The LandLord Advocate July 2010

We all remember the famous line where Jerry Maguire is screaming into the phone with Rod Tidwell on the other end dancing to Jerry’s rant, “Show me the money!” And, sometimes, as the 10th of the month rolls around and you have a repeat contingent of residents who have not yet paid their rent, you may want to get on the phone and do a little ranting yourself.

Your resident calls and tells you they will be late with the rent and you fight the urge to say, “Stop giving me excuses and show me the money.” After all, they are living in your apartment. Maybe, perhaps, they would prefer you “show them the street.” But, that’s not a great solution either.

What you are really after is getting your money and feeling as though you won’t face this problem again in the future. Occasionally, however, you cannot reach terms with your tenant. They offer to pay, as they have before, but the little Jerry inside your head keeps chanting “show me the money.” The tenant had nothing, has nothing, but promises you the moon. It’s time to get the money a different way.

We’ve discuss in various articles how you can get the money through the effective and efficient use of the summary process case in court. In addition, in our Get the Rent or Get Them Out seminar, we explain how to get your money through effective and efficient use of the summary process case in court. We’ve also discussed how, in many situations, you can have your legal fees and expenses reimbursed by your tenant in that same process. This approach still remains an integral part of an overall rent collection strategy. Now, we are starting to see tenants with larger balances owed and landlords who are unwilling to “finance” the obligation for the period of time the tenant seeks to repay the money. In addition, landlords are looking for other strategies to get their money paid without turning to collections agencies. Here’s one such strategy we have used that some landlords are adding to their overall rent collection strategy.

Start with the same approach as before, including obtaining a court-approved settlement agreement through the summary process case. This can serve multiple purposes, but primarily serves as the tourniquet to stop the debt from growing any larger. But, since you are unable to reach satisfactory terms on the repayment terms of that agreement, either simultaneously with the summary process case, or shortly thereafter, commence an action in court to collect the balance the tenant owes you.

Obtaining a judgment on this balance will take more time, and in some instances, may even postdate your tenant’s surrender of the premises back to you. But, by commencing the action at this time, you obtain some distinct advantages.

1. You know where the tenant is and can make sure they are served with the civil action properly.
2. You are further down the path of getting paid than other unsecured creditors and may get to the available money before someone else does.
3. You have the summary process settlement in place, which reminds the tenant of the priority you have placed on their monetary obligations to you.
4. You may encourage the tenant to settle the summary process matter with you more aggressively if they face a money judgment against them in the pending civil action – you’ve got more negotiating leverage.

There are large amounts of money that evaporates from landlords’ bottom lines when tenants don’t pay and landlords don’t pursue them. Expecting a collections agency to find gold at the end of a long rainbow may result is some of that money appearing from the magician’s hat. A more aggressive and comprehensive strategy to collecting your money, that starts before the tenant fails to pay and continues through the exercise of your rights as the property owner or manager may allow you to recover lost profits that you have never realized in the past. Don’t assume a collection agency strategy may someday result in “found money” for your company.
Take control, like Rod Tidwell, and make your tenants “show you the money.”

HUD insights from the NAA 2010 Education Conference & Exposition.

Carol Galante, Deputy Assistant Secretary for Multifamily Housing Programs, U.S. Department of Housing and Urban Development, spoke on June 24, 2010 at the National Apartment Association’s 2010 Education Conference & Exposition in New Orleans regarding “Key Updates on HUD Affordable Housing Programs.” Her presentation emphasized three (3) main themes.

• First, federal funds for affordable housing needs are limited this year, and next year looks worse.
• Second, HUD will be looking to cut expenses.
• Third, the Section 8 model for providing affordable housing seems destined to be the only federal structure in the future. As discussed below, Ms. Galante previewed major changes in the way that HUD may (or will) operate and participate in the delivery of affordable housing within these themes.

This article will help you stay ahead of the trends and on the cutting-edge of affordable housing policy-development, particularly if you currently provide – or are thinking about providing – affordable housing.

Affordable housing is only one of many HUD responsibilities, and its goal in this area is to “meet the need for quality housing” other than through home ownership – in other words, supporting the multi-unit apartment industry. HUD has four (4) subsidiary goals in this area:

• Streamline and simplify HUD programs
• Ms. Galante identified fourteen (14) rental and/or subsidy programs within HUD (covering 5 million units, 26,000 projects, and 9,000 administrators), which she classified as “too many.” HUD is seeking to create a single platform based on the Section 8 model with three (3) variables: (1) project-based contracts; (2) project-based vouchers; and (3) tenant vouchers.
• She noted that there are 53 companies that administer project-based Section 8 contracts around the country (called “project-based contract administrators” or “PBCAs”), and that a “re-bidding” process would be undertaken. Ms. Galante said “the gravy train is over” for the PBCAs, as the HUD Inspector General (“IG”) has been focusing on them recently (she described the IG as “unhappy” with the amount of money the PBCAs are making).
• Preserve affordable housing stock with a mix of public and private financing
• Ms. Galante discussed that there are 1.2 million federal-owned public housing units in the country with enormous capital expense backlogs. HUD will focus on transforming these units into project-based Section 8 units with financing that can free-up funds for operational and capital expenses. However, HUD only has $300 million in the budget for this program, so the balance will have to come from tax credits and other private financing.
• She noted that HUD would not touch project-based Section 8 or Section 211 properties this year.
  She said there is “no chance” that Congress will give HUD the money to guarantee (to developers, landlords, and lenders) its annual appropriation (from Congress). Apparently, lenders are citing the uncertainty surrounding this subject and requiring enormous reserves from developers and landlords seeking to build or transform properties into project-based Section 8 properties, which is inhibiting the ability of these projects to move forward.
• Encourage mix of incomes and usage; and
• Ms. Galante reinforced that a mix of incomes and usage in a community remained a key characteristic toward which HUD was striving and directing its efforts.
• Encourage tenant choice and mobility.
• Ms. Galante described this as a “big deal” for HUD – the basic structural idea is that a tenant in a federal-subsidized unit could be eligible for a portable tenant Section 8 voucher after living in the unit for 1-2 years. However, she noted that this effort would be “constrained by the amount of money available from Congress” and would not expand into the multi-unit subsidized properties unless and until Congress gives HUD a “huge new chunk of Section 8 vouchers.”

Ms. Galante ended her presentation by noting that while this year was “a very tough budget,” it “will be worse next year.” Interestingly, although on the session description, Ms. Galante did not discuss timeliness of payments by HUD, which has been a sore subject for many landlords over the last few years. She also did not address the Enterprise Income Verification (“EIV”) system, which has not been functional or available to landlords recently.
One landlord commented afterwards that EIV was basically an “unfunded federal government mandate” because the HUD Inspector General’s Office is not willing to criminally prosecute unreported income/fraud cases unless a very large amount of money is involved, but HUD is demanding that landlords address the issue in civil court (for example, by summary process (eviction) or collection cases).
Landlords with project-based Section 8 properties and/or tenants with Section 8 vouchers should contact their landlord attorney to discuss strategies and plans to address any shortfall (or further delay) in federal government payments to Section 8 programs, the potential impact of the PBCA re-bidding process on their properties, and the issues surrounding the EIV system.

Think your hands are tied? Think again – you have options.

You’ve got a problem tenant who won’t respond to your efforts to change their behavior. Your track record with the housing judge in your jurisdiction suggests that a trip down housing court lane may only lead to Granny’s House, and we know how that story ends. And, to make matters worse, your tenant has decided they are “bullet proof”. They will do whatever they want, disrupt your entire community at will, and there is nothing you can do about it. Thus, your hands are tied. Or, so you think.
Even if your hands are tied, they are only tied loosely. We’ve written before about the effective use of court approved settlement agreements. In exchange for retaining their apartment with you, your tenant agrees to certain conditions going forward that will be enforceable with the court [see our January and May 2010 editions for more on Stipulated Agreements]. These agreements remain a useful tool in your arsenal to combat disruptive tenants. You are likely going to get most of what you want by using them.
Remember, if your tenant loses their apartment in a summary process case, their ability to get another apartment somewhere else will be greatly hindered. Not only will the court records reflect the eviction judgment against them, you will be the most recent landlord reference on their application down the street. Those don’t sound like really good odds and many tenants recognize those odds and modify their conduct to comport with multi-family community living.
However, today, let’s talk about a situation where you can’t get what you want from the tenant or the judge the first time you are in court. The tenant remains belligerent and is unwilling to accept any conditions on their continued occupancy of your apartment. What can you do now?
The first thing to remember is that you still have options. A close second, you must start thinking longer term and bigger picture. This tenant has dug in their heels and is prepared for a fight. Don’t expect to overpower them in the first volley, get everything you want (including submission), and have the problem resolved forever. It won’t happen that way. You must prepare yourself, your staff, and your company for what could be a long battle of attrition. The good news is that you have the resources and the patience that your tenant does not.
Now, let’s consider the situation where settlement discussions have not worked to give you the outcome you seek. Demand that a judge rule on your case. Prepare and present your evidence of the circumstances. The tenant is marauding your community, at least figuratively, and the remainder of your residents should not be forced to endure the ongoing intimidation and disruption. The tenant will surely present their side of the story and it won’t paint the same picture you did. Now, make the judge decide. While they sometimes don’t like doing it, judges are chosen and get paid to decide what happened, apply the law to the circumstances and render a decision in favor of you or the tenant. While you may not agree with previous decisions you either heard about or experienced first hand, you get to have your day in court on this specific case. Get prepared for it and make your case as strong as possible.
Here’s where the longer term, bigger picture part comes in. Be prepared that may not prevail. Even after your presentation, the trial judge may disagree with your version of the facts or may apply the law incorrectly. Good news. The trial judge does not have the final say. Trial judges can, and do make mistakes about what the law is, how it applies to your specific facts, or what is “equitable” when considering the whole set of circumstances. When they make such mistakes, you have the right to call into question their decision. Demand that a panel of appellate judges review the trial court’s findings and decision to determine if they got it right or messed it up. Your attorney will point out the faults in the trial court’s decision and argue why the ruling should be reversed in your favor.
Another option – wait them out. Depending on the tenant and the timing, you may be able to address the situation in an acceptable timeframe by allowing the lease to expire and not extending them an offer to remain on the premises. There are lots of variables at play with this option, the most important of which is that you may still need the courts in the end to help you get the tenant out. If you use the courts under this strategy, there are some extended timeframes that a court can allow the tenant to seek another place to live. Remember, we are now talking longer term, bigger picture.
Another element of the long term, big picture is how allowing the tenant to remain on the property will infest the rest of your community. Are you losing other tenants? Is word of this tenant getting out and disturbing your community reputation before prospects even get there. What are the other tenant’s seeing as your response to the disruptor – aggressive efforts to resolve the situation or passive disinterest in the situation?
The point is this. Your hands feel like they are tied. Maybe they are. But it is often not by the tenant. It could be the court. It could be your own operations or management policies. It could be budgets. In all of these, you have a decisive role to play that will affect the final outcome. Make some command decisions, untie those hands, and take care of the tumor that is deteriorating your community’s health. It may be uncomfortable, but the final outcome to your residents will be worth the pain and sweat to get there.

Dealing with tenant-to-tenant noise complaints.

• Your first floor residential tenant complains about noise by your second floor tenant. The second floor tenant claims harassment by the first floor tenant. The police get involved, but they do not cite or arrest either tenant; rather, they tell them to “stop it” and/or refer them to you, the landlord. Both tenants come to you for a resolution. You want to keep both tenants. What do you do?
• You must first decide what you want to accomplish. Are you going to address the “big picture” and ensure that you have the necessary policies and procedures in place regarding tenant-to-tenant disputes, or are you simply going to resolve this particular matter?
• If you choose to address the big picture, here are the key questions (and business decisions) that we recommend you address:
• What does your lease say about noise-related subjects, particularly the tenant’s and the landlord’s responsibilities and obligations (if any)?
• If your lease is non-committal on the landlord’s role in such situations, will you get involved in tenant-to-tenant noise complaints or simply refer all complaining tenants to the police?
• If you will get involved, what process is in place for a tenant to complain about another tenant’s excessive noise (or other problem), and what process does your staff follow upon receiving such a complaint?
• If you refer everyone to the police, what process(es) are in place to address the results of any police investigation and action?
• Will you require mediation of such tenant-to-tenant disputes? If so:
• What is the landlord’s role in mediation (lead role, or simply providing a mediation forum and mediator and no more)?
• Who will be the mediator (landlord or third party)?
• Will there be a follow-up meeting to assess results and, if necessary, return to #2 above?
• What “evidence” will you require before taking legal action against a tenant (under the lease and/or landlord-tenant statutes) in an effort to change his/her problematic behavior?
• If there are cross-complaints from both tenants, will you move forward with legal action against both, or will you pick the “more credible” party?

If you choose to resolve this particular matter only, seek to avoid endless arguments with tenants (regarding who said what, is doing what, etc.) and do not stake out any legal position or distinctions (until you decide to take legal action). Usually, shorter letters and/or meetings with the involved tenant(s) are better. Try to get to a resolution quickly, but make sure that you do not “establish” any policies or procedures while seeking that resolution. If that is not possible, re-evaluate whether you need to address the big picture first.
Tenant-to-tenant disputes are inevitable in multi-unit housing. Contact your landlord attorney if you want assistance in establishing your governing policies and procedures, or simply need to get a particular matter resolved.

Quick Tip:

Remember to consider the source.

In a world that is moving so fast we sometimes forget to eat lunch, it is hard to keep up with all of the information we have delivered to us, much less the information to which we have access. We must make snap judgments on the validity of the information we see, determine its usefulness to our immediate crisis, and decide whether we will use it or discard it.

One of the most notorious filters we apply to this information is its source. Based on any number of factors we have subconsciously established over time, an information “source” is either reliable or not, before we even get the information. Our trust in that “source” has grown and regardless of the information, its value is largely determined by where it came from. This is a survival instinct that we’ve all honed to a sharp point.

But, be careful. It only takes a few moments to sniff test the information we received without considering the source. These precious moments, so evasive throughout our day, can prove to be the best investment we ever make with our time.
Whether we sniff out one piece of bad information from a reliable source or one piece of excellent information from a questionable source, this moment of clarity of information (not reliance of just the source) can positively impact our entire day, week, and in some instances year.

Don’t spend lots of time sniffing, but sniff, so your own mind can decide what’s right, and then act accordingly.

Quick Tip:

Owners lease property, not property management companies or their managers.

We often see leases defining the “landlord” as something or someone other than the owner, such as the unaffiliated property management company or the property manager in his/her individual name. This should never happen – only the owner can lease property, though it can do so through agents, such as a property management company or property manager.

Legal costs are usually inversely proportional to clarity – the less clarity, the greater the legal expense, and vice-versa. This is exactly true here. If you cannot read the lease and determine who is responsible for what at the property, the legal expense to prosecute or defend a case involving a tenant or other third parties on the premises will be higher.

Moreover, these cases can often reveal conflicts between the owner and property management company or manager. This issue becomes particularly acute when the owner and property management company have common investors and/or employees. Certainly, both parties have similar and consistent interests, but their interests can diverge quickly when there is a major injury, significant property damage, or government investigation at the property.

Read your lease – if you cannot identify quickly and easily who the landlord is, or what role each company or person in the lease plays, contact your landlord attorney for assistance in rewriting the lease. This is not complicated, but it is important, and the small investment in time and money to create clarity can reap major dividends down the road for the owner and property management company or manager alike.

DISCLAIMER:

The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.