Detroit evictions: Crackdown could worsen issues
The dozens of working furnaces and water heaters sitting in Chris Garner’s warehouse sit idle because of what he calls his “24-hour rule.”
Within a day of a tenant moving out of one of his Detroit rentals, Garner, the owner of a Taylor-based property management company, has staffers remove the systems and board up the home. It’s all to deter scrappers and thieves. They won’t reinstall, he said, until 24 hours before a new tenant is scheduled to move in.
It’s a policy Garner instituted about five years ago for the Detroit homes he manages for owners, after repeated theft. He said the work each time a tenant moves out adds at least $700 to the cost of doing business in the city where he argues profit margins are already tight.
“It got pretty bad,” Garner said. “The investors would belly up the money to do a rehab on a property. We’d go in and put new cabinets in, carpet, paint and show up the next day to finish up a project, and someone would have broken into the property and steal everything out, including the carpet, toilet and cabinets. We’d be starting all over again.”
Detroit Mayor Mike Duggan and other city officials say part of the solution to improve city rental housing is a landlord crackdown, and last month pledged to launch a campaign to prevent landlords from renting substandard homes. That includes stopping them from collecting rent if they don’t comply with inspections. The city admits most rentals haven’t been inspected.
But some landlords say the rental business in Detroit is already so precarious that a crackdown will force out those who offer quality housing, leaving the business to those who avoid city regulations, milk profits from a house and then abandon it.
Garner said the costs of dealing with the city and other challenges, like theft, have pushed many of his clients out of the business. Garner’s company manages just under 200 single-family homes in Detroit, down from nearly 500 in 2014. He said he works with investors willing to put $3 million to $4 million into rentals but refuse to do business in the city primarily because of theft and city regulations.
While most cities require inspections of rental properties every two to three years, Detroit requires annual inspections in addition to yearly lead inspections that can cost $450 to $750. A University of Rochester researcher called Detroit’s lead guidelines “the Cadillac” of city ordinances, even though they haven’t been enforced in a vast majority of rentals since instituted in 2010.
“There needs to be a better understanding at the city level in regards to what they are doing to prevent an investor to get some type of return on their investment,” Garner said. “They want to provide housing for tenants and make them happy.”
“If that cost of operation becomes so detrimental to their return, they have no choice they are going to move on. They are going to sell at a loss ... more than likely (to) speculators who are looking for short-term returns.”
City Councilman Andre Spivey has pitched an ordinance change that puts landlords who have paid taxes and have no blight violations on a two-year inspection schedule for multi-family properties, and every three years for one- to two-family rentals. His proposal would also alter the lead requirements. Landlords would still need an initial $450-$700 lead inspection but after that would only need a $250 risk assessment, where a trained inspector looks for problems like peeling paint.
Clear Corp/Detroit, a nonprofit that works to keep homes safe from lead, is supportive of the change, but the group has said it’s important to stay vigilant on lead paint hazards. In 2015, more than 10 percent of kids under age 6 tested in eight Detroit Zip codes had elevated blood-lead levels.
“We aren’t trying to take away landlords’ income,” Spivey said. “We just want good landlords who take care of their properties. It’s about not turning our heads any longer and making sure we have neighborhoods that are safe and clean.”
But Fadi Sakkijha, a Detroit landlord for 15 years, said making landlords go through inspections will force them out of business or cause others to raise rents to compensate for the hassle.
“When the city gets involved, it just causes problems,” said Sakkijha. “It is just going to get worse.”
Sakkijha said many of his more than a dozen properties aren’t registered with the city, but are inspected through the federal Section 8 program for low-income renters that pays a majority of their rent.
He said many landlords can’t afford to maintain their homes because they aren’t getting rents.
“I think that is why there is a tipping point. I am not buying any more houses in Detroit, it’s too much hassle,” Sakkijha said.
He said he has to pay people $10 to $20 a day to live in his vacant homes until he finds a tenant to avoid the home being stripped.
“If I start an eviction today, I would be lucky if the (tenant) would be out in two months. It’s not an easy business.”
James Abbott, a longtime landlord attorney, cautioned that the proposed regulations enforcement could be the tipping point for many owners to sell.
“That will kill it. No more landlords in Detroit,” said Abbott, who estimates he’ll handle 7,000 eviction cases in Detroit this year.
“It looks good on paper,” he said. “Being a landlord in Detroit is a losing game.”
But others have little sympathy, like nonprofit attorney Charlene Snow who represents tenants. She said she knows many landlords who bought homes cheap and put little money into their properties. She’s had clients living in homes barely fit for habitation facing eviction because they refused to pay rent.
The city should hold landlords more accountable, she said.
“That’s the business,” Snow said of the cost of following city guidelines. “If you don’t want to do that, go buy a corner store.”
A DETROIT LANDLORD'S BUSINESS MODEL
The owner of Garner Properties & Management, Chris Garner, gives this revenue/cost estimate to his clients, investors who want to buy and rent homes in Detroit. This includes planning for a possible tenant eviction.
Money coming in:
$750 a month average rent, $9,000 a year if the person pays
Money going out:
$1,800 a year average tax bill
$1,050 a year insurance
$900 a year management fee to Garner’s company
$900 a year average in work orders
$250 legal fees
$750 lost rent on average
$1,400 for tenant turnaround, cost of eviction and repairs once tenant moves out
$150 a year city rental inspection
$450 lead risk assessment, a minimum cost
Total costs: $7,650 on average
Profit: $1,350 a year, if there are no capital expenditures, like a new roof
HOW OTHER CITIES REGULATE RENTALS
Here’s a collection of how other cities around the state and nation regulate rentals and landlords:
Taylor and Southfield
Both cities require inspections every three years. Southfield ordinance also specifies that a city inspection can be done anytime there’s a “credible complaint” or other indications of code violations.
Rentals in Grand Rapids are inspected either every 2, 4 or 6 years depending on several factors, including the number of violations found by inspectors and delinquent property taxes.
The city requires multi-family rentals go through a licensing process that requires an annual inspection, but doesn’t mandate the same for one- and two-family rentals. Officials say they are considering legislation that would include smaller rentals in the process. The city has a court dedicated to just hearing landlord tenant cases aimed at ensuring safe housing, but it has faced criticism, including a yearlong investigation by the Baltimore Sun that found judges failed to hold landlords accountable when their homes weren’t habitable.
Anne Arundel County, Maryland
The county requires that landlords get a rental license for rentals with two or more units. In eviction action, Maryland courts ruled that an owner who failed to get a rental license could not evict a tenant before complying with the regulation, according to ChangeLabs Solutions, an Oakland, Calif. nonprofit.
The city recently launched a five-year plan to inspect rentals for lead and other safety issues, according to the Cleveland Plain Dealer. Landlords will have to register rentals yearly, at a cost of $35. Non-compliance can result in up to $100-per-day fines. The goal is to inspect all 84,000 rental units by 2019.
The city requires landlords go through a city inspection for rentals when a new tenant moves in. City officials check gas and electric records to catch those landlords who aren’t following the rules. The city’s ordinance requires city officials have real-time access to the utilities’ data. The city also responds to complaints from renters about housing conditions by sending out city inspectors. But there are holes in the system that leave tenants unprotected, said Kalila Jackson, a senior staff attorney for Metropolitan St. Louis Equal Housing and Opportunity Council. Landlords often dodge the occupancy permit requirement by keeping utilities in their name and adding the costs to tenants’ rent. And there are few safeguards against landlords who evict renters in retaliation for calling the city to complain about poor conditions, she said.
Chicago doesn’t have yearly required annual rental inspections for most buildings. The system is largely complaint driven, so if a renter asks for an inspection because of a repair problem, the city will come out.
But there are a number of other tenant protections Chicago has that Detroit lacks.
In 2013, Chicago began requiring that landlords inform their tenants in writing within seven days of the owner getting a foreclosure notice. And landlords have to tell potential renters about a pending foreclosure before they sign a lease. If the landlord doesn’t notify, the tenant can terminate the lease within 30 days and the landlord could have to pay $200 to the renter.
It also requires the new owners of a foreclosed rental to offer the tenant a lease extension with a rent increase of no more than two percent, or pay $10,600 in relocation fees.
The city also limits late fees. Landlords can charge $10 per month for late rents under $500. They can add 5 percent on the rent that exceeds $500. So for a $700-a-month rent, the late fee would be $20. There are no similar limits in Detroit, although some judges limit the fees in eviction cases.
Chicago also allows renters a series of options in city regulations if their landlords don’t take care of the basics: heat, running or hot water, plumbing or anything else that is an “immediate danger” to the tenant. The renter can withhold rent, pay to fix the problem and deduct the cost from rent, file a lawsuit against the landlord for damages or get other housing and be excused from paying rent. They could also recover the cost of that other housing limited to their monthly rent.
Toledo doesn’t have rental inspections but does require that landlords with older homes get a “Lead Safe Certificate” from the Toledo-Lucas County Health Department. To get a certificate, the owner has to have a local lead inspector inspect the paint, soil and take dust wipe samples inside the home. The health department can issue three-year or six-year certificates based on whether the landlord failed the first inspection. There is a one-year deferral for owners who have more than 10 properties and a hardship exemption to give owners more time to comply. The fines for not complying are $50 a day up to $10,000.
TOP EVICTION SEEKERS
We looked at eviction cases filed from 2009 through summer 2017 and found these were some of the top entities that filed cases against tenants:
1. Fannie Mae and Freddie Mac, 7,353
These mortgage giants foreclosed on the most homes in Detroit after the 2008 economic meltdown, so it makes sense they’d be at the top of the list for filing evictions cases against former owners. The federal government bailed out and took over both Fannie Mae and Freddie Mac in 2008, after the recession left them near collapse. Most of the evictions happened between 2010 and 2013, tapering off after that. The News found in a 2015 investigation 46 percent of Fannie Mae’s Detroit foreclosures were blighted, needed to be demolished or were foreclosed for unpaid taxes. For Freddie Mac, that number was 56 percent.
2. Boydell Development, 3,799
The company is headed by Dennis Kefallinos, a longtime Detroit property owner with buildings downtown and in the surrounding area, along with residential industrial lofts, including the Grand Lofts on West Grand, and River Park Lofts off Jefferson near Mt. Elliot Park. Boydell was sued in 2015 by renters who complained the units were unfit, mainly because of a lack of heat. The lawsuit claims Boydell’s residential buildings never went through city inspections. “They shouldn’t have been required to pay rent for units it wasn’t legal to rent,” said Adam Miller, a lawyer for up to 90 former tenants his firm represents. Boydell was also sued late last year in U.S. District Court by the Fair Housing Center of Metro Detroit for alleged Fair Housing Act violations for not renting to families with children. Boydell’s attorney, Ben Gonek, didn’t return calls and emails for comment but has denied the allegations in both cases in court filings.
3. Garner Properties, 2,419
Garner Properties and Management is a Taylor-based company that manages single-family rental homes for investors, including out-of-state and international owners. Chris Garner, the company’s owner, said it managed about 550 properties at its high point in Detroit but has been gradually retreating from the city. Now it oversees about 220. It has challenged suburban cities in court over their rental inspections, suing over violations the company received in Redford, Roseville and Eastpointe in recent years. Garner said they take good care of their properties but acknowledged many of their Detroit properties weren’t inspected in the past. For the last six months, they’ve been urging their owners to get in compliance.
4. Metro Property Group, 1,786
Sameer Beydoun, who was CEO of the property management company, was a top buyer of tax foreclosed auction properties: between 2011 and 2012 he bought nearly 950. This spring he pleaded guilty to conspiracy to commit wire fraud, after federal investigators accused him of defrauding investors. Metro Property Group would market the houses to foreign buyers as completely refurbished and occupied by tenants, when in some cases the homes weren’t even owned by the company, were in disrepair and vacant, according to Beydoun’s plea deal. Many of the homes, which may have been sold after Beydoun purchased them, have since been foreclosed again by the Wayne County treasurer. Beydoun is expected to be sentenced Oct. 10 on the charge that carries a penalty of up to 30 years in prison. Beydoun’s lawyer, Steve Fishman, declined comment.
5. River Place, 1,565
River Place is a collection of about 300 apartments and lofts along the Detroit River near Chene Park. A new owner bought the complex in 2016 and Princeton Management of Bloomfield Hills took over management that same year. The vast majority of eviction cases were filed between 2009 and 2014. Since taking over the property, officials said they’ve evicted only four tenants.