Just a Landlord

The LA Times has an interesting discussion on an issue that concerned landlords get wrong.

Let’s say you have an applicant with a noticeable walking disability.  Being a caring person you try to steer  the prospective tenant to a first floor unit without steps as you feel that would be more convenient for them than the second floor walk up they are interested in. They insist they want the upper, you feeling they will not be comfortable with the upper insist they take the lower instead.

Pointing out you also have lowers available is good business and a service to the applicant, refusing or actively discouraging renting an upper is a fair housing violation.

This seems counter intuitive when all you were trying to do was what you felt was best for the applicant, but, maybe they like many others feel safer from crime on a higher floor and are willing to make the trade off of the inconvenience of steps for the added feeling of security.  As a landlord this is not your decision to make and what may be your personal preference in a similar situation may not be your tenant’s.

Same thing with the family with kids that wants to apply for an upper.  You offer them a lower because you fear the kids running around will create problems for lower tenants and may result in you having to evict them.; or you have a complex with kid buildings and no kid buildings; or prohibiting families with children from living in units nearer to the pools.  These too are fair housing violations.

In these cases it is up to the parent to insure their kids are safe and follow the rules. You have the ability to check their rental history and reject them if they or their family were disruptive at prior residences.  But it is the disruption and not the kids that must be your deciding factor. Really what does it matter to you if it is kids running around making noise or the old man coming home drunk and loud every night – disruptive behavior is disruptive behavior.

There has been a lot of concern among property owners and manager that the use of criminal background checks during screening will soon become problematic with the renewed emphasis on disparate impact claims.

Barron’s has an article that discusses a case involving the use of background checks in employment.

A federal judge cast doubt on government efforts to restrict employers’ use of criminal-background checks in hiring as he dismissed a lawsuit by regulators against a Dallas event-marketing company.

This is such a difficult area.  You don’t want to rent to those who will harm others in the building, the neighbors or cause damage, but you also do not want to run afoul of Fair Housing in the process or deny housing to those who would be good tenants.

We have seen public access to court records, such as Wisconsin’s CCAP, come under seemingly constant attack.  Perhaps this case will in part answer that question.

Last Milwaukee Channel 12 did a piece on landlords renting to sex offenders and receiving state checks for the rent.

Our company screening criteria rejects sex offenders, but there is a larger question out there that will someday impact all of us.

So these guys, well usually guys, I think there are a few female teachers on the list as well,  are arrested, sentenced to a specific term, do the time and ….  drum roll please … are released.

Now what?

They have served the sentence.  They have to live somewhere after prison, but where?  The near universal answer is ‘Not, next to me!’

If we (society) do not get out in front of this question I anticipate legislation one of these days that will force rental owners and condo associations to accept sex offenders as well as other dangerous criminals.   Madison/Dane County already have laws that restrict screening for criminal activity, making criminals a protected housing class.  Currently sex offenders are exempt from the Madison ordinance.

In Miami  sex offenders lived in a tent city under the Julia Tuttle Causeway (bridge) between the mainland and South Beach as it was the only place that was far enough away from schools, parks, day cares etc that they could legally live in Miami-Dade County.

The ACLU sued Miami over their ordinance.  The Councilman who created the ordinance banning sex offenders from the county ultimately applied for and received federal stimulus fund money  to house the sex offenders in a trailer park filled with kids at a cost of a $1,000 per month per offender. If you read this and it made no sense then you read it correctly.

The answer?

I’m not smart enough to know the answer, just smart enough to see the question and know that any answer arrived at will put rental owners in a tough spot.

For most of my career I felt strongly that M-T-M was the only way to go if your tenants were lower income.  About a year ago I rethought this.  Okay I constantly rethink a lot of things we do on nearly a daily basis, it’s called optimization,  but this time we did a trial test of year leases.  I feel a lease for a term may be best in today’s environment, but have not recommended it across the board for other owners we work with.

My argument against year leases was that you could not compel them to pay the lost rent for the balance of the lease if they skipped out, yet had to keep the tenant to the end of the lease even if you would prefer they were gone.   The exceptions of course are nonpayment and documentable lease violations.   With a month to month it is 28 days without cause and 14 days with cause- no right to cure, speeding the process..

The following are possible advantages of using a year lease even if your tenants are marginally collectable at best:

Screening:  Tenants that refuse to sign a year lease because they don’t plan on being at one address that long are not worth renting to.

Collections: In a M-T-M  a 5 day can only be for rent due, not for other unpaid charges.  With a lease the 5 day can include unpaid deposit, late fees, utility charges etc.

Bad behavior:  In a M-T-M you can use a 14 day with no right to cure.  This does not lessen your burden of proof and does not make the 90 pound pit bull “puppy” leave any faster.  In fact it often causes the dog to stay for the remained of the tenants’ occupancy.  You can also give a 28 day notice without any reason (or 30 or 60 if that is what you have in your written agreement.)

In a year lease you can use a 5 day.  Sure they have the right to cure, but if the same breach occurs again with in the lease period you get to use a 14 day with no right to cure.  The five day has sped up the resolution of some issues tremendously.  Take the pit bull example. If the dog is gone within five days, never to return – great.  If on day 6 the dog is still there you can file with the court.  This can calm the other tenants and neighbors quicker because you seem more on top of the situation.

Yes, the tenant can argue that the breach did not exist.  They could argue  that with a 14 day notice under a M-T-M as well.  That is why using a 28 day without cause was a method that worked for M-T-M.  But you really do not want to be evicting willy nilly anyways.  That makes you look bad and harms your bottom line.  So adequate proof is not necessarily a bad thing.  Plus if you find a dog on April 4th and decide to give the tenant a 28 day rather than duke it out with a 14 Day you have to put up with them until May 31st and then file an eviction on June 1st if they are still there. So it could be late June when they are finally gone.   With a lease you could be in court as early as 18th or 19th

For me today it is use the year lease and document, document, document any breaches.  Then, if you need to go to court to evict be prepared to some sort of stipulation.  In the dog example you may wish to give them a move out that coincides with the last day of the month conditioned upon them keeping the dog elsewhere for those 12 days and paying the rent.

If the legislature gives us the same 5 Day rights under a M-T-M as we have under a year lease I may reconsider the use of leases, but I am not sure as I feel pretty strongly today that it is a bad sign if a tenant is unwilling to sign up for a year.

Ideally the legislature will also give us the right to use crime free addendums again.  That will help owners deal more proactively with disruptive behavior problems

 Real Estate Ideas for 2013

What can be done collectively to improve our businesses, save costs or generate additional revenue?

On January 1st I posted a list of ideas that I had that some of us could consider to collaboratively work on.  I intend to pursue one or two of the ideas presented and may entertain partnering with the right person or persons.

This post is the third of my more in depth notes on the ideas.  I will post others over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com

Part Three: 

Become better at sharing our collective knowledge 

The ApartmentAssoc@YahooGroups.com is good beginning.  However it does not work real well as a reference tool as the posts are not organized by topics nor apparently easily searchable for many users.

What if the archives were used to form a new reference tool, perhaps a Wikipedia style “Best Practices” Guide for Milwaukee rental owners.  My vision is a user contributed, user edited tool that would be a ready reference to many topics we discuss on these lists.

It would include everything that a property manager runs into. Who is the best plumber, what notice do you use for the tenant that decided that partying till 6 AM everyday is being neighborly.

Many of us know a lot, but none of us know it all. Things change in our industry nearly daily.   Contractors and suppliers who were the best may have become expensive  sloppy or retied.   New vendors and contractors come on the scene every day. Bad tenants learn new ways to circumvent screening. Laws change. Judges and Commissioners change their views on how laws are implemented.

Similarly a Mastermind Group could reap benefits if the right people were involved. Here is a good overview of how Mastermind groups work.

Another model is what groups like StartUpMKE are doing in the tech field.  It is similar to what the Apartment Association does, but they seem  more involved in actual business creation.

Lunch with  AASEW board members was an interesting idea.  If you don’t recall this you can read more about lunch with AASEW board members here.  When I look back on our prior attempt, I think this would work better if the sponsor board members would set a date, place and topic.  Then if there was enough interest for that particular meeting it would move forward.

Bottom line: There is power in shared knowledge and we should do more to harness that power

Question:  If there is a  material falsification of information provided by a tenant on the  rental application, what are your options? (Granted a good screening process should have caught it).

Once you accept a tenant you must allow them to move in, even if they  materially falsified the app. This is covered under the ATCP 134:

ATCP 134.09(6) (6) FAILURE TO DELIVER POSSESSION. No landlord shall fail to deliver  possession of the dwelling unit to the tenant at the time agreed upon  in the rental agreement, except where the landlord is unable to  deliver possession because of circumstances beyond the landlord’s  control.

An interesting question would be if they lied about who they were,  i.e. gave a false name, could you refuse to let anyone but the person named on the lease to move in?

Preventing this? Hard. If you ran a credit report, that should have show other names used. A pre-acceptance home visit may have exposed the inconsistencies and extra adult.

This one bit us in the butt a few years ago. We were evicting a woman because her two adult daughters had moved in with her and were  performing prostitution in the basement of the building. We had an applicant for a different address who we accepted. One of my managers saw the woman we accepted in the waiting room and asked what she was doing her as she was the prostitute daughter of the tenant we were  evicting from Walker street.

We refused to allow the woman to take the other unit and gave her back all of her money. She got an attorney and they won the  argument in court. We were required to give her  $500 in addition to her earnest money, which we had already given back.

There is this online company, Airbnb, that lets you rent your house to complete strangers for hundreds of  dollars a week.  The company has a $1.3 billion dollar valuation.  Well at least they did until last week. I think the name stands for air (as in online) bed and breakfast.

The company became big news when, surprise, surprise, news breaks that some tenants trash homes.

It seems Airbnb’s business model was based on the idea that most people respect the place they are renting

The vast majority of our community members genuinely respect and protect each other 

I guess they should have had a few actual landlords in their focus groups as they set up the business model.  Every landlord would have foreseen this.

A question was raised on one of the email list I subscribe to:

I need a set of screening criteria to use so I can weed out unpotential renters. Does anyone have a set they use. Also I am in Wisconsin, are their things you can and can not include?

In WI you cannot include any of the “Seven Deadly Sins” i.e. violations of ATCP 134.08. An overview of prohibited WI  lease terms can be found here.

A screening criteria is not  one size fits all.  Rather you must formulate it match your property, the community the property is in (college neighborhoods have a different set of concerns from an upper income condo, which is different from rural farm housing, which is different from lower income urban areas…) , your management style etc.
A properly written and enforced screening criteria can save you some hassle if fair housing questions are raised.   A poorly written criteria or one that is not evenly enforced will aggravate your problems if a fair housing complaint is filed.

For example a husband and wife who happen to be the same ethnic background as you apply.  Your criteria is income must be 3 times rent.  They make $2500 a month and want to rent your $950 three bedroom unit.  You like them, they seem like nice people.  So you accept their application even though they should earn $2850 to meet the criteria.

A month later a little green man from mars applies.  His job with NASA pays $1200 a month.  He wants to rent your $500 one bedroom.  You say “Sorry, our criteria is income must be three times rent.  You would have to make $1500 to qualify”  Uncle Martin (the Martian from my favorite Martian)  goes to HUD to complain.  Through their investigation they uncover that you bent your rules for those applicants that looked and talked like you, but refused to do so for little green people from Mars.  You are now facing a much bigger problem than had you had no screening criteria at all.

As to income criteria make certain that you don’t violate fair housing as to lawful sources of income.  For example requiring a recent pay stub to document income is troublesome as there are many lawful sources of income that do not provide pay stubs.  SSI, W-2, Child Support if applicant wishes to include it, retirement benefits,  and many more.  You must also include food stamps n.k.a SNAP in any income based criteria.

You can change your criteria at will, however all those screed after the change must be held to the same standards.

Our company’s criteria for rejection includes:

• First time tenants may be required to have a collectable cosigner
• Evictions within past 3 years
• Felony drug or violent crime convictions in 5 years
• Misdemeanor drug or disorderly charges in past 3 years
• Non verifiable income or insufficient income
• Non verifiable rental history or bad reference from any prior landlord

We have debated our criteria with neighborhood groups who would want a one strike and your out policy that would reject someone for having a misdemeanor possession charge twenty years ago, and with tenant advocacy groups that feel Charlie Manson and Attila the Hun both should be accepted.   Neither group likes them, but neither could find legal fault with them either.

NOTE: Our criteria would be illegal in Dane County and Madison due to criminal background being a protected class in those communities.

I think this is an important enough issue to share it here  – cleaned up from my original post :

While language is neither a Federal nor a Wisconsin protected class,  you need to be careful that the rejection is is not perceived to be discrimination against national origin, which is a protected class.

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Attorney Tristan Pettit is presenting the Landlord Boot Camp again this February.  Prior Boot Camps were very well received, with positive feed back from all that attended

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