In many ways, COVID-19 has changed the way we live for both the immediate future and long-term. Brooklyn Law School Dean Michael Cahill has been sitting down with members of the Brooklyn Law School faculty to discuss the legal ramifications of our response to COVID-19 and what a post-pandemic world may look like. Here is the link to our discussion of the effect of the pandemic on the real estate market and beyond: https://youtu.be/j9DFBOsU3qw.
In recent years, renters’ housing costs have far outpaced their incomes, driving a nationwide affordability crisis. Current data from the American Housing Survey show that most poor renting families spend at least 50 percent of their income on housing costs. Under these conditions, 1 millions of Americans today are at risk of losing their homes through eviction.
An eviction occurs when a landlord forcibly expels a tenant from a residence. While the majority of evictions are attributed to nonpayment of rent, landlords may evict tenants for a variety of other reasons, including property damage, nuisance complaints, or lease violations. A formal eviction occurs when a landlord carries out an eviction through the court system. Conversely, an informal eviction occurs when a landlord executes an eviction without initiating a legal process. For example, a landlord may offer a buyout or perform an illegal lock-out. Until recently, little was known about the prevalence, causes, and consequences of eviction.
The Eviction Lab at Princeton University has collected, cleaned, geocoded, aggregated, and publicized all recorded court-ordered evictions that occurred between 2000 and 2016 in the United States. This data set consists of 82,935,981 million court records related to eviction cases in the United States between 2000 and 2016, gleaned from multiple sources. It is the most comprehensive data set of evictions in America to date.
These data allow us to estimate the national prevalence of court-ordered eviction, and to compare eviction rates among states, counties, cities, and neighborhoods. We can observe eviction trends over time and across geography, and researchers can link these data to other sources of information. (2)
In sum, the Eviction Lab has created “the most comprehensive data set of evictions in America.” (41) This data set is obviously of great importance and will lead to important research about what it means to be poor in the United States. The Eviction Lab website has a user-friendly mapping function among other resources for researchers and policymakers.
Realtor.com quoted me in Cities With the Worst Rent: Is This How Much You’re Coughing Up? It opens,
Sure, rents are too dang high just about everywhere, but people living in Los Angeles really have a right to complain: New analysis by Forbes has found that this city tops its list of the Worst Cities for Renters in 2018.
To arrive at these depressing results, researchers delved into rental data and found that people in L.A. pay an average of $2,172 per month.
Granted, other cities have higher rents—like second and third on this list, San Francisco (at $3,288) and New York ($3,493)—but Los Angeles was still deemed the worst when you consider how this number fits into the bigger picture.
For one, Los Angeles households generally earn less compared with these other cities, pulling in a median $63,600 per year. So residents here end up funneling a full 41% of their income toward rent (versus San Franciscans’ 35%).
Manhattanites, meanwhile, fork over 52% of their income toward rent, but the saving grace here is that rents haven’t risen much—just 0.4% since last year. In Los Angeles, in that same time period, rent has shot up 5.7%.
So is this just a case of landlords greedily squeezing tenants just because they can? On the contrary, most experts say that these cities just aren’t building enough new housing to keep up with population growth.
“It is fundamentally a problem of supply and demand,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “Certain urban centers like Los Angeles, San Francisco, and New York are magnets for people and businesses. At the same time, restrictive local land use regulations keep new housing construction at very low levels. Unless those constraints are loosened, hot cities will face housing shortages and high rents no matter what affordable housing programs and rent regulation regimes are implemented to help ameliorate the situation.”
Realtor.com quoted me in How to Rent out a Condo: Watch out! It’s Not the Same as a Home. It opens,
How to rent out a condo: This may seem like a simple question, but if you own a condominium, you probably know it’s actually rather complicated.
For those who are foggy on what a condo is, let’s start with the definition: It’s a home, typically part of a larger building, that comes with shared common areas such as yards and garages that are maintained by hired help, rather than by individual owners. This makes condo ownership a breeze, by comparison with the labor involved in maintaining your own house, and you pay for that convenience in condo fees.
This more communal living arrangement, however, also means that you can’t just rent out your place whenever the whim strikes. In the past, condominiums were pretty flexible about allowing unit owners to rent out their homes. In recent years, though, condo associations have become a little more restrictive, according to David Reiss, professor of law and academic program director at Brooklyn Law School. Here we break down everything you need to know about how to rent out a condo.
Step 1: Read your condo association’s governing documents
Every condominium is different, but they all have one important feature in common: Owners are subject to a set of rules established by the condo association and upheld by the Board of Directors. Some do not allow for renting as an option. Review your condo association’s bylaws, and/or rules and regulations, to understand the existing policies regarding renting out units.
Step 2: Know your condo association’s restrictions
If renting is allowed, there may be limitations on the length of the lease term—including minimum and maximum times—and on whether pets are allowed. Also look into whether or not renting has been an issue in the past, which could give you a crystal ball into your future. “Review board meeting minutes to see if any new policies are being discussed that might impact your plans,” says Reiss.
Another potential renting deal-breaker to be aware of is that some condominium associations allow only a certain percentage of total units to be rented out at any one time. Check to see if the current ratio of rented to non-rented condos will accommodate your unit. Keep in mind that some associations only allow renting after an owner has lived there for a minimum period, usually two years.
Avvo quoted me in What Do Renters Need To Know in A Natural Disaster? It opens,
From hurricanes in the East to wildfires in the West, the past few months have seen an on-going slew of natural disasters in the United States. Fires and floods don’t care whether a property is inhabited by owners or renters. However, most states have laws that address how landlords and tenants deal with a rental property in the aftermath of a natural disaster.
Renters’ recourse in a natural disaster? Leases and local laws.
Check the lease first
The first source of authority on the obligations of landlords and tenants is found in the lease agreement, which should spell out the terms of what happens in case of a natural disaster. But not all leases clearly address this situation. According to Michael Simkin, managing partner of Simkin & Associates in Los Angeles, in cases where the lease is “burdensome or unfair,” local or state laws will govern what happens.
Landlord and tenant responsibilities vary by state
Every state has different laws regarding landlord and tenant obligations after a natural disaster strikes. Here are examples of answers to common tenant questions from some of the states recovering from recent natural disasters.
Can a lease be terminated if a natural disaster makes a rental property unusable?
California: If a rental property is destroyed in a natural disaster, the lease is automatically cancelled. The landlord must refund the rent for that rental period on a prorated basis.
“Many times, the city can come in and condemn the property and effectively force out tenants in unsafe situations. It is also the landlord’s responsibility to terminate a lease when they have knowledge that their rental property is unusable or unsafe,” notes Monrae English, a partner at Wild, Carter & Tipton in Fresno.
Florida: If the premises are “damaged or destroyed,” the tenant may terminate the rental agreement with written notice and move out immediately.
Louisiana: According to the Louisiana attorney general, if a natural disaster damages a property to the point that it is completely unusable, the lease is terminated automatically.
New York: If a rental becomes unfit for occupancy due to a natural disaster, the tenant may quit the premises and is no longer liable to pay rent. Any rent paid in advance should be returned on a prorated basis, according to David Reiss, law professor at Brooklyn Law School.
Texas: Either the tenant or the landlord can terminate the lease with written notice. Once the lease is canceled, tenants’ obligation to pay rent ceases and they’re entitled to a prorated refund of any rent paid during the time the home was not usable.
If the lease is terminated due to a natural disaster, does the renter get the security deposit back?
California: The landlord must return the security deposit within three weeks of the tenant vacating, with any deductions accounted for in writing. The landlord is not allowed to deduct disaster damage.
Louisiana: The landlord is required to return security deposits within one month, as long as the tenant fulfilled the lease obligations and left a forwarding address, according to Brent Cueria, an attorney with Cueria Law Firm, LLC in New Orleans. The landlord cannot deduct for natural disaster damage.
New York: The security deposit must be returned to the tenant, according to Reiss.
Texas: The security deposit must be refunded.
Scam Detector quoted me in 10 Real Estate Scams That You Need To Avoid Today. It opens,
The real estate industry is a sector that’s extremely profitable if done right. If you think about it, a house is the most expensive item that a person buys over his/her lifetime. Big money, big opportunities. However, on the same token criminals prey on the weak and use creative ways to make a lot of money by scamming victims all over the world, whether buyers, sellers or realtors.
Amongst the most notorious fraudulent practices on the market, we have already exposed and shared information about real estate investment scams, home buying scams, residential real estate tips and the Real Estate Agent Scam.
This week we caught up with a few fraud prevention experts and real estate professionals. We invited them to share new tips and expose some prevalent scams they’re aware of, which are happening now.
Here are 10 real estate scams that you need to avoid today:
1. Hackers Stealing Your Down Payment: Mortgage Closing Date
“A hacker could fool you into thinking he’s your agent and trick you into sending him money, which you’ll never get back. It’s so bad the FTC even sent an alert warning consumers that real estate agents email accounts are getting hacked.”, says Robert Siciliano, fraud prevention expert with IDTheftSecurity.com.
He continues: “Let’s say your realtor’s name is Bill Baker. Bill Baker’s e-mail account gets hacked. The hacker observes Baker’s correspondences with his clients—including you. Ahhh, the hacker sees you have an upcoming closing. The hacker, posing as Bill Baker, sends you an e-mail, complete with instructions on where to wire your closing funds. You follow these instructions. But there’s one last step: kissing your money goodbye, as it will disappear into an untraceable abyss overseas. This scam can also target your escrow agent.”
“It’s obvious that one way to prevent this is to arrange a home purchase deal where there are zero closing costs”, says Siciliano. “The scam is prevalent, perhaps having occurred thousands of times. It was just a matter of time until scammers recognized the opportunity to target real estate agents and their clients.
The lax security defences of the real estate industry haven’t helped. Unlike the entire financial industry who have encrypted communications, the real estate industry is a hodgepodge of free e-mail accounts and unprotected communications.”
In addition, Robert points out: “Realtors, who are so often on the go and in a hurry, frequently use public Wi-Fi like at coffee houses. Anyone involved in a real estate transaction can be hacked, such as lawyers”.
When it comes to preventing this particular scam, here are a few points that Siciliano suggests:
– Eliminate e-mail as a correspondence conduit—at least as far as information on closings and other sensitive information.
– On the other hand, you may value having “everything in writing,” and e-mail provides a permanent record. In that case, use encrypted email or some setup that requires additional login credentials to gain access to the communication.
– For money-wiring instructions, request a phone call. And make this request over the phone so that the hacker doesn’t try to pose as your Realtor over the phone.
– Any e-mailed money instructions should be confirmed by phone—with the Realtor and the bank to send the money to.
– Get verification of the transfer ASAP. If you suspect a scam, have the receiving bank freeze any withdrawal attempt of the newly deposited funds—if you’ve reached the bank in time, that is.
2. Real Estate Agents Assigning The Sales To Themselves
“I know a victim of a realtor who is scamming his buyers by taking advantage of sudden traumatic life events”, says Mariko Baerg from Bridgewell Group.
A buyer had purchased a house. Between the time it was a firm deal and the title transfer date he got in a severe car accident and could no longer work for the short term.
The realtor that was representing him had coerced the buyer into assigning the sale to the realtor himself for a discounted price because he fearfully convinced the buyer that he would have difficulties keeping his financing from the lender.
Assigning to yourself is a clear conflict of interest, the realtor did not try to market the assignment to anyone else, and the sale amount was $100,000 less than market value! He also forged the seller’s signature to convince the buyer that it was OK to assign the property.
The issue could be avoided by making sure you have a power of attorney lined up in the case that you have an accident, making your realtor show you comparables to confirm what market value is before transferring. Also, if you have a feeling there may be a conflict of interest always obtain legal counsel or receive a second opinion to determine what your options are.”, explains Berg.
3. Arc Fault Breaker Swap Out Scam
This next fraudulent practice is exposed by Jeff Miller, co-founder of AE Home Group: “Arc fault breaker swap outs are a common scam I’ve seen in the flipping industry. Modern building code requires that electrical boxes contain arc fault breakers as opposed to traditional breakers in order to further prevent electrical fires.
While safer, these arc fault breakers can add upwards of $800 to the cost of the renovation. Following the issuance of a use and occupancy permit, some flippers will return to the home and replace these expensive arc fault breakers with the cheaper traditional breakers, adding profit to their bottom line.”, says Miller.
4. Real Estate News: Bait and Switch Scheme
Another fraudulent real estate practice is the “bait and switch” scheme, explained here by Lucas Machado, President of House Heroes: “The scam occurs when a prospective buyer offers an “above market value” price to a home seller. The seller – blown away by the high offer – excitedly signs on the dotted line.
Sadly, the unscrupulous buyer has no intention to purchase the property at this price.
Once the seller signs the contract, the seller may only sell to that buyer for a specified time (weeks to even months) for the buyer’s purported due diligence. When that time ends, the fraudster asks to extend the contract a few weeks to work out closing details. Sounding reasonable, the seller agrees to the extension blinded by the high offer.”, warns Machado.
“There are two impacts on the seller. The seller keeps paying taxes, maintenance, utilities, insurance and develops an emotional commitment to sell.
Here’s what happens in the bait and switch: the buyer comes back to the seller with an excuse as to why this price no longer works, requests a reduction to below market value, and threatens to cancel if their demand is not met. Stressed by passage of time and on-going costs, the frustrated seller agrees to the reduction.”
Machado offers a concrete example: “Our company had a scenario where we offered $185,000. The seller accepted a $220,000 offer. The “buyer” asked for extension after extension, for 12 months, and then the tired seller agreed to sale price $180,000. The victimized seller had on-going costs around $10,000 and lost approximately $20,000 by not accepting our offer a year ago.”
How can you avoid the bait and switch scheme?
a. Confirm proof of funds at time of executing the contract.
b. Do not grant unreasonable extensions or reductions.
c. Set expectations early on.
d. If extension or reduction is based on condition, request an inspector or general contractor report verifying claims.
5. Duplicated Listings
Leah Slaughter with OmniKey Realty warns about a scam constantly happening in the real estate business: the Duplicated Listings.
“We often see companies copy our legitimate rental listings and post on Craigslist for a much cheaper price. Unfortunately, many people fall for these fake listings and wire or overnight money to the owners of these fake listings and then cannot get access and eventually locate us and all we can do is refer them to the police.”, says Slaughter.
“When searching for a rental, do your research and make sure you are working with a reputable company or a licensed agent/broker. If a landlord says they are not local and cannot give you access to the property, that is an immediate red flag.”
6. Real Estate Lawyers: Fake Profiles
David Reiss from Brooklyn Law School warns about a new type of scam: impersonating real estate lawyers. “In this case, the scammer takes control of the proceeds of a real estate closing by impersonating one of the parties to the closing and redirecting proceeds to an account controlled by him/her. The criminal might impersonate the seller’s lawyer and instruct that the proceeds from the sale be redirected to a new account.”, says Reiss.
“All such changes should be confirmed by a phone call (to a number that you know to be valid!) to confirm that they are from the real seller.”
The NYC Rent Guidelines Board (of which I am a member) held a public hearing as part of its final vote on rent adjustments for the approximately one million dwelling units subject to the Rent Stabilization Law in New York City. My fellow board member, Hilary Botein, and I submitted the following joint statement at the hearing (also available on SSRN and BePress):
The Rent Guidelines Board determines rent increases for New York City’s 1 million rent-stabilized apartments. We must weigh the economic conditions of the residential real estate industry; current and projected cost of living; and other data made available to us. To make our decision, we reviewed reams of data and multiple analyses of those data. We also held five public hearings at which we heard hundreds of tenants speak, sing, chant, cry, and demonstrate. These hearings are among the only opportunities that tenants have to speak publicly about their housing situations, and they made clear the extremity of the housing crisis in the City, and that it will get worse without significant intervention.
Tenants who came to the RGB hearings are not a representative sample of rent-stabilized tenants in New York City. But they told us a lot about the state of housing in the City. We felt that it was incumbent on us to respond to what we heard, even where it did not relate directly to the jurisdiction of the Board.
New York City cannot expect any meaningful housing assistance from the federal government in the near term. Our observations therefore focus on state and municipal actions that could address some of the issues that regularly cropped up at our hearings.
There is a desperate need for affordable housing that is pegged to residents’ incomes. Housing is deemed “affordable” when housing costs are 30 percent of a household’s income. There is no guarantee that rent stabilized housing remain affordable to a particular household, and there is no income eligibility for rent stabilized housing. This aspect of rent regulation explains its durable political appeal, but makes it an imperfect vehicle for meeting the needs of low-income tenants.
Mayor de Blasio is protecting and developing hundreds of thousands of units of affordable housing through the Housing New York plan announced at the beginning of his term. More recently, his Administration announced a program to create 10,000 deeply affordable apartments and a new Elder Rent Assistance program. But more can be done to help low-income tenants.
The Senior Citizen Rent Increase Exemption (SCRIE) and Disability Rent Increase Exemption (DRIE) programs have proven their effectiveness in “freezing” the rents of more than 60,000 low and moderate income rent-stabilized households. The state should create and fund a similar program for low-income rent stabilized tenants who pay more than 30 percent of their incomes towards housing costs.
State laws governing rent stabilization must be amended. Three elements of the law particularly penalize low-income tenants in gentrifying neighborhoods, and were behind the most distressing tenant testimonies that we heard. They are not within the RGB’s purview, but change is critical if the law is to operate as it was intended to do. The state legislature has considered bills that would make the necessary changes. First, owners can charge tenants a “preferential” rent, which is lower than the legal registered rent for the apartment. Preferential rents are granted most often in neighborhoods where the rent that the market can bear is less than the legal rent. This sounds like a good option for both tenants and owners, and perhaps that was its original intention. But now, as neighborhoods gentrify and market rates increase, the prospect of increasing a preferential rent with little notice has become a threat to tenants’ abilities to stay in their apartments. Preferential rents should be restricted to the tenancy of a particular tenant, as was the law before a 2003 amendment. Owners would then be able to increase rents for those tenants no more than the percentages approved by the Board.
Second, owners can tack on a 20 percent “vacancy increase” every time an apartment turns over. This increase incentivizes harassment, and should be limited to situations of very long tenancies, to keep owners from actively seeking to keep tenancies short.
Third, owners making what is termed a Major Capital Improvement (MCI) – a new roof, windows, or a boiler, for example – can pass this expense on to tenants via a rent increase that continues in perpetuity, after the owner has recouped her or his expenses. We also heard allegations of sketchy capital improvement applications that were intended to increase rents without improving the conditions in the building. The state legislature should review how MCIs work in order to ensure that they are properly incentivizing landlords to invest in their buildings to the benefit of both owners and tenants.
New York City needs a repair program for broken gas lines. We heard from tenants who had not had gas in their apartments for more than a year. We understand that fixing gas lines is particularly complicated and expensive, and that gas leaks raise serious safety concerns, but it is unacceptable for families to go for more than a year without gas, and we are concerned about fire safety issues resulting from people using hot plates. The city needs to step in and make the repairs.
We have a housing crisis. Low income tenants, who live disproportionately in communities of color, experience this crisis most acutely. We will not find systemic solutions within the housing market. All solutions require a lot of money, and we cannot count on anything from the federal government. But it is imperative that our state and local governments act, or New York City’s already burgeoning shelter system will be forced to take in even more people. Since the 1970s, New York City has been a leader in committing public resources to housing its low income residents, and that legacy must continue. The Rent Guidelines Board cannot solve the housing crisis, but other arms of the New York State and City government can work together to reduce its impacts on low-income households.