for actual costs and damages incurred because of the prospective tenant’s failure to enter into a rental agreement. The landlord may not withhold for lost rents unless the landlord has made a reasonable effort to mitigate those losses, as provided under s. 704.29, Stats.

 
Jan 16

A reader asks

[C]an I charge a flat application fee ( $20-25) to prospective tenants that includes the cost of the checking them out, labor etc. in our office, this may not include a credit check. Do I have to give it back if I don’t accept them?

No, you can only charge the actual amount you paid for a national credit bureau report.  Any amount collected above the cost of the credit report must be refunded if the tenant is rejected or applied to the amounts they owe if they are accepted.

For us the cost of the report in minimal (less than ten bucks) and the requirement of the law to provide a copy of the report to the applicant violates our terms of use with the bureau we use, so we do not charge a fee.

We do require a $50 deposit to hold the unit while it is being processed.  If the tenant is accepted the money is applied to their move in money.  If the tenant is rejected, the $50 money order is returned to them.  If they are accepted, but then fail to take the unit and we lose rent because of this, the earnest money is used to offset part of the lost rent they owe under ATCP 134.05 (3).

The law:

ATCP 134.05¬†(4)‚ÄāCredit check fee.
(a)¬†Except as provided under¬†par.¬†(b), a landlord may require a prospective tenant to pay the landlord’s actual cost, up to $20, to obtain a consumer credit report on the prospective tenant from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. The landlord shall notify the prospective tenant of the charge before requesting the consumer credit report, and shall provide the prospective tenant with a copy of the report.
(b) A landlord may not require a prospective tenant to pay for a consumer credit report under par. (a) if, before the landlord requests a consumer credit report, the prospective tenant provides the landlord with a consumer credit report, from a consumer credit reporting agency that compiles and maintains files on consumers on a nationwide basis that is less than 30 days old.

Note:¬†Paragraph (b) does not prohibit a landlord from obtaining a more current consumer credit check at the landlord’s expense.

ATCP 134.05 (3)‚ÄāWithholding an earnest money deposit.

(a) A landlord may withhold from a properly accepted earnest money deposit if the prospective tenant fails to enter into a rental agreement after being approved for tenancy, unless the landlord has significantly altered the rental terms previously disclosed to the tenant.

(b)¬†A landlord may withhold from an earnest money deposit, under¬†par.¬†(a), an amount sufficient to compensate the landlord for actual costs and damages incurred because of the prospective tenant’s failure to enter into a rental agreement. The landlord may not withhold for lost rents unless the landlord has made a reasonable effort to mitigate those losses, as provided under s.¬†704.29, Stats.

Note:¬†See¬†Pierce v. Norwick,¬†202 Wis. 2d 588¬†(1996), regarding the award of damage claims for failure to comply with provisions of this chapter related to security deposits. The same method of computing a tenant’s damages may apply to violations related to earnest money deposits.
Jul 29

There was a recent question about the legality of imposing a non-refundable $40 application fee in Wisconsin even if the prospective tenant was providing their own, current credit report.

ATCP 134.05(4)

(4)‚ÄāCredit check fee.

(a) Except as provided under par. (b), a landlord may require a prospective tenant to pay the landlord’s actual cost, up to $20, to obtain a consumer credit report on the prospective tenant from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. The landlord shall notify the prospective tenant of the charge before requesting the consumer credit report, and shall provide the prospective tenant with a copy of the report.

(b) A landlord may not require a prospective tenant to pay for a consumer credit report under par. (a) if, before the landlord requests a consumer credit report, the prospective tenant provides the landlord with a consumer credit report, from a consumer credit reporting agency that compiles and maintains files on consumers on a nationwide basis that is less than 30 days old.

Note: Paragraph (b) does not prohibit a landlord from obtaining a more current consumer credit check at the landlord’s expense.

Here, the $40 fee fails on two points. ¬†1) It exceeds the $20 cap, and 2) You can’t charge a fee at all if the tenant is providing a copy of their credit report that is less than 30 days old. ¬†Could the tenant forge a copy of their report that they are providing … sure. ¬†So I would not rely on that report, but would run my own at my cost. ¬†I would also compare the two copies as an honesty check.

How about if you call the fee something else like a processing fee?  Can you keep the money then? Again the Wisconsin landlord-tenant law is clear.

ATCP 134.02
(3)‚Äā”Earnest money deposit” means the total of any payments or deposits, however denominated or described, given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord. “Earnest money deposit” does not include a fee which a landlord charges for a credit check in compliance with¬†s.¬†ATCP 134.05 (3).

Some owners feel that they can ignore this and charge the fee to offset the rerental costs. What tenant will go after you in court because you kept 20 or 40 bucks that you may not have been entitled to? ¬†The risk here is that if a tenant does sue, ¬†you owe the tenants’ court fees and attorney’s costs. ¬†So you are risking perhaps thousands of dollars to keep a couple of bucks here and there.

Personally, I find it more important to attract tenants and quickly fill vacancies with the best applicants than it is to recover the minimal amount of a credit report.  If I were looking for an apartment I would start with the ones that do not have an app fee.  That makes those owners charging the fees less competitive and they will lose more than the fees charged.  The old saying pennywise and pound foolish kind of fits here.

 

May 02

A reader suggests ¬†(copy below) that much of the conversation regarding the new HUD directive on the use of criminal records in tenant screening¬†is an attempt to ¬†‚Äúbeat the law.‚ÄĚ ¬†It is not. ¬†Rather it is seeking to answer the question of how do rental owners reduce the disruption and danger of crime at their properties while also addressing the concerns of local governments and neighbors by avoiding renting¬†to those prone to criminal activity.

Back in 2001 our company set¬†a screening criteria¬†that we used with only minor adjustments since. ¬†(Copy Below) This was based on researching our failed tenants. ¬†At that time, we found that misdemeanor convictions and¬†evictions appeared impactful if they occurred within the past three years and felonies for drugs and violence in the past seven years.¬†¬†I was surprised while reading HUD‚Äôs directive on the use of criminal records for screening that it references a¬†report* that states the recidivism rate of criminals drops to the incidents of criminal activity in the general population at 6-7 years. ¬†I guess we got that¬†one right from our own data, without the fancy formulas used by the researchers. ūüėČ

Note that HUD permits and perhaps even encourage the lifetime rejection of persons with drug distribution and manufacture convictions. ¬†So it seems in HUD‚Äôs view, a kid with a misdemeanor possession with intent to distribute conviction can be excluded for is life, while the violent person only for a “reasonable” period of time and the habitual thief never. I question whether permitting the exclusion for drug crimes was done out of recidivism data or if it was a case of political will. I know people who have had drug issues and have overcome those problems to lead productive and successful lives. ¬†Many of those charged with possession with intent to deliver often are simply users or addicts selling small amounts to support their habits.

Back when researching our current criteria we recognized that some applicants with criminal histories did not cause future problems. How do you identify those who were not a risk, from those who are?  We chose to accept those with a letter of recommendation from their PO despite having convictions. In the fifteen or so years since that policy has been in place, we found applicants with the PO recommendation have a failure rate below that of general applicants.  It is unlikely that a PO would put their name to paper if they did not believe in the client.

Our company’s existing screening criteria seemed to be close to the requirements under the HUD April 4th directive. We had to modify it to exclude simple possession drug convictions and theft convictions as  disqualifiers.  While I believe that both are indicators of tenancies that may fail, neither are permitted today.  We also reduced the lookback period on felonies from seven years to six.  The report  HUD based their finding on said 6-7 years.   I do not want to be arguing over being at the top end. And finally, we added more options than PO letters, although PO letters will remain an automatic qualifier if our other criteria are met.  Our revised criminal screening is attached below.  Use it at your own risk if you wish and remember that I am just a landlord, not an attorney.

The part of the challenge is municipalities attempt to shift responsibility for criminal acts from the criminal to the owner of the house they live in through nuisance ordinances.  These laws encouraged owners to have strict no criminal screening policies.

If you go to neighborhood meetings, you will find that most people who live in neighborhoods where your properties are located will be angry if you rent to anyone with a criminal history regardless of the charge or how long ago it was.

This attempt by HUD to solve a problem that was not created by the housing industry (discriminatory law enforcement) creates a solution that makes screening and complying with nuisance laws far more difficult and far more prone to litigation.

All this leads to a tough balancing act for the property owners – far more difficult and involved than simply trying to ‚Äúbeat the law.‚ÄĚ

* Megan C. Kurlychek et al., Scarlet Letters and Recidivism: Does an Old Criminal Record Predict Future Offending?, 5 Criminology and Pub. Pol’y 483 (2006) (reporting that after six or seven years without reoffending, the risk of new offenses by persons with a prior criminal history begins to approximate the risk of new offenses among persons with no criminal record).

http://www.albany.edu/bushway_research/publications/Kurlychek_et_al_2006.pdf

Affordable Rental Associates’ Revised Screening Criteria (To open the conversation, not for your use without your attorney’s review):
  • Municipal Convictions*¬†related to manufacturing or distributing a controlled substance, crimes that indicate¬†a demonstrable risk to the safety or peaceful enjoyment of residents or neighbors, and/or property¬†damage: No convictions in 2 years.
  • Misdemeanor Convictions*¬†related to manufacturing or distributing a controlled substance, crimes that indicate¬†a demonstrable risk to the safety or peaceful enjoyment of residents or neighbors, and/or¬†property damage: No convictions in 3 years.
  • Felony Convictions*¬†related to manufacturing or distributing a controlled substance, crimes that indicate¬†a demonstrable risk to the safety or peaceful enjoyment of residents or neighbors, and/or property¬†damage: The latter of 6 years after conviction or 4 years after release from custody
  • Unresolved Cases*¬†related to manufacturing or distributing a controlled substance, crimes that indicate¬†a demonstrable risk to the safety or peaceful enjoyment of residents or neighbors, and/or property¬†damage or charges that may result in imprisonment for more than 15 days: Application will be considered after resolution of the case.
    * Criminal record exception will be made for applicants with otherwise acceptable rental history and income upon positive written reference from their Parole Agent or other official on government letterhead. Other factors may be considered on a case by case basis. It is the responsibility of the applicant to supply any supporting information and documentation
Bill Writes

Much of the conversation I hear about this new directive is about figuring out ways to beat the law. I’m sure we landlords will come up with something and our¬†lawyers will try to protect us. ¬†But lets be realistic. ¬†Most rental policies look back 3-5 years. Each town is different, ¬†but most people returning from incarceration¬†can only afford to live in low income neighborhoods. Much of this won’t apply to the higher end of the market.

Here is a little recognized fact.  About 50% of the people leaving Wisconsin prisons are Caucasians! With the increase of drug felonies and prison time courtesy of the Heroin epidemic, more are released to places like Waukesha, Appleton, Wausau, Green Bay, Janesville, La Crosse, Stevens Point than ever before.  Its true Milwaukee has a larger racial component that other parts of the state, but the fact remains, people returning from incarceration will likely live in rentals in the low income neighborhoods of your city. They make up a significant portion of the tenant pool.  Figuring out a good way to bring these people back into the market is good business.

So why not ¬†define the best practices way of working with our tenants? ¬† HUD issued a letter [ Notice PIH 2015-19] in 2015 to the Public Housing Authorities doing¬†just that for PHA’s¬†http://portal.hud.gov/hudportal/documents/huddoc?id=PIH2015-19.pdf

Not all of this applies to us private landlords, but we can come up with our own list, run it by the attorneys, and Fair Housing.  Please email me your thoughts at billtoday43@aol.com.
In some neighborhoods the percentage of people without criminal history is much smaller than those that do.  

Second interesting fact. Most people do not re offend.  Recidivism is steadily going down in Wisconsin.  Most of the people sent back to prison are for crimeless revocations, meaning that a P.O. sent them back because of a rule violation, not a new crime. While caution in rental practices is warranted, fear is not.

Lastly, Felons are among us!!! ¬†Its estimated that about 700,000 felons live in Wisconsin and they don’t all live in Milwaukee! ¬†But most will live in low income¬†neighborhoods. People on supervision make better tenants than those who are not because the fear of going back is a greater influence on current behavior.¬†¬†They usually double up with family, friends, spouses, or partners. Anybody who owns property in these neighborhoods know the signs. ¬†So lets be the leaders we¬†are and get in front of this!

ÔĽŅ
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