Protect Tenants from Known Discrimination

Federal appellate court determines that a landlord can be liable under the federal Fair Housing Act (“FHA”) for failing to protect a tenant from discrimination when the landlord is on notice that another tenant is targeting the tenant.

An African American individual (“Tenant”) leased an apartment in a multi-unit apartment complex (“Complex”) managed by a property management company (“Manager”). After moving onto the property, another resident (“Harasser”) began directing derogatory comments towards the Tenant, including profanity and racist comments. He also harassed the Tenant in the Complex’s parking lot.

The Tenant called the police about the Harasser’s behavior. The police came to the Complex, interviewed witnesses, and warned the Harasser to stop his behavior. The police also told the Manager about the Harasser’s actions. The Manager did not take any action.

Subsequently, the Tenant filed another complaint with the police about the Harasser and alerted the Manger directly about the alleged harassment. The Manager again did nothing. The Harasser continued his behavior, and the police arrested him for harassment. The Tenant again notified the Manager about the harassment, but nothing was done. The Tenant notified the Manager a third time, but nothing happened and the Harasser was allowed to remain at the Complex until his lease expired. The Harasser later pleaded guilty to harassment and a protective order was entered prohibiting him from contacting the Tenant.

The Tenant filed a lawsuit against the Manager, alleging violations of the FHA, New York’s fair housing laws, and various other causes of action related to the emotional trauma resulting from the harassment. The trial court entered judgment in favor of the Manager on the FHA claims, and the Tenant appealed.

The United States Court of Appeals for the Second Circuit reversed the trial court and ruled that the Manager could have a duty to intervene when it knows of tenant-on-tenant racial harassment. Since this was a novel claim, the court consulted with the U.S. Department of Housing and Urban Development (“HUD”) about its views on a landlord’s potential liability and HUD pointed to its rules, arguing that the court should recognize limited claims against landlords arising from tenant-on-tenant racial harassment.

The court examined the FHA and found that the law supported imposing a duty on landlords to prevent tenant-on-tenant discrimination. First, the court determined that the FHA was not limited to preventing discrimination during the buying or leasing of property- instead, the FHA was intended to end all forms of discrimination that interfered with an individual’s enjoyment of their housing, not just those arising from the sale or lease of property.

Next, court looked at whether the FHA imposed liability on a landlord for failing to prevent tenant-on-tenant discrimination when it is on notice that it is occurring. Only one other federal circuit had considered this issue, but HUD’s rules could impose liability on a housing provider when a third-party is creating a hostile environment for a resident that the housing provider is on notice about but fails to take prompt action.

The court accepted HUD’s interpretation of the FHA in its rules and ruled that a housing provider could be liable for failing to prevent tenant-on-tenant discrimination when it is on notice that the discrimination is occurring. Therefore, the court reversed the trial court and sent the case back to the lower court for further proceedings on whether the Manager had an obligation to stop the tenant-on-tenant discrimination in the Complex.

Read the full decision: Francis v. Kings Park Manor, Inc. (link is external)

March 2019 Q & A

Question: The non-payment of rent notice I served on the tenant has expired. The tenant is now trying to pay the rent, but I do not want to accept payment and would like to return it. How can I return their payment?
Answer: You can return the tenant’s payment by personal delivery or sending it by regular or certified mail, although you are not required to send it by certified mail. It is important to return the payment as soon as possible.

Question: I have an ongoing unlawful detainer against one of my tenant’s but he is continuing to create a disturbance at the property. Is there any way that the unlawful detainer can be expedited?
Answer: Unfortunately, no. However, a restraining order may be available in extreme cases. If the tenant is engaging in a serious or criminal disturbance, call the police.

Question: My tenant was just evicted and the majority of his/her items are still in the unit. Do I need to give him/her another notice to retrieve their belongings?
Answer: If you went through the court eviction process and the Sheriff conducted a lockout, the Sheriff would have notified your tenant of their rights to their personal property.

Question: One of my tenants attempted to tape record our conversation explaining that they have a right to do this for legal purposes. Is that true?
Answer: Your tenant has no legal right to tape record you without your express consent in places that you have an expectation of privacy, such as your business office. Further, surreptitious tape recording – tape recordings without your knowledge – is a misdemeanor under California state law. Contact your attorney if you learn that you have been surreptitiously recorded.

Question: We have a limited number of parking spots in our apartment community
so we decided to limit the parking to residents only. Is this legal?
Answer: Yes, you may restrict parking at your apartment complex to residents only. Make sure you have complied with the requirements of Vehicle Code Section 22658 so that unauthorized vehicles can be towed according to the rules of the code section. Also, be sure that your lease or rules have been appropriately modified so that this policy is enforceable as a condition of tenancy.

Question: One of my tenants has notified me that she has filed for bankruptcy. She has not paid her rent this month. Can I proceed with an eviction?
Answer: Once a tenant files for bankruptcy, he or she will be entitled to an automatic “stay” of any legal proceedings against him or her. This includes an unlawful detainer action. You will be required to file a motion for “relief from stay” before serving any notices or bringing an eviction action.

Question: I have an applicant who wants to bring her cat with her to the apartment. Can I require her to de-claw the cat before bringing it onto my rental property?
Answer: No. California law prohibits a landlord from requiring a resident to have a pet de- clawed or de-vocalized as a condition of occupancy.

Question: I have had numerous problems with residents who smoke tobacco, including complaints from neighbors, damage to the rental unit, etc... Can I institute a policy that my rental property is smoke-free?
Answer: Yes. California law permits a landlord to designate their property as smoke-free. Be sure to seek legal advice if you want to change smoking rules in a unit for an existing tenant protected by just cause or rent control.

Question: May I demand a late charge in a 3-Day Notice to Pay Rent or Quit?
Answer: No. Do not demand any other fees or charges other than the tenant’s past due rent in a 3-Day Notice. For example, do not include utility charges or interest in the notice even if a written lease or rental agreement states you are entitled to these payments. A separate 3-Day Notice for all other fees owed may be served along with the 3-Day Notice to Pay Rent or Quit.

Question: Am I entitled to use a deceased tenant’s security deposit?
Answer: You are entitled to use a deceased tenant’s security deposit to cover unpaid rent, pay for damage beyond normal wear and tear, and to perform necessary cleaning to the unit.

Question: We evicted one of our tenants and obtained a monetary judgment. Now we find that they have moved to Arizona. Can I collect against them since they moved out of state? Answer: If you have a judgment against a former tenant and they move out of state, you can have the judgment recognized by that state as a valid judgment which would allow you to proceed to levy against their bank accounts or garnish their wages in the state they now live.

Question: Can an owner/property manager require that a tenant secure renters insurance? Answer: Yes, to protect the property and assets, landlords can require the tenant obtain renters insurance as a covenant and condition of the lease. Be sure to seek attorney advice for subsidized housing, or if changing the terms of a tenant protected by just cause or rent control.

This article is for general information purposes only. Information contained in this article should not be relied upon as a complete report of all new changes of local, state, and federal laws affecting property owners and managers. Laws may have changed since this article was published.

© 2019 Kimball, Tirey and St. John LLP

New 2018 Laws Affecting Rental Properties

AB 1796 - Electric Vehicle Charging Stations

As electric vehicles become ever more popular, tenants are increasingly demanding charging stations. So, in response to this demand, and looking to the future, AB 1796 was passed. It provides that "any lease executed, extended or renewed after July 1, 2015 a lessor of a dwelling SHALL approve a written request of a lessee to install an electric vehicle charging station" (emphasis added). A tenant must provide the landlord with a complete financial analysis and scope of work regarding the required infrastructure, the tenant pays all costs of install, including permits, construction, damage, maintenance and removal, and must maintain $1M liability policy on the station. Exceptions to this new law are: if parking is not provided as part of the lease, if there are fewer than 5 parking spaces, and if charging stations are already in place for 10% or more of the existing spaces.

Although one would think that the cost of installation would be prohibitive for most, we suspect that Bay Area cities with high-paying tech jobs will feel this impact the most.

AB 1919 - Price Gouging

The wildfires of the past year destroyed thousands of homes, creating ever more demand for rental housing. Unfortunately, there are property owners who make a terrible situation worse by increasing the rent significantly, knowing that desperate families will pay such prices while they rebuild their lives and homes.

In response, when the President, Governor, local official or local governing body declares a state of emergency, it is now a misdemeanor to raise rents more than 10% to an existing or potential tenant for a period of 30 days after such declaration.

We believe this is a start but can envision a scenario where a landlord would simply keep a property vacant, wait for the 30-day period to expire, then increase the rents to the new tenant.

AB 2413 - Right to Call Police

Tenants, like the rest of us, occasionally need the assistance of law enforcement to handle an emergency. Yet some leases contained clauses which punished the tenant for just this scenario.

AB 2413 provides that any provision in a lease that limits or prohibits a tenant's or other persons rights to summon law enforcement is declared void as against public policy and prohibits a landlord from imposing penalties on a tenant who contacts law enforcement for emergency assistance. A tenant may raise this retaliation as an affirmative defense in an eviction proceeding if the landlord files the eviction within 30 days of such a call for assistance.

U.S. Economy Unshaken

Geopolitical tensions have taken center stage this week with multiple incidents affecting the markets.

President Trump visited Vietnam earlier this week to meet with North Korean dictator Kim Jong-Un in an effort to de-escalate nuclear growth in the country. In a move that was a surprise to everyone, Trump did not agree to anything. Instead, Mr. Trump walked away and then canceled a pre-planned agreement signing. President Trump pointed to North Korea’s desire to lift sanctions which he said he would not be willing to do completely, noting North Korea’s lack of desire to play ball.

Meanwhile, U.S. Trade Representative Robert Lighthizer intimated in his testimony to the House Ways and Means committee that there is still a lot of work to be done to reach a trade deal with China. Lighthizer says any agreement would hinge on a lot more than just a promise from China to purchase more U.S. goods.

In addition to that, oil prices surged on Wednesday in reaction to Saudi Arabia generally ignoring a tweet from President Trump saying OPEC needed to ease up on oil production restrictions. According to the Energy Information Administration, U.S. crude stockpiles dropped by 8.6 million barrels last week.

World markets also reacted to a clash between Pakistan and India. Two Pakistani fighter jets shot down two Indian aircraft over Kashmir while India claims airstrikes killed more than 300 terrorists at a training camp. This escalation will be closely watched by the world as this is the highest strain has been between these two countries since their war in 1971.

A CLOSER LOOK AT A SLOWING ECONOMY

The United States economy is still growing but not at the same pace we’ve seen over the last couple of years. Federal Reserve Chairman Jerome Powell confirmed as much this week in his testimony to the Senate Banking Committee. He does expect solid growth, just not as fast as it has been. “The baseline outlook is a good one,” said Powell, adding that the world markets slowing down might end up dragging us down in the process.

While that may send up red flags for some people, and world markets will certainly have an effect in the coming months, you have to take a look at the context of this slowdown in growth. Many analysts are expecting 2 percent growth this year, down from the 3 percent growth estimation for 2018. The chart below shows the US Gross Domestic Product, or GDP, over the last ten years. Currently, the United States is the world’s leading economy with regard to GDP.

It’s important to note that data this week showed the real GDP up by 2.6 percent, well above expectations. Consumer spending was up because of a strong labor market and tax cuts, as reported by the Wall Street Journal. Analysts from Goldman Sachs say private business investments also bolstered these numbers, increasing the odds that 2019’s expected slowdown should be manageable.

The chart below from Bloomberg clearly outlines where we are relative to the recession 10 years ago. The far left side of the chart shows the beginnings of growth after the 2008 recession. The far right shows where we are today. While our economy is slowing, you can see just how strong it still is and how far removed we are from the low of 2008.  The quarterly average over the last 10 years is 2.1 percent. There is nothing wrong with moderate growth rates. This means now is not a time to panic, rather it’s a time to potentially take advantage, especially in the mortgage industry where rates have moved significantly lower since the beginning of the year. This, couple with a weakening housing market, allows for more affordable financing.

RATES REMAIN LOW, WILL HOUSING MARKET REBOUND?

With rates remaining low and stable, housing inventory increasing and home prices growing at their slowest pace in nearly four years, there is potential for 2019 to be a boom for the housing market.

Fed Chair Jerome Powell continues to reiterate his stance of patience with regard to the Fed’s approach on rate hikes. It’s expected that if there is a rate hike this year, it will be singular.

That stability is translating to a spike in mortgage applications as we get into the spring buying season. According to the Mortgage Bankers Association, mortgage applications were up 5.3 percent week-to-week and were 0.4 percent higher than a year ago at this time.

Home prices are still historically high right now but are also continuing their lean toward the favor of the homebuyer. According to the S&P Case-Shiller index, home prices are growing at their slowest rate since August of 2015 (4.7 percent in December 2018 down from 5.1 percent in November 2018).

The interesting part of that is, despite rates going down and home price growth slowing, that was not enough to offset the fact that homes are still not affordable for most Americans. Wage gains simply aren’t on the same level.

December’s housing start numbers were rough, down to their lowest level in two years. According to the Commerce Department’s numbers, new home construction is at its slowest pace since September of 2016. The data shows new home starts were down 11.2 percent from November. Permits to build housing were up slightly, just 0.3 percent in December.

Another thing that might help the spring buying season is a positive with regard to tax returns. Initial reports were showing frustrated people who were getting less in their return or having to pay out instead of getting a rebate. Now, after a four weeks of filing data, people are reporting better tax returns than previous years with the average tax return up 1.3 percent from a year ago according to IRS data.

Housing Affordability: ‘It’s at a Crisis Level’

Housing affordability concerns will likely limit single-family-home building from making any significant gains in 2019, said economists at a Tuesday session during the 2019 International Builders’ Show in Las Vegas.

“This is a crisis,” Robert Dietz, chief economist at the National Association of Home Builders, told attendees about the rising costs of homeownership that are pricing many buyers out. Home price appreciation has outpaced wage gains over the last few years. Only a third of new homes are now affordable to households earning the median income, Dietz said.

With demographic shifts, more housing is needed to meet future demand. But home builders say several headwinds are limiting their ability to add greater inventories—such as labor and land shortages and tariffs on key building material costs that have increased construction costs. The rising costs for builders have forced them to cater to the higher-end buyer over the last few years.

But there’s a rising call from the housing industry and the public for more entry-level homes.

“We need to find more ways to build more with less,” Dietz said. “We have ongoing challenges with labor shortages. We need to attract more workers to the industry. This becomes part of the affordable housing challenge, too, because without enough workers, prices will continue to rise” for building. 

Still, builders are starting to make strides in entry-level housing, including an uptick in townhouse construction. Townhouse starts are up 24 percent on an annual basis over the past four quarters, Dietz noted. Townhouse construction now makes up 14 percent of all new-housing starts. “If we can find a way to zone greater density in communities, townhouses could be a good way to bridge renters into homeownership. We feel this market will continue to expand.”

Additional highlights from Tuesday’s housing forecast at the 2019 Builder Show from Dietz, Frank Notaft, chief economist at CoreLogic, and David Berson, chief economist at Nationwide Insurance, include:

New-housing starts: The NAHB projects 1.26 million total housing starts to round out 2018 and suggests production this year will inch up just 0.8 percent to 1.27 million units. Single-family starts are forecast to reach 876,000 units in 2018 and increase 2 percent to 894,000 this year. However, that is well below the 1.1 million to 1.2 million units that demographics would support, Dietz noted. "Ongoing job creation and solid household formations will keep demand firm, but builders will continue to grapple with supply-side headwinds that will dampen more vigorous growth in the single-family sector,” Dietz said.

Mortgage rates: After taking an initial breather at the start of 2019, interest rates will likely gradually rise over the year. The NAHB projects the 30-year fixed-rate mortgage to average 4.81 percent in 2019 and 5.08 percent next year.

Multifamily: The NAHB projects multifamily starts to reach 386,000 units in 2018 and fall 2 percentage points to 379,000 this year.

Remodeling activity: Residential remodeling activity is on the rise, as more homeowners stay in their homes longer and realize equity gains. The average homeowner has increased their equity wealth by $12,400 from September 2017 to September 2018, Notaft said. “That wealth effect has added $50 billion to consumer spending over the next two to three years,” he noted. More homeowners are using that equity to invest in sprucing up their homes, particularly among owners of 15 years or more.

Regions to watch: The South and West are seeing some of the biggest increases in new-home construction. ”Metros with good affordability, good job growth, and good weather have had the highest growth in new-home sales over the last year," said Nothaft. New-home sales are rising the fastest in Houston, Dallas, Atlanta, Phoenix, and Austin, Texas.

No recession yet: Berson discounted any recession fear rumblings. He said economic growth is slowing, but he sees a very low risk of a near-term recession. “It’s showing a yellow light, but it’s certainly not flashing red,” Berson said. Berson expects the Federal Reserve to tighten interest rates twice this year, which could prompt the 30-year mortgage rates to rise slightly. But he says the economy continues to post strong growth. In fact, he said, this is the second longest economic expansion in U.S. history. Should it continue to June, it will be the longest on record.

© REALTOR® Magazine

The Ten Most Common Defects Found in Home Inspection Reports

Home inspections have been uncovering much-needed property repairs. More than 1 million repairs needed more than $11,000 in costs, according to a February review of 50,000 home inspection reports by Repair Pricer, a home repair estimating resource.

Nearly 55 percent of homes analyzed across the country had doors that needed adjusting, which could be an indicator of foundation issues, the report showed. More than half—or 54 percent—of the homes lacked exterior caulking and sealant, which could leave the home susceptible to extensive water damage. Furthermore, about 48 percent of homes lacked GFCI protection—this could pose a dangerous electrocution risk to homeowners around water-prone areas like the kitchen or bathroom.

“Home buyers and [real estate professionals] across the country should leverage these insights to better position themselves in the stressful negotiation process,” says Christian Adams, CEO of Repair Pricer. “In places like Texas, for example, buyers may only be given three to five days to complete the inspection period, meaning they may only have 24 hours or less to make a decision. During this period, having clarity and insight into the cost of repairs listed in a home inspection report is critical to avoid leaving money on the table.”

The most expensive home defects—uncovered in 9 to 20 percent of the homes studied—ranged in repair prices from slightly more than $1,000 to less than $10,000.

Feds Press "Pause" on Rate Increases Indefinitely

A single world left out of the statement from the Federal Reserve this week has spurred excitement in the stock market. The Fed stuck to its patient stance with regard to raising rates in 2019, but left the word “gradual” out of its discussion of future adjustments, which is key. That has decommitted the Fed from leaning one way or the other on rate hikes for this year. Fed Chair Jerome Powell was frank in his statement, saying he would “need to see a need for further rate hikes” citing that the case for raising rates has weakened.