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Wall Street, America's new landlord, kicks tenants to the curb

Scorpio

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#1
Wall Street, America's new landlord, kicks tenants to the curb
1 / 25

Bloomberg
Prashant Gopal 1 hr ago


On a chilly December afternoon in Atlanta, a judge told Reiton Allen that he had seven days to leave his house or the marshals would kick his belongings to the curb. In the packed courtroom, the truck driver, his beard flecked with gray, stood up, cast his eyes downward and clutched his black baseball cap.

The 44-year-old father of two had rented a single-family house from a company called HavenBrook Homes, which is controlled by one of the world’s biggest money managers, Pacific Investment Management Co. Here in Fulton County, Georgia, such large institutional investors are up to twice as likely to file eviction notices as smaller owners, according to a new Atlanta Federal Reserve study.

“I’ve never been displaced like this,” said Allen, who said he fell behind because of unexpected childcare expenses as his rent rose above $900 a month. “I need to go home and regroup.”

Hedge funds, large investment firms and private equity companies helped the U.S. housing market recover after the crash in 2008 by turning empty foreclosures from Atlanta to Las Vegas into occupied rentals.

Now among America’s biggest landlords, some of these companies are leaving tenants like Allen in the cold. In a business long dominated by mom-and-pop landlords, large-scale investors are shifting collections conversations from front stoops to call centers and courtrooms as they try to maximize profits.

“My hope was that these private equity firms would provide a new kind of rental housing for people who couldn’t -- or didn’t want to -- buy during the housing recovery,” said Elora Raymond, the report’s lead author. “Instead, it seems like they’re contributing to housing instability in Atlanta, and possibly other places.”

American Homes 4 Rent, one of the nation’s largest operators, and HavenBrook filed eviction notices at a quarter of its houses, compared with an average 15 percent for all single-family home landlords, according to Ben Miller, a Georgia State University professor and co-author of the report. HavenBrook -- owned by Allianz SE’s Newport Beach, California-based Pimco -- and American Homes 4 Rent, based in Agoura Hills, California, declined to comment.

Colony Starwood Homes initiated proceedings on a third of its properties, the most of any large real estate firm. Tom Barrack, chairman of U.S. President-elect Donald Trump’s inauguration committee, and the company he founded, Colony Capital, are the largest shareholders of Colony Starwood, which declined to comment.

Diane Tomb, executive director of the National Rental Home Council, which represents institutional landlords, said her members offer flexible payment plans to residents who fall behind. The cost of eviction makes it “the last option,” Tomb said. The Fed examined notices, rather than completed evictions, which are rarer, she said.

“We’re in the business to house families -- and no one wants to see people displaced,” Tomb said.

According to a report last year from the Harvard Joint Center for Housing Studies, a record 21.3 million renters spent more than a third of their income on housing costs in 2014, while 11.4 million spent more than half. With credit tightening, the homeownership rate has fallen close to a 51-year low.

In January 2012, then-Federal Reserve Chairman Ben Bernanke encouraged investors to use their cash to stabilize the housing market and rehabilitate the vacant single-family houses that damage neighborhoods and property values.

Now, the Atlanta Fed’s own research suggests that the eviction practices of big landlords may also be destabilizing. An eviction notice can ruin a family’s credit and make it more difficult to rent elsewhere or qualify for public assistance.

Collection Strategy?

In Atlanta, evictions are much easier on landlords. They are cheap: about $85 in court fees and another $20 to have the tenant ejected, according to Michael Lucas, a co-author of the report and deputy director of the Atlanta Volunteer Lawyers Foundation. With few of the tenant protections of places like New York, a family can find itself homeless in less than a month.

In interviews and court filings, renters and housing advocates said that some investment firms are impersonal and unresponsive, slow to make necessary repairs and quick to evict tenants who withhold rent because of complaints about maintenance. The researchers said some landlords use an eviction notice as a “routine rent-collection strategy.”

Aaron Kuney, HavenBrook’s former executive director of acquisitions, said the companies would rather keep their existing tenants as long as possible to avoid turnover costs.

But “they want to get them out quickly if they can’t pay,” said Kuney, now chief executive officer of Piedmont Asset Management, a private equity landlord in Atlanta. “Finding people these days to rent your homes is not a problem.”

Poor Neighborhoods

The Atlanta Fed research, based on 2015 court records, marks an early look at Wall Street’s role in evictions since investment firms snapped up hundreds of thousands of homes in hard-hit markets across the U.S.

Researchers found that evictions for all kinds of landlords are concentrated in poor, mostly black neighborhoods southwest of the city. But the study found that the big investors evicted at higher rates even after accounting for the demographics of the community where homes were situated.

Tomb, of the National Rental Home Council, said institutional investors at times buy large blocks of homes from other landlords and inherit tenants who can’t afford to pay rent. They also buy foreclosed homes whose occupants may refuse to sign leases or leave.

Those cases make the eviction rates appear higher than for smaller landlords, according to Tomb, whose group represents Colony Starwood, American Homes 4 Rent and Invitation Homes. The largest firms send notices at rates similar to apartment buildings, which house the majority of Atlanta renters.

Staying Home

Not all investment firms file evictions at higher rates. Invitation Homes, a unit of private equity giant Blackstone Group LP that is planning an initial public offering this year, sent notices on 14 percent of homes, about the same as smaller landlords, records show. In Fulton County, Invitation Homes works with residents to resolve 85 percent of cases, and less than 4 percent result in forced departures, according to spokeswoman Claire Parker.

The Fed research doesn’t say why many institutional investors evict at higher rates. It could be because their size enables them to negotiate less expensive legal rates and replace renters more quickly than mom-and-pop operators.

“Lots of small landlords, when they have good tenants who don’t cause trouble, they’ll work with someone who has lost a job or can’t pay for the short term,” said David Reiss, a Brooklyn Law School professor who specializes in residential real estate.

After a two-year acquisition frenzy that ended in 2014, companies shifted their focus to reining in expenses related to maintaining and managing thousands of homes spread out across many states. In November, Colony Starwood told analysts it had reduced property-management costs by 25 percent in the third quarter from a year earlier. For example, about a quarter of the 26,000 service calls received at the company’s national service-dispatch center were resolved using troubleshooting or “robust self-help tools.”

Broken Pipe

Juliana Spence tangled with Colony over the cost of maintaining her house in DeKalb County, Georgia, where she also operated a small daycare center. A broken pipe under her dishwasher pushed her monthly water charge over $400, she said, and a faulty air-conditioner resulted in an $800 electric bill.

The company gave her an $1,800 credit, Spence said, but she still fell behind on her rent. Colony evicted her last year. It made “Band-Aid” repairs, leaving underlying problems to fester, she said. Colony declined to discuss individual customers.

“They do makeup work,” said Spence, 41, who has five kids. “They made the walls look nice. They put some new appliances in. But the gut of the house is the same.”

In Fulton County, Georgia, the focus of the Fed’s study, evictions are so common that tenants arrive every Tuesday and Thursday to plead their cases. Few have lawyers. They file into the courtroom, many holding their children’s hands as they wait to hear from a judge.

Mass Misery

The unluckiest show up for late afternoon sessions. Legal-aid lawyers call it “the calendar of death.” These renters have run out of options. A judge tells them, en masse, they will have seven days to leave their homes.

On a December weekday afternoon, April Brooks tried to work out a deal with Colony Starwood, her landlord. Raising her three young children on her own, she lived in a boxy, brick house on top of a hill, near the Hartsfield-Jackson Atlanta International Airport. A toy train and school bus lay on her front stoop.

Brooks took off time from her warehouse job and, in a sweatshirt and dreadlocks, arrived at Fulton County’s Magistrate Court for her mediation session. She didn’t know why Colony wanted her to leave. A Section 8 housing voucher, sent directly to her landlord, paid her $1,000-a-month rent.

Court papers gave a cryptic reason for Brooks’ removal: “Landlord seeks possession. Tenant holdover.”

“This is super hard,” said Brooks, who couldn’t find another landlord willing to accept her housing voucher.

She feared the next stop for her and her three kids: the streets.


http://www.msn.com/en-us/money/real...cks-tenants-to-the-curb/ar-BBxQaEM?li=BBnbfcN
 

the_shootist

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I'm required to pay my mortgage. Renters are required to pay their rent. Personal responsibility is a bitch. I'm tired of paying for someone else's shortcomings. If social programs were in place today that were in place say in the 1960's, people who actually need help would get it. I knew first hand growing up in a fatherless home with 5 siblings what government cheese, cereal and USDA supplied powered milk tasted like. That got us back on our feet and eventually we no longer needed the help. The days when government 'assisted' people in need are over my friends. Today the FSA live and die by the EBT cards. That must suck!
 

SheepDog68

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Cost are rising faster than rents in many areas and landlords can't sit back and wait like they could have a few years ago! Profit use to be enough to float a few months empty or behind, but now profits are lower and you're upside down paying someone to live in your property if you're not careful!

SD
 
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Goldhedge

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The ConAgra of housing....
 

Zed

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Cost are rising faster than rents in many areas and landlords can't sit back and wait like they could have a few years ago! Profit use to be enough to float a few months empty or behind, but now profits are lower and you're upside down paying someone to live in your property if you're not careful!

SD
Rising eviction rates are a sign that the market is over priced. If vacancy rates are also on the up, as you'd expect, it is a sign that the property is over valued and that over valuation needs to be corrected. The odd eviction is fine but when it becomes wholesale the landlord and not the tenant needs to reevaluate. Never a fast process, too much displacement goes on.... BUT IMO it might be time for smart landlords to find gold plated tenants and give them a good deal for a long lease, if that is not doable and the sums don't work then basically the market is saying SELL NOW!

JMO

It is a price signal and that is never a one way street.
 

nickndfl

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A couple of Indian billionaires also bought up a bunch of forclosures along with some hedge funds and others. A new business model was created. Those who gave up their homes to foreclosure are finding it difficult to buy a home, so they rent. If you want a nice place you need good credit.

Now these new businesses also have built-in clients for when they trim their holdings. Rent to own and owner financing seems the next logical step.. Don't forget you pay for the house many times over in the service of a 30-year mortgage. It also keeps the cash flowing from good borrowers.
 

SheepDog68

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Rising eviction rates are a sign that the market is over priced. If vacancy rates are also on the up, as you'd expect, it is a sign that the property is over valued and that over valuation needs to be corrected. The odd eviction is fine but when it becomes wholesale the landlord and not the tenant needs to reevaluate. Never a fast process, too much displacement goes on.... BUT IMO it might be time for smart landlords to find gold plated tenants and give them a good deal for a long lease, if that is not doable and the sums don't work then basically the market is saying SELL NOW!

JMO

It is a price signal and that is never a one way street.
Could be in some cases, but the cases I was speaking of are ones in which the taxes have doubled over the past few years and insurance has gone up with the perceived value the state assigns to it along with all other cost that go with owning a property!

Rents should have gone up to match expenses, but they've held them fairly low. They are now making 33% less per property and can't be as understanding as they where a few years ago!

SD
 

Zed

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Rents should have gone up to match expenses, but they've held them fairly low. They are now making 33% less per property and can't be as understanding as they where a few years ago!
Sure, but that doesn't mean that the market can or will actually pay the higher rent expense, that is the message that a high eviction rate is delivering. What it does is alter the fundamental value of the property downward as the return is reduced. Of course this does depend on the relative investment environment i.e. competing investment returns available, but I suspect that ultimate the pressure here will be applied to the landlord as the market seems to be priced over the common man's ability to pay.

The bottom line is that rents don't have to move to match expenses, if RE prices fall you will get new entrants with a lower cost base competing with you... in the end that becomes your problem as a landlord and not the tenants. They maybe out of a home in the short term but the market will come to them in the mid term... it has to, it has to be affordable. A high eviction rate is a big red flare! Yes they SHOULD pay their rent BUT given the current setup I don't think that is where the adjustment will come from, going forward good payers will be increasingly harder to find IMO.
 

97guns

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Go pitch a fucking tent if you can't pay your rent
 

Zed

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Zed

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Go pitch a fucking tent if you can't pay your rent
They will.... and what of it when too many of them do? A property returning 0% is hard to hold onto. In certain conditions landlords can't just 'hard line' their attitude to rent. We are there now IMO, property is overdone on a fundamental basis. Generally that is, every property market has local considerations that may mitigate that 'national truth' but then you will not have rent issues. It is a market and in a market both sides determine fair value... that is typically reached when neither side is happy!

All I am saying is that it is a good time for landlords to step back, think strategically and allow for a down turn. As night follows day it is surly coming and coming fast if the general level of over valuation in financial markets is a clue. The bond market sell off is another big red flare. Cover thy butt...

2c

FWIW
 

97guns

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Overvaluation is a windfall for landlords, you can come in under market rents and still clean up
 

Zed

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Overvaluation is a windfall for landlords, you can come in under market rents and still clean up
.... well, now that all depends on your cost base doesn't it? Some it will ruin, some will survive and the later entrants, after the price adjustment, will reap the true wind fall. The best an existing landlord can do is get through. Without liquidating and entering the market at the right point you have 'opportunity cost'. If you are a long term holder it will not hurt so much, but that depends on your finance or lack of etc. i.e. your real cost base. Either way the later entrants will end up being THE most competitive and profitable.
 

edsl48

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I have run into a lot of "professional deadbeats" who know exactly what to do in order to delay their eviction. Withholding rent because of needed repairs is one of their favorites. By doing so they assure themselves of an actual court date that can take months due to continuances and for repairs that were caused by themselves. I look at the situation as just another income redistribution program sanctified by our court system.
A lot of people tell me how they want to buy a house and rent it out blah blah etc...but if they run into one of these "pros" they can end up losing the rental home as well as their own. This is a very tough business and even though I have made a living renting for decades things were different when I first started in the business. It is very high risk and quite frankly in today's economic environment I would not advise anyone to get into it. If one must own real estate...there are some pretty good REITs out there.
 

dacrunch

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"Hedge funds, large investment firms and private equity companies helped the U.S. housing market recover after the crash in 2008 by turning empty foreclosures from Atlanta to Las Vegas into occupied rentals."

You mean "they took advantage" - and found a better "return on investment" than in the Bond & Stock Markets... as I mentioned in a previous post. Them, as well as "Pension Funds" and "REITs".

It's a quasi-monopoly, that has "pushed home prices higher" - out of reach of "lower-wage" workers... keeping them from becoming "home-owners" (or the illusion thereof).

Considering the over-valuation of both the Bond & Stock Markets, this is a "trend" that isn't in danger of slowing, imo.

Houses that in the 1980's cost $100k are "worth" over $400k in most R-E markets today - quite a jump from the rise in incomes. (4x vs 2x at best). Glad I bought my 7 rental units in the early 90s (when stocks & bonds looked "good").
 

searcher

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#22
Go pitch a fucking tent if you can't pay your rent
Withholding rent because of needed repairs is one of their favorites.
It's one thing to simply not pay rent (for what-ever reason) and another to "with hold rent for needed repairs."

I know a woman who had a problem with a leaking floor in her ground floor apartment. She talked to the manager, sent both the manager and the management company certified letters about the problem and they just kept putting it off. Pretty sure they knew they were going to have to dig up the floor to make the repair. After a while she set up an escrow account for the rent. Eventually it ended up in court. In the end the management company had to repair the problem and put the woman in a hotel while they did the repair. Also had to pay the court costs and the woman's legal fees. Wonder why they simply didn't take care of the problem the right way from jump street? Actually I do know why. lol

Interesting (and strange) story here:

Newall: In Philly's housing court, the deck is stacked - but this woman won anyway
http://www.philly.com/philly/news/p...ourt-dispute-lawsuit-city-council-newall.html
 

97guns

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I had a tenant file s complaint with the county about an electrical issue, never tried to withhold rent but never told me about it either

Had another tenant do some repairs himself and deducted it from his rent, happened 1 time and we stopped him.

I fix everything fast as I can if they notify me
 

edsl48

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It's one thing to simply not pay rent (for what-ever reason) and another to "with hold rent for needed repairs."

I know a woman who had a problem with a leaking floor in her ground floor apartment. She talked to the manager, sent both the manager and the management company certified letters about the problem and they just kept putting it off. Pretty sure they knew they were going to have to dig up the floor to make the repair. After a while she set up an escrow account for the rent. Eventually it ended up in court. In the end the management company had to repair the problem and put the woman in a hotel while they did the repair. Also had to pay the court costs and the woman's legal fees. Wonder why they simply didn't take care of the problem the right way from jump street? Actually I do know why. lol

Interesting (and strange) story here:

Newall: In Philly's housing court, the deck is stacked - but this woman won anyway
http://www.philly.com/philly/news/p...ourt-dispute-lawsuit-city-council-newall.html
My places are in tip top shape, meet the newest codes before the municipality enacts them ( for liability reasons)
They can always say there is a drop of water on the floor. case gets delayed till an inspector comes to look.
Same old silliness that amounts to, as always, another income redistribution program.
 

Zed

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My places are in tip top shape, meet the newest codes before the municipality enacts them ( for liability reasons)
They can always say there is a drop of water on the floor. case gets delayed till an inspector comes to look.
Same old silliness that amounts to, as always, another income redistribution program.
Good tenants are gold. We had one look after the place like it was their own, in the end they bought it when we offered it for sale.... then there are those that can set you back a year. I prefer commercial now but the time isn't right to plough into it fully, not yet.
 

97guns

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My mom has a tenant that fixes anything small and within reason on his own dime and takes great care of the place because she is under market rent value with him and HE KNOWS IT. he has been there for over 10 years, it's an i'll scratch your back and you scratch mine kind of relationship
 

97guns

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Unfortunately that is not a common response from landlords. Mind you I have met some tenants that call the agent if a light bulb needs replacing! There is repairs and then there is repairs.


I had an a/c unit fail in the heat of summer, cost was $3500, I had it fixed in 2 days and gave him $50 off his rent to buy a couple fans, a happy tenant makes your landlording life easy
 

97guns

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When I did walk throughs a few months back I was super surprised to see all my units in great condition, not even any real normal wear and tear, units were pristine. I thanked every one of them for taking care of my property and brought them a couple packs of cookies as a good well gesture.
 

latemetal

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This market tends to fix itself if left alone, if the rents too high, the tenants find somewhere else...
 

dacrunch

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I own a few rental units since the 90's... in "Bernie-Town" = Burlington Vt.

Old old side-by-side duplex... lowish rents... Property tax used to be under $2k/yr, now close to $10k. And "code" has made me change my electrical boxes TWICE in that time, from 60 amps to 100 amps, then last year another notch higher.

And taxes went up 5x... Meanwhile rents went up 20%... Because they base the taxes on "property value" rather than "property income".... and the "on-paper-value" has risen 5x.

Good thing my property manager is "on top of things" - iron-clad leases and good tenant selection... or else in that town I'd never have managed to keep the properties.

Often tempted to sell, seeing what Wall Street has done to super-inflate the prices of rental properties (& REITs) - the only "investment" remaining with "returns & cash flow" (apart from becoming a "partner" in a business that you know personally).
 

tom baxter

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#36
Go pitch a fucking tent if you can't pay your rent
Exactly,
“I’ve never been displaced like this,” said Allen, who said he fell behind because of unexpected childcare expenses as his rent rose above $900 a month. “I need to go home and regroup.”
He mismanaged his finances, I see it all the time. One day they are drinking beer and munching cheese doodles while watching cable on a widescreen TV. The next they are crying poor.
 

dacrunch

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#38
Between "slum lords" and "slum tenants"... the 1st doing the minimum fixes, the 2nd either destroying or failing to upkeep their dwellings...
There isn't much "motivation" for a landlord to make "perfect fixes" to see them broken to bits within 2 years... Bring it up to "code". If you want to live in a "pretty apartment", get a few buckets of paint, some plastic rolls. Fix leaking plumbing - or if not capable with a wrench & teflon, notify manager as soon as it starts, not after it rots half the place... same with roof leaks.
 

searcher

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#39
Had to edit out pics due to possible copyright issues.

Queens landlord stiffing tenants, reaping tax benefits due to lax city oversight: lawsuit

Landlord sued for stiffing tenants, reaping tax benefits
BY Ginger Adams Otis Stephen Rex Brown
NEW YORK DAILY NEWS
Tuesday, February 6, 2018, 5:00 AM


A Queens landlord has been ripping off tenants for more than three decades while also pocketing tax benefits because of lax city oversight, a lawsuit charges.

Residents of the Trafalgar Apartments on Union St. in Flushing have been overcharged “to the tune of hundreds of thousands of dollars” by Kaled Management, the suit the Legal Aid Society is filing Tuesday alleges.

“For decades, Kaled Management Corporation has skirted New York’s rent-regulation laws and abused subsidy programs to stiff tenants and line their pockets,” Legal Aid attorney Amee Master said.

“The city is complicit for doling out taxpayer subsidies with zero oversight while low-income New Yorkers suffer from higher rents.”

The suit being filed in Manhattan Supreme Court says Kaled Management and other landlords reaped at least $100 million in tax benefits while failing to register the rents of the building, misleading tenants about rent-stabilized apartments and overcharging on rent since at least 1984.

Records show that as of November only 14 out of 113 units in the building were rent-stabilized — though the landlord accepted tax benefits for all units being stabilized, the suit says.

A spokesman for Kaled Management declined to comment because the company has not yet seen the suit.

Legal Aid seeks class-action status for the case, which could include about 120 tenants.

One resident, Stella Quinatoa, saw the rent for her two-bedroom apartment go up from $1,700 a month in 2014 to $1,850 in 2016. She then learned her apartment was supposed to be rent-stabilized.

“I’ve been here 28 years. They never told us it was a rent-controlled building. They raised the rent however they wanted from one year to the next. One year $100, the next year, another raise,” said Quinatoa, 73, who is one of two tenants who sued.

Legal Aid says she could be eligible for as much as $48,000 in retroactive penalties.

Last year, Trafalgar reimbursed tenants for overcharges, calling it “the right thing to do.” But Legal Aid says those reimbursements were inadequate.

The city is named as a defendant because it failed to enforce rules regarding the building’s tax benefits through the J-51 and 421-a programs, Legal Aid charges. Both programs are meant to be affordable-housing incentives.

A Law Department spokesman did not respond to a request for comment.

The questionable bookkeeping at the building was discovered by the Housing Rights Initiative, which has coordinated more than 30 lawsuits against landlords over similar allegations.

The group’s founder, Aaron Carr, has also been an outspoken critic of the state for not enforcing the laws on the books regarding rent regulations.

“These landlords are making a mockery of our rent-stabilization laws,” he said.

“They’re giving tax breaks to tax cheats.”

http://www.nydailynews.com/new-york...s-reaping-100m-tax-benefits-article-1.3801691
 

nickndfl

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#40
I am thinking about building a block of townhouses to rent out. Rental units are sparse and there is no multi-family available outside of HOAs or large undesirable buildings. If built, I could probably retire and live off the income, but I would be trading for a different set of headaches.

I wouldn't even consider it in a contracting economy, but I am seeing signs that we are on the cusp of an all-time boom despite the froth in the DOW Jones.