Defense Trends in Unlawful Detainer Actions

Past DueLandlords are being put into difficult and expensive situations by a disturbing new trend in the defense of Unlawful Detainers. The State of California has enacted a law effective January 1, 2013 wherein the courts will provide notice to the tenants of the availability of “public interest” defense firms as well as their contact information in each and every case.

These public interest law firms are not the traditional law firm in that they their specific goal is to impede the landlord’s efforts in favor of the ‘downtrodden’ tenant. They employ marginal legal tactics in order to effectuate favorable settlements from landlords who cannot afford high litigation costs. This often results is the landlord not only forgiving sizable amounts of rent, but also paying large settlements or allowing tenants additional time to vacate at the landlord’s expense. Their typical tactics include extensive written discovery, long depositions and requesting jury trials.

The demand for jury trial is the most difficult tactic used. Often attorneys must appear three or more times to get a room for trial, due to the reductions at the courts, in general. The trials can cost $10,000 and more. There is the additional risk that a sympathetic jury will side with the ‘poor’ tenant as many of the jurors are themselves renters. All this once again tips the scales of justice in the renter’s favor and creates the environment wherein landlords pay additional costs and add great frustration to obtain justice in our legal system.

Changes to California Department of Fair Housing

Changes to California Department of Fair HousingEffective January 1, 2013, due to budget cuts, there are a number of changes to the California Department of Fair Housing (DFEH). The most significant change is the elimination of the Fair Employment and Housing Commission (FEHC). Until now a complaining party had the choice of using an Administrative Law Judge to hear and adjudicate a complaint or they had the option to bring a civil of federal lawsuit. With the elimination of the (FEHC) the option will limited to resolution or a lawsuit. The cost of the defense of any such claim in borne by the defendant and, if the plaintiff is the prevailing party, they can receive their legal fees from the defendants, as well. The DFEH will still have a mandatory dispute resolution process, but the next step if decided by the DFEH would be to bring the fair housing lawsuit in a State or Federal Court. If the cases do not resolve through voluntary conciliation or through a resolution process and end up in State or Federal Court than the defense costs and exposure increase dramatically for the defendants. If the complaint is an employment issue the right to sue is retained even in the resolution process.

Requirements for On-Site Property Manager

Property ManagerWithout a doubt one of the most confusing aspects of residential management is what the requirements are for an on site or resident manager. In California, if there are 16 units or more a designated ‘responsible person’ is required to live on site. As the number of units increase so does the staffing requirements. The compensation for this position is governed by State and Federal rules and regulations. First of all, the resident manager is an employee and generally cannot be an independent contractor. They are therefore entitled to the minimum wage of $8.00 per hour, with some municipalities having an even higher minimum. If an owner wishes to trade off an apartment value, the minimum wage value cannot exceed $451.89 or approximately 13 hours per week. Two managers living in the same unit cannot exceed $668.46. In any case the credit amount may not exceed two thirds of the market value. Therefore, if a unit is valued at $1,000 per month the owner can only charge a resident manager two thirds of that or $666.66. The owner may also only credit for a single manager $451.89 towards minimum wage leaving the manager to pay $214.77 and working 13 hours per week. Any additional hours must be paid as a normal payroll would be. The offset to rents can only be done by a written contract. The hours and restriction to hours is critical to this agreement and many owners have lost wage claim lawsuits brought by resident managers. Therefore it is critical to have a written agreement, not to exceed the two thirds rule and comply with the minimum wage requirement to protect and properly manage the relationship with the resident manager. The following are options for compensating a resident manager.

 

Option 1

Full apartment concession; the manager does not pay rent or exchange hours for rent

Manager is paid at least minimum wage for every hour worked

Example:  Manager receives a 1 bedroom apartment free of charge and works 40 hours per week at a rate of $9.00 per hour

 

Option 2

Maximum lodging allowance by law of $451.89 for one person & $668.46 for two people

The number of hours a manager’s works is calculated based on the lodging allowance (451.89) divided by minimum wage ($8.00).

If the manager works more than the number of hours calculated using the formula above, each additional hour must be paid at prevailing minimum wage.

Example:  Manager (one person) receives a 3 bedroom apartment.  The maximum lodging allowance is $451.89/$8.00 = 56.48 hours per month

The manager is only allowed to work 56.48 hours per month in exchange for the apartment.  If the manager works more than 56.48 hours per month they must be compensated for those hours at minimum wage.

The unit size of the manager’s apartment does not affect the number of hours the manager is allowed to exchange.

 

Option 3

The Check Exchange

A manager may be charged up to 2/3rds the market rent.  The manager pays their rent and receives payment for each hour they work.

Check exchange literally translates to the manager gives the property a check for rent and receives a check for their hours worked.

Example:  Manager receives a 2 bedroom apartment with a market rent of $1500 per month; 2/3rds of the market rent is 999.00, which is the Manager’s monthly rental payment.

The manager works 30 hours per week and is paid at least minimum wage for each hour they work, which they receive from the owner each pay period

Tenant Retention

Tenant retentionTenant retention is critical to maximize the profits and value in both commercial and residential real estate. The cost of turnover, whether it be refurbishing a unit or building costly tenant improvements, is substantial. Add this to the down time and lost rents and real estate commissions and these will all have a negative impact on your bottom line. So the question is what is the best way to retain tenants? Like any other business the level of service and communication will help define whether or not a tenant or client is happy. The tenants’ satisfaction leads to tenant retention. The quality of the service will mostly be perceived by the quality of communication. How quickly and how politely a landlord responds to a tenant’s needs makes them feel wanted or unwanted as the case maybe. For example, if a tenant calls for a repair, the speed at which this request is responded to will be directly related to a tenant’s feeling of satisfaction with their tenancy. If the lines of communication are strong and positive, the tenant’s feeling will most likely be that the Landlord is involved and cares which then leads to a feeling of satisfaction. If the communication is open the tenant will also feel as if they are valued. It is this sense of value which then makes the tenant feel comfortable and wanted and more than likely a tenant who will renew their tenancy. Therefore, the quality of service and the level of communication provided by the Landlord are the greatest two factors to providing the tenant a sense of satisfaction and value of their tenancy and will thus result and happy tenant. A happy tenant is a renewing tenant.

Periodic Building Inspections

TownCenterOnce a property is fully occupied and stabilized it is easy to simply lose focus or ignore the occupied units. That, unfortunately, is a practice which is not in the best interest of a property owner. In Los Angeles it is necessary to physically inspect for smoke detectors every six months. This inspection is a great opportunity to do a more thorough inspection, thereby protecting the property and addressing any potential liability issues. It is an opportunity to assess parts of physical property often ignored. While the periodic inspection requirements from other municipalities may be different, the discipline of a six-month inspection is a very good idea.

During the inspection process an owner or property manager can look beyond the smoke detectors at other aspects of the property to ensure that each tenant is taking care of the property and that there are no situations which require the owner’s attention, such as illegal roommates or the tenants doing excessive damage to the property. The six-month inspection can also be used to check all the plumbing fixtures to make sure that they are working properly and to make sure that, even more importantly, they are not leaking thereby causing excessive utility charges to the owner.

This inspection also presents a very good opportunity to look for mildew or mold in a unit. An owner can easily take the time to look at the likely places, under the sinks and in the bathrooms where there’s plumbing and moisture gathering. The early detection of mildew is a huge benefit as it allows the owner to address the situation before it becomes problematic and before it becomes a problem with the tenant. During an inspection an owner can also look at the door locks to make sure they’re secure, as well as the latches and locks on the screens and windows to ensure the safety of the tenant and also address potential landlord liability.

Automated large-scale attacks taking down SMBs

Verizon DBIR 2012: Automated large-scale attacks taking down SMBs

There’s always chatter about the sophistication of malware and the advanced hacking techniques attackers use to steal payment information or sensitive corporate data. While that may be true for targeted attacks against high-value targets such as government agencies, the defense industrial base or financial institutions, the majority of victims, according to the 2012 Verizon Data Breach Investigations Report (DBIR) (.pdf), are smaller companies that fall prey to commodity attacks that expose shortcomings in basic information security best practices. The innovation is in the automation and process refinement behind attacks, and not necessarily in the sophistication of the malware involved, the report suggests.

Small businesses are worried about the bottom line. It’s a matter of expertise, time and resources that they’re not able to defend themselves.Christopher Porter, principal, Verizon RISK team

Christopher Porter, principal with Verizon’s RISK team, said organized cybercrime groups have automated attacks end to end. These groups will scan the Internet looking for exposed PoS or remote administration services, such as remote desktop management, and will use brute force attacks against the logins to gain access. Since many use easy-to-guess, or default passwords on these systems, gaining access can be trivial. Once inside, malware—usually akeylogger—is installed and begins collecting data. The malware is also preconfigured to send data outbound, either via FTP or email, to a Web server under the attacker’s control. The data is then sold on the black market, or, if credentials are stolen, deeper attacks are carried out against bank accounts or other systems within an enterprise.

“We joke that there must be some sort of old crime groups that have gotten their MBAs,” Porter said. “In the last several years of these types of industrialized attacks, we’re seeing innovation in the process and methodology used.  The whole process is end to end and it’s massive in scale.