Forms, Laws, and Hats we wear will be made simple and we'll tackle and address the painful, hidden confusion and frustration of trying to “do the right thing” as an investor.
When I got started as a real estate investor, I had a job as plain clothes detective in my town. I'd like to think I was promoted from uniform patrolman because I did a good job. Some of the baggage associated with being a good cop involves your knowledge of the laws, your people skills and a good work ethic, along with an acceptable and not too offensive level of confidence and authority when needed.
With all of this cop stuff already in my noggin, I had a huge handicap I failed to see or grasp. I was totally in the dark on this one. I thought or I assumed I had it all figured out on the “legal side.” I was the guy who was going to court every day, dealing with the “criminal side only” of the courthouse and slamming defense attorneys at every opportunity when they represented or tried to help “dirtbags and tax-eaters” who take pride in ripping off tax payers and good people. This is one of those police characteristics that also drive attorneys absolutely bonkers when police think they know all of the laws.
So, I captured a little 2 bedroom HUD house, renovated it using my hands and elbow grease (to save money big mistake) and then plugged in an ex-con who went to prison for writing bad checks. At that time, I had no clue how to process a rental application or where to even get one. Here's what I did. I ran up to my local Office Depot office supply store and started browsing through the forms section. Ah-ha! I found it! A rental application and a lease! I'm in business! Here comes some of the dangerous behavior on my part. Having never had the first class or book on anything about investing or landlording, I simply chose to do what I thought I knew. So, my applicant fills out the rental application, and looking back on this today, what I'm about to tell you is absolutely wrong and illegal. Ignorance of the law is not an excuse; however, I was dumber than a brick in this situation.
My applicant fills out the application and I simply made a bee line for my police office and I did a little local check to see if he'd been arrested. Sure enough, not only had he been arrested, but he had a history of writing bad checks and had even been sent to prison for “hanging paper.” Now, I think and assume I am a sharp cookie for this neat little discovery and meet with my applicant again. Once again, my confidence level combined with a little authority sort of puts me in a unique situation. I simply confront “Jim” about his little financial habit of writing bad checks and proceed to let him know he can be a cash only customer and tenant. Jim agrees and I immediately pulled out my Office Depot Lease Agreement like an expert investor doing the paperwork and giving him the keys.
I was lucky. Jim turned out to be a great guy and I can write a whole article on just our relationship over the years. We made a win-win relationship for both of our families. Jim and his family are still with us today in their 3rd Vista home. His two oldest kids are grown and married with grandkids and his youngest is in high school. After having done this first rental house slick as a whistle, I repeated the exact same process on our 2nd rental property. Here's where my School of Hard Knocks really begins. The house across the street from the first rental house went up for sale. It was identical to the first one. Same floor plan and square footage. I used the same rental application and the same lease agreement from Office Depot.
I'm guessing about 3 or 4 months down the road, Jim kept paying on time like clock work. The 2nd rental house tenant was another story. Long story short, I probably went through all of the grandmothers dying, aunts and uncles getting sick, paychecks lost in the mail, sickness and more I fell for the hook, line and sinker and allowed them to make small measly little payments that couldn't put a dent in the total amount owed. Then my wife, Tammy, jerks my chain. I think she might have even called me stupid for putting up with these folks. The Big E word is lurking around the next corner for me. Here I am, the all knowing about the courthouse and legal system and I'm totally in the dark about this thing called an “eviction.” I didn't have a clue where or how to get started.
After realizing these tenants were not going to pay, it was time to take some legal action. I traveled to the courthouse and looked for this special room to start the eviction process. I filled out the paperwork handed to me. The clerk gives me a court date and tells me I must pay about $50 or so to file the papers to start the eviction process. The court system calls this a “forcible detainer action.” I assumed not paying rent was a crime and I was a victim Totally wrong on my part. That was a shock to me because I usually got paid to go to court and I've never seen a “victim” charged a fee to go to court. (Attorneys are grinning big time on this one).
The Court Date
After paying my $50 or so to the clerk, I was given a court date. I asked “Why am I getting a court date? These folks have not paid their rent for almost 3 months and I want them out now!” I about to get my wings clipped again. I was informed the tenants are given the opportunity to appear in court and present their side of the story to a judge. I'm beginning to boil now. It was totally shocking to me that these dirtbags get to stay in my house while this whole process is going on. To really tick me off, my court date was about 3 weeks away. Now another month with no rent. I'm getting my clock cleaned on both ends now. The tenants are grinning and laughing at the stupid cop landlord and Tammy is on my butt something fierce. We have house payments to make from our grocery money.
It Gets Worse!
I'm foaming at the mouth and waiting for my court date. I'm used to going to court and flat slamming my opponents the criminals. I always have my I's dotted and my T's crossed. One of my favorite sayings to defense attorneys “Let's T it up!” (meaning I am not afraid to go to trial because I have my whole case in order with absolutely no loose ends.) Off to Eviction Court I go. I got my files, my great log book of chronological activity in dealing with this tenant and I'm just so looking forward to “Slamming” them and getting them thrown out of our rental house. My tenants show up in court with a free attorney from legal aid. The judge calls our case and I proceed up to the bench in front of the judge and my tenants with their attorneys do the same. I even knew the judge I was standing in front of. This detective Mike Butler had a great reputation in this courthouse as a very good and thorough police officer and detective. (I thought I might have an edge with this judge knowing me false).
The judge asked me about their non-payment of rent. I informed the judge they haven't paid rent for over 3 months. Then the judge asks the attorney for my tenants to respond. Their attorney immediately takes off on some tangent about not having received proper notice from the landlord. I respond by pulling out my little chronological record of corresponding with the tenant and I told the judge on these specific dates I told the tenants I would evict them if they didn't pay. Plus I had the signed Office Depot Lease agreement with me where it spelled out in Paragraph 7 they would be evicted if they did not pay rent.
Kaboom! I'm thinking no brainer. I win. Tenant loses. False. Landlord loses! What in the world is going on? I'm about to explode! What part of this story did the judge miss? They did not pay their rent. I'm a victim!
Here's The Real Deal. I just graduated from the School of Hard Knocks and never knew I was in the classroom. In my town, just like most in America today, we have our local and/or state Landlord/Tenant laws. In my town, landlords must give a tenant who does not pay rent a 7 Day Notice to Pay their Rent in full or return possession of the rental unit to the landlord. In most states, there is very specific language or words that must be included in this Pay or Quit Possession Notice. Many states spell out specifically and in important detail how this notice is to be given to your tenant. Some states say certified mail or registered mail.The bottom line is I did not follow our Landlord / Tenant law and my case was unfortunately. Dismissed! I had to start over!
I was madder than a mashed duck! I was furious! This is not fair. Plus, when I told Tammy what happened, I think she called me “stupid” again. Unbelievably, I discovered I could not return to the little room in the court house to file for another court date. I would only repeat the same process I just finished. Here's what I later learned the hard way:
If a Tenant doesn't pay rent in my town, I must:
- Send the Tenant a 7 Day Notice to Pay or Quit Possession. It must include the proper language and some more stuff specific to my state and county.
- I have to be able to prove the Tenant received the notice.
- I better not accept any partial payments of rent from the tenant during this 7 day period or my eviction process will be thrown out and dismissed. I know this because I did it and received another certificate from the School of Hard Knocks.
- Only after giving the tenant 7 days to make their rent current, could I file for and start the eviction process in the court system.
- In my town, I would get a court date about 3 weeks down the road. If things go my way, the judge gives the tenant 7 more days to get out, and then I have to file for what's called a “writ for possession” or a court order to be executed by the Sheriff's office where they physically remove the tenant from the property and return possession to the landlord.
Wow! So brutal! This month's issue is not about evictions. There's a whole lot more to it than this little bit.
Here's another frustration from the school of hard knocks. Several years ago, (before I figured out how to screen applicants the right way), I had another tenant who chose not to pay rent. Ah-Ha! I'm all over this one! Got my 7 day letter out the right way and dotted my I's and crossed my T's. Tee it up! Yup, I hit a home run. Tenant found guilty. I win and we move forward in the court system to finally reach the physical “set out” of this tenant from our property. The Sheriff's Deputies show up along with our 5 guys to forcibly remove the tenant and all of their personal property. It's all placed carefully at the street on the curbside. I had brushed up on my Landlord/Tenant law after being burned in those previous situations. I instruct my guys not to touch the tenants' property sitting at the curbside for at least 48 hours. Our landlord / tenant law states the landlord shall leave the tenant's property on the street for at least 48 hours to allow the tenant the opportunity to gather their belongings and move on their way.
Well, here comes another Kaboom! Mike loses again. Now the local city inspector happens to ride down the street and sees all of the junk set out at curbside. Guess what the city inspector does? The property owner, me, gets a citation and a $100 per day fine for having all of this junk improperly set out at the curb. Once again, I'm become furious! How can this be? Make up your dang gone mind! This landlord / tenant law says I must give the tenant 48 hours before cleaning up their mess and disposing of their junk. Now the city is citing me for trying to do the right thing!
What's the Method to the Madness?
Here's the point I'm trying to get across. There are many, many different forms, rules, regulations, and laws. You can not become an expert on one particular set and assume you've got all of the bases covered. Many laws contradict each other! You will find local, state, and federal laws that have different rules and regulations on the exact same topic or situation. This is our wonderful legal system. Get used to it. It will not change. The long and short of the frustration about the tenant's property being placed at curbside from an eviction:
- Landlord/Tenant law says it must sit there 48 hours.
- Local City Ordinance issues a $100 Day fine.
What's the answer? As an investor, I'm in a catch 22 position. I'm backed in a corner and sunk either way. But I know one thing for sure. I am not touching their personal property for 48 hours! I can appeal to some boss about the $100 daily fine, but if I violate the landlord/tenant law, the tenant might be in a position to take me to court to replace all of their valuable personal property (junk to you and me).
Hats We Wear. In one position, you're wearing the hat of a property owner. The other hat labels you as a Landlord. Then you see all of the other hats involving your job, family, investor, coach and more. This is not information about the eviction process. This information is intended to show you how frustrating it can be to operate legally and successfully in our world of real estate investing. Here's another goofy example. Odds are you've probably heard of HUD's Section 8 Program and FHA. Both are federal government agencies involving residential housing across America.
This made me pull my hair out when I discovered this the first time. Let's look at house inspections. The Section 8 program requires the housing unit to pass the HQS “Housing Qualification Standards” of the Section 8 program before a family can be placed in your unit and receive subsidized rent payments from HUD. Being a good and responsible investor, I got my own copy of the HQS Housing Qualification Standards for Section 8. Here's a couple of things I recall. In order to qualify as a “Bedroom,” the room must have a minimum of 70 square feet, a ceiling height of no less than 84 inches (7ft) and a window with a minimum of 5 square feet for exit in case of a fire. Sounds pretty reasonable doesn't it? I thought it was pretty reasonable except for the 7 ft on the ceilings. (As a kid, I stayed in an upstairs room with a ceiling height of about 5.5 ft.)
During part of my early investing career, I also bought broken houses, rehabbed them, and sold them at retail prices usually to a first time home buyer. Almost always, the first time home buyer would use some kind of FHA guaranteed loan resulting in a home inspection to meet FHA housing guidelines. I dropped my teeth again. I took an ugly house, made it real pretty and nice. A Super renovation! New cabinets, wiring, roof, kitchen, bathroom and all of the bells and whistles. This beautiful renovated home failed the FHA inspection because there was not a closet in a bedroom. This house happened to be a shotgun style house and never had closets in the bedroom. I made a huge mistake assuming the HUD Section 8 Program housing guidelines were used by all federally funded agencies. Wrong! FHA have their own housing qualifications and many items are completely different than other federal agencies.
The Ultimate Icing On The Cake!
In the late 90's, Dick and Sandy Vreeland along with Rob Massey encouraged me along with several other investor/brokers in our town to create a local chapter of NARPM. (National Association Of Residential Property Managers.) I signed on as one of the local charter members. We met once a month at a nice country club and the leadership of our group would have a speaker at our luncheon to keep us up to date in our field of investing and managing property. One of the very first meetings featured an “enforcement officer” from the federal fair housing agency/office. This was a very eye-opening experience for me as both an investor and a landlord. This well educated lady represented her agency very professionally and offered a question and answer session following her presentation. This was the same era about the ADA rules and regulations were coming out of Washington.
Here's the eye-opener. There were many questions about Rental Applications especially since this new ADA law was out in our world. This enforcement officer after being asked a question, rattled off a small list of things you can ask and not ask on a rental application. I can't tell you how many real estate investor seminars and conferences I've attended where I was blasted for having certain questions on my rental application, one specifically being an applicant's date of birth. Me and about a dozen other very sharp investors about fell out of our chairs when the enforcement officer told us. “It's OK to ask for a date of birth for Identification purposes on your Rental Application. You can not ask an applicant for housing how old they are!” Talk about our tax dollars at waste! We could not believe what she just said. Here's what is amazing. This lady was dead serious. She was not laughing!
What Can You Do?
Here's some tips to minimize your forced placement into the School of Hard Knocks.
- Get your own hard copy of your state's and your town's Landlord / Tenant Laws and become familiar with the basic do's and don'ts.
- Find a competent local real estate attorney who's knowledgeable about real estate investing in your town. Avoid family members and friends at work or church. Remember, Veterinarians and Brain Surgeons are both called “Doctors.”
- Join a group in your town allowing you to network and stay abreast of local laws involving investors.
- Be super cautious with forms. Run it by your competent real estate attorney or take the ideas from these forms and work them into your forms by adding another paragraph or section.