There is a WI case that found $50 on a $625 rent was reasonable, THREE  & ONE CO. v. GEILFUSS, 178 Wis.2d 400 (Ct.App. 1993) – yes this is the same case that found letting the cat use the house as a litter box constitutes waste. Again, this one of those cases that every owner should keep in their  ”toolbox”

As far as the per diem (per day) late fee, that may be another story.  We have never used these, but many owners do.

The Hud “Model Lease” does contain a provision of $5 after the 6th and a dollar a day in paragraph 5.  However private owners use higher per diem rates.

Some tenant advocates here and elsewhere are attacking the per diem late fees on grounds that they run afoul of usury laws. From their prospective for example your late fee has an APR of something like 900%. Assume your tenant misses January’s payment and doesn’t cure it for a year. They would owe $7280 on $800 debt.

The problem with a single fee is once the 5th comes and goes, what  incentive is there for tenants to cure the problem quickly after receiving the late fee other than eviction?

After much consideration our company is considering moving from a flat $30-50 fee to a two step fee. The first late fee that posts after the close of business on the 5th is around 80% of current late fee, with a second late fee posting on the 11th totaling 150% of current late fees

http://www.eeoc.gov/eeoc/newsroom/release/1-11-12a.cfm

“Based on the investigation, the EEOC found reasonable cause to believe that the criminal background check policy formerly used by Pepsi discriminated against African Americans in violation of Title VII of the Civil Rights Act of 1964.”

The issue is based on the use of arrest records, rather than convictions, as well as convictions for crimes unrelated to the job they were seeking.  There are also studies that show racial minorities are more likely than majorities to be arrested under the same circumstances.

When you read this in conjunction with HUD’s proposed Fair Housing Act’s Discriminatory Effects Standard rule , it becomes pretty clear that arrest record based screening may cause trouble in the future.  It also would appear that arrest and convictions for crimes unrelated to housing will cause trouble.

What criteria may you legally use to exclude applicants that will disrupt the property and the neighborhood?  Is simple possession of pot enough to legally deny a tenant?  What about crimes of violence that the victims were strictly family?  (You can not discriminate against victims of domestic violence, and that is the way is should be.) What about a serial shoplifter, should they be denied housing?  A car thief?  The guy who gets in fights at the bar , but never at home?  What about the person who is out on bail pending trial on the hatchet murder of his neighbor? No conviction yet, so would you have to accept their application?

And in the course of staying out of trouble with the feds will you fall into problems with local nuisance and housing laws?

The answers?  Unfortunately most governmental agencies fail to create bright line rules so people affected by the rule can stay out of trouble.  Additionally few rules address the problem caused by conflicting regulations such as this proposal and nuisance laws.

The comment period for the proposed  Federal Rule ends on Tuesday January 17th, 2012. The only people who appeared have commented on this en masse were Fair Housing advocates and to a lesser extent, the Bankers. One would have thought that municipalities would oppose as this clearly will disrupt nuisance type ordinances and other rental housing regulations, but it does not appear they did.

None of us would intentionally discriminate, so opposing the rule is probably not the answer, but we need to know what is permitted and what are prohibited screening practices as they relate to criminal backgrounds.  Comments seeking better clarification of the rule may be helpful.

So let’s take a look at HUD’s proposed Fair Housing Discriminatory Effects Standard rule.

2. Discriminatory Effect Defined (Sec.  100.500(a))    Under the Fair Housing Act and this proposed rule, a “discriminatory effect” occurs where a facially neutral housing practice actually or predictably results in a discriminatory effect on a group of persons (that is, a disparate impact), or on the community as a whole (perpetuation of segregation).\41\ Any facially neutral action, e.g. laws, rules, decisions, standards, policies, practices, or procedures, including those that allow for discretion or the use of subjective criteria, may result in a discriminatory effect actionable under the Fair Housing Act and this rule.

This is moderated a bit in Section 3, but you really need a close relationship between the screening purpose and the crime.  I wonder if a sex offender who “only” attached family members would pass this test if they were not proposing to live with family members.

3. Legally Sufficient Justification (Sec.  100.500(b))     A housing practice or policy found to have a discriminatory effect may still be lawful if it has a “legally sufficient justification.” A “legally sufficient justification” exists where the housing practice or policy: (1) Has a necessary and manifest relationship to the defendant’s or respondent’s legitimate, nondiscriminatory interests; \42\ and (2) those interests cannot be served by another practice that has a less discriminatory effect.\43\ A legally sufficient justification may not be hypothetical or speculative. In addition, a legally sufficient justification does not defeat liability for a discriminatory intent claim once the intent to discriminate has been established.

In section 4 they refer to the person alleging a ”legally sufficient Justification”  as “defendant”.  That is a term we all wish to avoid to have following our name on any document.

The last paragraph is particularly disturbing.  If you satisfy the burden under #3 you can still be in hot water if the complainant can suggest a method to achieve your legitimate goal with a way that is less discriminatory.

4. Burdens of Proof (Sec.  100.500(c))    The burden-shifting framework set forth in the proposed rule for discriminatory effect claims finds support in judicial interpretations of the Act, and is also consistent with the burdens of proof Congress assigned in disparate impact employment discrimination cases. See 42 U.S.C. Sec.  2000e-2(k). In the proposed rule, the complainant or plaintiff first bears the burden of proving its prima facie case, that is, that a housing practice caused, causes, or will cause a discriminatory effect on a group of persons or a community on the basis of race, color, religion, sex, disability, familial status, or national origin.

    Once the complainant or plaintiff has made its prima facie case, the burden of proof shifts to the respondent or defendant to prove that the challenged practice has a necessary and manifest relationship to one or more of the housing provider’s legitimate, nondiscriminatory interests.

    If the respondent or defendant satisfies its burden, the complainant or plaintiff may still establish liability by  demonstrating that these legitimate, nondiscriminatory interests could be served by a policy or decision that produces a less discriminatory effect.

Note the second paragraph uses the word “necessary”  There is a good reason  ”necessary” rhymes with “scary”:

Graoch, supra, 508 F.3d at 387 (Nelson, J., concurring) (concluding that “a consensus exists that business necessity is the appropriate test” and that this “business necessity” standard holds defendants to a higher standard than the more lenient “business justifications” test set forth in Wards Cove).

So the question is once this becomes law, and it will as all but one Federal Court of Appeals have held that the current Fair Housing Act prohibits housing practices with a discriminatory effect even absent an intent to discriminate, can we still use criminal background checks as a legitimate means of screening out tenants that will cause harm to other occupants, the neighborhoods and our properties.

The city of Red Wing, Minn. is enforcing a rental property inspection law that requires landlords and tenants to open their doors and submit to inspections of their private property in order for the landlord to receive a license to rent the property.

Under Red Wing’s rental inspection ordinance, it is easier for the government to force its way into the homes of law-abiding citizens than it is to search the home of a suspected criminal.  But the U.S. and Minnesota constitutions protect everyone, not just criminals.  Red Wing’s inspection mandate is unconstitutional.

via The Institute For Justice

However the way the city of Milwaukee is going grheck scares the heck out of me. .

As I drove the Southside neighborhoods finishing up our annual fall exterior surveys of our properties, I was shocked at the number of green boarded and abandoned homes and duplexes in that area. Even more than there were in spring

This is downright scary for someone that is heavily invested in the area such as myself, as well as I am certain, for those living in the neighborhoods.

The cause is pretty clear … a government that hated rental housing so much that they felt anyone with a pulse should be a homeowner.

We will pay for this for decades in depressed values, far below not only the top in 2006, but below even the prices we saw in late 1990′s.

Ironically the push to make everyone a homeowner in the middle of the last decade will reduce homeownership over the next couple of decades. Those first time home buyers who crashed and burned just a year or two out of the gate clearly will have second thoughts about trying their hand at this again. When their kids grow up and say “Dad, I’ve decided to buy my first house!” their parents will suggest they’ve gone mad.

This is terrible for the long term health of these neighborhoods as a lack of owner occupant buyers will suppress prices.

The only silver lining in all of this is those of us landlords that didn’t buy into the whole silly money thing six or seven years ago are finding that our occupancies have increased simply due to a lack of supply out there.

From my beginnings in the industry in 1977, all the way through 2006 there was a constant barrage of newcomers to the industry replacing those who busted out or wanted to retire.

Today I do not see them even with prices so depressed that land lording should look good to anyone with a pencil and paper (the way we did performas back in my early days) or a copy of Excel (the way the wiz kids of the 2000′s did theirs)

Yet no one seems to be buying.

Hopefully that will change in the next ten years when I plan to be selling ….

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.

One such person was Mike, a former board member of the Apartment Association.  He asked if I remembered having lunch with him a number of years ago.  I admitted I didn’t and kiddingly asked if I had skipped out on my portion of the bill. He assured me I hadn’t and that he just wanted to thank me for the sage advice I had given him that helped him succeed when others failed.  I had him remind me of what I shared with him that he felt was so valuable.  Once he told me, I felt it still rings so true that I would share it again.

At that lunch back in probably 2005 or 2006, the height of the silliness we were seeing in real estate pricing, Mike wanted to know how to acquire more units.  I cautioned him that his focus was wrong.

It’s not about how many units you own.  It’s about being sustainably profitable.

Unit fever is a disease that has wiped many owners in both good and bad economies. So don’t aim to have 50,100, 200, a thousand units.  Rather do the math and aim to only own profitable units and create scalable infrastructure before getting big.

I seem to be caught in the middle of my tenants who broke up and are going their separate ways in a battle over the security deposit of $1,000. She has the copy of the check she wrote out of her account for it. The receipt I gave them just says I received $1,000 from both of their names. (lesson learned let me tell you.) The receipt did not specify what form of payment I received it in, but she has the copy of the check. Do I split it in half or do I give it all to her? (minus any damge charges of course.) I don’t need to end up in court with court costs over this. Can you give me your opinion on how to handle the deposit? Would appreciate it. Thanks.

This is a pretty easy one.  In most cases you must write the check to all tenants on the rental agreement.  Here is the law:

ATCP 134.06(2)(d) If a landlord returns a security deposit in the form of a check, draft or money order, the landlord shall make the check, draft or money order payable to all tenants who are parties to the rental agreement, unless the tenants designate a payee in writing.

This leads to a follow up question:

So even though she wroite the check out of her own separate account, because they were both on the lease I make out on check to both? Just want to be sure I understand correctly. Thanks for your help. So then that leaves me out of the picture as they fight over the money? And since they are separated no, how do I give it to both, if I give it to her I know she’ll sign his name to it, but then he can go after her for forgery, and that still leaves me out of it, right?

By writing the check to both of them you are following the law.  As long as you don’t encourage or suggest that she forges his name, it is an issue between them and possibly the authorities.  When she pushes the issue with you giver her a copy of the law.

Is this fair to the person who provided the deposit?  Perhaps not , but it’s the law since January 1999.  If you do what you feel is right instead of what is legal you will be paying double deposit plus attorney fees.

In Washington  D.C. they have  The Housing Provider Ombudsman a information resource for small housing providers.

Blacklisting bad tenants

THE NAMES of 400,000 Australian renters have swelled national blacklists for crimes ranging from pouring concrete down toilets to stealing entire kitchens from properties. [Source]

Today is probably as good as day as good as day as any to write down some instructions for those things that only you know, but your employees, friends and family  will have to know to put the pieces together when you are gone.

What Joe taught me: 

Joe was such an even keeled guy, the type of personality that is necessary to succeed at rental housing, especially in lower income urban areas.

In life various people who positively influence you teach you various important lessons.  The one I learned by watching how Joe dealt with things over the years was to live above the noise and distractions and just focus on your task at hand.  I think is the single most important trait for those who want to succeed in landlording, business or life.

There was a fable about a farmer I had read a couple of years ago that embodied this “live above the noise” attitude.  The first time I read it I thought of Joe.  As I sat here tonight reminiscing about Joe my thoughts turned again to that fable.

A farmer had only one horse. One day, his horse ran away.

All the neighbors came by saying, “I’m so sorry. This is such bad news. You must be so upset.” The man just said, “We’ll see.”

A few days later, his horse came back with twenty wild horses. The man and his son corralled all 21 horses.

All the neighbors came by saying, “Congratulations! This is such good news. You must be so happy!” The man just said, “We’ll see.”

One of the wild horses kicked the man’s only son, breaking both his legs.

All the neighbors came by saying, “I’m so sorry. This is such bad news. You must be so upset.” The man just said, “We’ll see.”

The country went to war, and every able-bodied young man was drafted to fight. The war was terrible and killed every young man, but the farmer’s son was spared, since his broken legs prevented him from being drafted.

All the neighbors came by saying, “Congratulations! This is such good news. You must be so happy!” The man just said, “We’ll see.”

– Derek Sivers