Getting Sued by Tenants

today we're talking about how some tenants sued Peter from rink on property management then we'll talk about how you can prevent getting sued and of course we'll talk about the lawsuit itself most people when they think alright I own a house I finally bought a house but now I have to move a lot of people the first thing they think is I gotta sell it do you help educate people or would like what do you do to get people thinking about rentals and how is that process for people well in my opinion selling is probably one of the worst things you can do the main reason being you knock the house is not gonna no longer and appreciate once you've sign on the dotted line somebody else owns it you're not gonna get the cash flow benefits of having it be a rental you don't get the deductions associated with rentals which are huge which I don't know if we're gonna talk about that in this video but that alone is invaluable for the person that owns the property once you sell all that stuff goes away if you keep it to rent as a rental you still get to maximize the benefits of all those things totally so you get to keep these tax benefits and then you're building wealth over time by controlling this real estate values going up in time now what about what I think the biggest fears people have though our tenants that aren't going to pay rent would you say that's the biggest fear people have oh I'd say so the fears that most landlords have is one the tenants not going to pay - they're gonna destroy their house take anything of value from it and then leave so you're left with a vacant house that's going to take tens of thousands of dollars to get ready to rent again and then you're gonna try it again and hope that the whole thing doesn't start all over again that's the biggest fear that tenants or that landlords typically have and I would make the argument that that's not your biggest exposure your biggest exposure is if your tenant turns around and files a lawsuit against you that's your biggest exposure because depending on what the lawsuits about if you didn't realize what a landlord tenant laws were or that you were even breaking a law which a lot of self-managing owners are not experts in landlord tenant law which they can't be right even they're busy working their other job and doing what they do in their regular lives that if you don't know what you No and you break a law though you know not knowing Allah is not a defense is what they say so that's the biggest risk maybe saving money on property management isn't the best idea in fact one of the things that I teach in the real estate investing course link down below in case you're not familiar with it get a property manager when you first start out if you want to take over management later that's fine but there's so much to absorb when you first become a landlord I recommend everybody start with a manager a lot of people think wow you know the tenants it's it's common for tenants to destroy properties and I don't think anybody or a lot of people immediately think of lawsuits but tell me a little bit how often in your career have you seen tenants just destroy a property and loot everything of value in it rare it does it's it is what a landlord fears but it is not a commonplace occurrence and really they're what there are ways to hedge your bets if you will so that never happens to you we do our work upfront and if we do a good job upfront we prevent those issues from happening on the back end there's a new product available in the United States it's called Shore Wester it is insurance against evictions malicious tenant damaged tenants breaking leases it's big in Australia in fact it's commonplace in Australia we finally got it here but for a small premium you can now insure against those things which our company is the only one in our area that offers it wait a minute so you're telling me if a tenant stops paying you could have what a small insurance premium I imagine that you're paying every month and if the tenant stops paying or you know you have to evict them or kick him out or whatever the insurance pays yes absolutely they here's the caveats they only sell it through property management companies because they know management companies have the processes and procedures in place to prevent those types of things from happening and then let's just say the tenant stops paying you don't just autumn the insurance company just doesn't kick in and start paying the management company the onus is on the management company to enforce their late payment policies to file the 3-day payers or quits to go through the eviction and if all that stuff happens and the owner is at a loss the insurance company makes them whole ok so now tell me what what are some of the steps that you go through to all five tenants how do you make sure that you're not dealing these evictions and how do you minimize that work because it sounds like it'd be a big pain in the butt for you as a manager to have to deal with an eviction so you're kind of incentivize not to have bad tenants well here's the reality that the client the owner of the property and our interest as the management company are aligned I don't want an eviction to happen because one I care about the client - it is a lot of work hours and hours of work on my staff and my people that I would rather not do and the owner clearly would rather not have an eviction because it is expensive I mean just to get the thing started as a thousand bucks and then depending on how complicated it is sky's the limit on the on the cost involved with it I would much rather invest time and resources and labor hours into preventing the eviction from ever happening in the form of good screening Leeson enforcing the lease being fair but you know but firm and the enforcement of the lease I have in the past negotiated our way out of evictions and got the tenants to return the property to us and leave without going through the eviction nightmare and that in my opinion is where a good property management company brings the most value is avoiding the eviction in the first place in the in the last five years we have evicted and this is of people that my company has screened that we've put through our processes and procedures one in five years so I'm pretty proud of that rate and that is a testament to how our particular company how thorough we are when it comes to screening kind of a big question that oftentimes comes up is people say well I'm gonna get into real estate ownership but I don't want to spend the money on a manager I'll just self manage and then when I have more money in the future then I'll hire a property manager what's your take on that here's who is a good candidate for managing the property on their own one someone who has a lot of time because there's a learning curve when it comes to being a landlord there's landlord tenant laws there's fair housing laws all of these carry stiff penalties and fines let's take for example fair housing if you and one of the biggest sources of fair housing complaints is when you decide who is going to live in your property so you property up for rent if you're lucky you get multiple applications which in our area is a very common occurrence and you go hmm which one do I want I want to pick what I think is the best one and you innocently pick who you think is best you may have unknowingly violated several fair housing laws and not even known that you did it right here's what happens who one of the people that ultimately probably didn't pick files of fair housing complaint don't hold me on the number but I think the minimum find that they levy for if they find you guilty of this and it's not like a lawsuit like it's they investigate it they levy a fine I think it's somewhere in the neighborhood of $20,000 that you get fined because you didn't even know that you were breaking a law and the onus is not on the person who made the complaint the onus is on the landlord to document how they didn't violate the Fair Housing law so you're at a disadvantage as a self-managing owner if you're not an expert in keeping yourself safe from those things most self-managing owners that I know aren't somebody that has the time to research this it sounds like the problem for a lot of people is they might not even be aware of all the stuff they need to research I mean you were talking about landlord tenant law then now you're talking about fair housing law and then obviously you know I'm sure there are a host of other things to look for as well you know how do you find the time to balance all of this screening well one that is the profession we're in right so we stay on top of best practices in the industry we belong to industry associations continuing education that me and my team go to so that's how we stay on the on the cusp of it but honestly it even if you were to invest the time before you rented your property out and you put a hundred hours into learning all the stuff guess what every year new laws come out so not only do you have to learn all the stuff you gotta stay on top of it and if you don't stay on top of it it's no excuse you're still putting yourself at risk how much value then would you place on you know screening credit compared to just hey you know what the people showed up on time they dress nicely they've you know passed the smell check so to speak you know they got the money how important is actually you know going through the hassle of running somebody's credit and do these kind of background checks well honestly from a hair fair housing person I'll just say this if you're relying on your gut instinct your smell test as you will you are inevitably unknowingly breaking fair housing laws because you have to there's multiple I don't remember number I think there's twenty some protected classes in California that essentially everybody belongs to a protected class it's not 100% accurate but pretty close to it so if you're doing it based on how somebody looks or the feeling you get from them that is a risky endeavor and I would highly suggest you don't do that you're better off using quantifiable data that is on paper from tests and like credit tests criminal background checks that you run that you can then objectively look at and say does this meet my requirements or not it brings up another good point you need to have a written criteria of what qualifies someone to live in your house if you don't that's a huge exposure from the fair housing perspective if you don't have a written policy in place they'll ding you for that this is landlord-tenant law fair housing law it applies to everybody the law doesn't care if it's you know grandma who just decided to rent her house out and has no idea about anything that is not a defense it applies to everybody which means yeah you're at risk so the easiest best thing for you to do is to hire a management company but that in itself is a challenge because you want to make sure you hire the right management company because there are companies out there that aren't the best companies and I think everyone has that general impression of property management companies because there's a lot of poor service out there so how would you find a good property manager I mean people are gonna watch this from different states and different areas obviously here in Ventura County you're the guy Peter at rent con but how do you if you move to Seattle what would you do yourself well I'll tell you what I do because I own properties out of state and I actually it's like my nemesis to try to find a good management company especially when you're in an industry and you're looking for someone you want them to be as good as you think you are or you're looking for you know things that other people don't here's the tips I have the number one thing is online reviews and everybody says oh those are fake those aren't real what your personal is about Yelp reviews and how the companies manipulate them doesn't really matter because the reality is if the general consensus of online reviews are slanted in one direction like this company's terrible they never called me back that is the experience you're gonna have with them and one of the tricks that management companies say to people who go hey I looked at your reviews they were terrible everybody hates you they go oh those are tenants Tenace don't like us because we're hard on them and we take you know security deposit deductions away from them that's why those are all bad just ignore just ignore those I would make the argument that that is a bigger red flag because bad reviews is a indication of the structural internal problem of the management company in my opinion there's this landlord versus tenet stereotype out there that the big bad landlord versus the poor little tenant I personally don't subscribe to that I like to take care of the tenants and here's why not that I don't take care of the owners cuz I absolutely do but by taking care of the tenants I'm taking care of the owners because happy tenants stay longer happy tenants take better care of the property happy tenants are better for the landlord being heavy-handed and dropping the hammer on them and and being aggressive with them is a good way to get somebody to move and turnover is the enemy of landlords so anyhow saying is happy tenant happy life yeah perfect but that's just the that's not really a trick that everybody does that right look at online reviews we're in an online review culture but here's one that no one knows about and no one thinks about and the only reason I know this is because somebody did it to us had a client a little over a year ago or a prospective client I'm meeting with her at the house she goes actually this is a perfect segue into that why we're here for this movie she goes tell me about the lawsuit you're involved in when I looked at you I looked at her and I go you looked us up like you did your research she goes yeah I did my research and she goes you know why I called you she goes because you only had one pending lawsuit and I go well tell me more I'm very interested in the status of my competitors in their pending lawsuits she goes I looked up in the record all the pending lawsuits you had won the majority of the big companies in town had multiple lawsuits that's a big red flag to me so my tip is if you want to dive deep if you really want to know how good and a caveat here not unlawful detainers those are evictions right those don't count I'm talking about actual complaints filed against landlords and management companies which are public record you can look these public record go look see how many are filed against the management company you're thinking of working with if there's like 10 or 15 pending red flag something's wrong they are not keeping their clients out of these lawsuits whether it's their policies and procedures their interpersonal skills who knows what it is you can't tell this by looking at it but just by the fact that they have that many lawsuits big red flag now let's talk about the lawsuit we had a property that we managed a nice property by the beach several million dollars and then understand this was a vacation home for the family that owned it so they didn't live in it full time anytime a renter moves into a property that someone hasn't lived in for months it's normal to see a higher workload of maintenance requests because no one's living there no one little wear and tear yeah this is broke so we expect to see more in the beginning so we started seeing more which was normal but then the number of work orders never went down it started increasing so my spidey sense went up and when my team brought it to me like hey we have so many work orders going on here I looked into it oh yeah absolutely we have multiple work orders they're almost all related to water leaks and I'm like there's no way that this house has this many water leaks because we do a thorough move in inspection but it's not common for people to check behind the refrigerator and then there was mold back there obviously mold anytime you're dealing with mold in property management or landlord tenant law it is a high-risk endeavor so and we already have these tenants that they're just not acting right they immediately start claiming health health hazards to their health they you know it's causing them all these problems which is a huge red flag and if that ever happens to a landlord you need to take it seriously because you're just on the cusp of having a lawsuit filed against as soon as they say the M word that is I don't want yeah I want to say you don't want to be taken advantage of by the tenant because they say mold but if they same hold and then they're accompanying it with claims of health you have an obligation to deal with it and it's going to be your responsibility to essentially prove that there was no risk to their health they do the mold testing they you know remediate the issue make sure that the actual leak is fixed which the leak itself is probably like a five dollar fix but now you got to mediate this mold issue so this is why you use a remediation company because they also are in a high-risk business most of their work is related to insurance claims and lawsuits so they document properly they use nationwide accepted best practices for dealing with mold and asbestos and water damage and that kind of thing and they are basically who's going to keep you compliant and when they're done you then have documentation that you can show to the to the tenant or the judge in our case and say look we did it all right here's the proof you need to do a mold test before a mold test after an asbestos test all the things on the older house anyway you need to get done if you don't do them then you have no way to defend yourself and you have no way to prove that what they're saying is not true and in California where the laws are slanted towards the tenant that's not a position that you want to be in we start documenting everything they get very nasty for lack of a better word they were aggressive they even you know quasi threatened some of my employees they started delaying the project and what I mean by that is they wouldn't let the contractor in to do the job Oh or we have you know family in town or I'm not feeling well and they were delaying project like a week at a time in hindsight they were doing that on purpose so they could increase their alleged exposure to the problems right how come you guys didn't just like get them out like going a hotel for a week and let us go in there and deal with it we tried Oh No hey we offered once I knew there was a problem we offered to let them out of the lease yeah return their security plug we get out yet return the security deposit in full yeah they weren't interested in any of it because in hindsight they were working they were doing what they do best they're what I call a professional tenant and mow they're trying to screw you as well they absolutely knew exactly what they were doing after months of the tenants playing games guy knocks on my door and serves with a lawsuit No so from them off from them well the owner is in the process of selling the house Wally selling it no yeah so that screws up the sale the sale so then what can somebody do to protect themselves and their property manager we you know we properly made we make sure that our clients put a landlord policy in place for this type of a thing because if you're living in your house as a homeowner you don't have coverage that you know against exposures that you have is al-ansar the regular landlord insurance yes so you have sure Wester no no we had that on this one yeah yeah although I don't know that would have covered that one but anyhow we make a claim we the owner and I reach out to the insurance company and say hey we got his lawsuit here's what they're claiming you come come defend us well insurance denies the claim and they said hey these people denied us we don't think this is right there was there was no damage to their health there was mold there but it wasn't one it wasn't like the toxic mold and two we remediated it you can't be sued for I mean mold happens there's mold floating around the air right now just because it shows up in your house doesn't mean you did anything wrong you didn't do anything wrong until you ignore it and tell them you're not gonna do anything about it then you did something wrong so their personal attorney fires off letters and threatens to sue the insurance company with a lawsuit second massive insurance company goes oh yeah yeah we're not interested in that okay yeah we cover this now you guys got which is so terrible in my opinion good good news that's good that's a good day when the insurance comes around yes so they came around so the insurance company defended us and the owner at the same time we didn't pay a dime because of that not that legally we would have been required but if for example we didn't have a cooperative owner we would have been forced to defend ourselves and then potentially go after our client for the because we make sure that we're properly insured and I would say this is an area that property management companies are notoriously bad at because it's a lot of compliance work like you have to make sure that it happens that the policy is in place that is done correctly and most insurance brokers actually are get confused with it what additionally insured means versus an additional interest they're two totally completely different things frequently they add us as an additional interest which provides no coverage for us so there's a lot to it and when what that means is it falls through the cracks at management companies thankfully we are pretty vigilant about it and it paid off big in this case so always add your property manager as an additionally insured party and consider looking into this sure Wester now just a heads up this is not sponsored by sure Wester I've never used that I've never heard of the program before I just encourage you to look into it I'm interested in looking into it as well thanks to Peters recommendation during the discovery process of the lawsuit yeah it was discovered that the particular tenants this was what they did they had like I don't remember the number between five and ten other lawsuits pending against this was it slip and falls oh my gosh auto accidents making a business out of so they're suing people left and right and just hoping that one of them sticks or they hit big on one of them anyway long story short the which I was a little bit impressed with the insurance company because my my know the insurance company is going to trial there's going to settle them yeah yeah yeah that's what everybody expects which is essentially what happened but they did for way less than I thought they were so they've put a hard-and-fast number on it based on their you know the attorney's advice like yeah there's no case here whereas if there was a case or the landlord was negligent obviously the number they're gonna use to settle it's gonna be way higher which is what they want right what the tenants want it was a very low low number and ultimately they took it in it's settled for you know low five four - low five figures and it went away and the whole thing went I got no money out of the sellers pond yet the buyers pocket everybody's good insurance came through right but what should you do in the meantime once you identify that something's not right that you may have that going on you need professional help if you're a self managing landlord I would say hire management company but no rent management company and their right mind would take you because you're already in the middle of a potential loss at that point exactly if you sense that you're up against a professional tenant get professional help and if you're self managing landlord that means go talk to a lawyer because how you handle it and how you go forward matters because just say if we ignored that and that went on for three months they're just in and then the expert witness comes in and goes yeah you guys were negligent you didn't deal with the mold issue in the property they have these issues health issues as a result this is what the problem is now we are in trouble and if we if you're negligent in a lawsuit that's a different story as far as I'm not an expert in what insurance is MLR insurance reps for what it's worth it might make sense to do a public record search on your applicants to see how many outstanding lawsuits they have but don't sue me bro not sure if that's legal to do although I know that it is public record yeah I would just say do everything in writing once you think something's going sideways stop talking to them do it all in email or written form and yeah once you know something's wrong reach out to the professionals and and get some help Peter that's awesome how can people reach out to you if they have questions or they're interested in hiring you sure so the name of our company is Rin comp property management you can email me Peter at Renkin management com or you can call [Music] [Applause] [Music]

Channel: Meet Kevin

Views: 237,969

Rating: 4.8510938 out of 5

Keywords: property management, real estate, tenants, lawsuit, real estate investing, investing, rental property, rental proeprty for beginners, rental investing, rental landlords, landlords

Id: ssOYsa-UP9I

Length: 24min 28sec (1468 seconds)

Published: Mon Oct 07 2019