Invitation Homes Tenant Abuse Shows Incompetence as Well as Malfeasance

Readers may recall that we’ve been writing regularly about the single family home land grab by private equity firms. Blackstone has been far and away the biggest, though its Invitation Homes business. Readers and many institutional investors have been skeptical of PE landlords’ claims that they can manage single family homes cost effectively; it’s hard enough for mom and pop landlords, who often have some relevant maintenance skills, like plumbing or construction, to make a go of it.

But as reports come in from abused tenants, Blackstone looks not only venal in its efforts to shift costs on to tenants, but positively incompetent. As we’ve written, in most jurisdictions, even in red states, residential landlord can’t shift property maintenance obligations onto the tenant. They are required to keep the rental at least habitable. There’s good reason for these provisions: communities like to encourage homeownership, since they are considered to have a stake in their town and owned homes are almost always at higher price points than rentals, providing for a better tax base. Badly maintained rentals quickly drag down property values in the ‘hood and can lead to middle class flight. So local communities have strong economic incentives to come down hard on slumlords.

Consider this letter from Occupy Our Homes, via Lisa Epstein:

Dear Home Defenders,

We delivered a giant rent check to Invitation Homes today for our newest resident fighter, Nefesh Chaya, but they turned her away when she tried to pay.

Nefesh signed a two-year lease with Invitation Homes so that she and her service dogs could settle into a peaceful Atlanta neighborhood. She didn’t know the home she had rented wasn’t in good repair or that there were limits to what Invitation Homes was willing to spend. The company promised to fill in the pit in the backyard and remove the mold before move in day, but they didn’t, and Nefesh had to push the company to follow though. Last month, Invitation Homes decided they weren’t going to spend any more money on repairs and added the cost of a kitchen plumbing fix to Nefesh’s online bill. She couldn’t pay without accepting the charge! Invitation Homes refused her rent at the office. Then they filed an eviction and called her to tell her she had to get out that day.

Please sign Nefesh’s petition: .

For the last two years, private equity firms have been buying up foreclosed homes across the country and converting them to single-family home rental properties. In Atlanta, the largest investor of this kind has been The Blackstone Group, which owns companies like Sea World, The Weather Channel, and Hilton Group. They purchased 1,400 Atlanta homes at auction on a single day! Now they own thousands of houses in Metro Atlanta, and tens of thousands across the United States, and manage them through their subsidiary Invitation Homes. Invitation Homes has become America’s landlord! It has never been more important to demand fair rental practices.

Nefesh’s roof started to leak yesterday. We must not allow Invitation Homes to finance their repairs by extracting even more money from our communities! Please sign the petition here: .

Invitation Homes acquired their Atlanta homes for pennies at foreclosure auctions, has driven up rent in our communities, and is willing to threaten eviction to get even more money. Occupy Our Homes Atlanta is concerned that Invitation Homes’ predatory rental practices undermine stability in our neighborhoods and promise to transform an unusually large number of single-family homes in our communities into revolving doors.

Please take a moment to sign this petition and help us fight for justice:

This letter does not discuss specifically whether this lease falls afoul of state or local requirements in Atlanta. I’d very much appreciate it if any real estate attorneys in Georgia who know the pertinent statutes would pipe up in comments.

As we wrote earlier, it’s not uncommon for landlords even in strongly pro-tenant jurisdictions like New York City to put unenforceable provisions in their leases and try to convince tenants that they have to live with them. Essentially, Invitation Homes is trying to make commercial lease terms the standard for residential leases. Lawyers in Chicago (again, not a terribly pro-tenant town) have found that Invitation Homes’ standard leases violate several provisions of its Residential Landlord Tenant Ordinance.

But aside from the fact that the maintenance provisions of these leases probably won’t hold up in court, there is the even more glaring issue that the practice of trying to get a tenant who can’t be assumed to know how to operate a screwdriver to fix their own rental is shockingly poor property management on multiple levels.

For instance, notice the effort to make Nefesh pay for fixing plumbing problem. That sort of behavior will induce tenants to try to fix leaks themselves. The last thing you want is tenants attempting their own patchwork repairs. It’s likely to lead to long term damage to the property, well in excess of any rental deposit. And as we’ve discussed in earlier posts, Invitation Homes has been sued for being slow about repairing properties, including fixing leaks. Water does lots of damage quickly. Not rushing to address a report of a leak is a sign of a landlord who doesn’t understand the basics of property management.

Reader MBS Guy similarly pointed out how foolish it was to harass a tenant like Nefesh:

This runs counter to what every landlord has told me about their business – you always want the rent paying tenant over an occupancy and unknown future tenant.

It makes me think Blackstone doesn’t really know what they are doing. Is there a strong rental market in Atlanta? Are there that many borrowers desperately looking for a leaky roofed, moldy house in a neighborhood where most other people probably own their homes?

Is it any wonder that the first Invitation Homes rental securitization showed a 7.6% fall in income a mere three months after the deal was floated? And as more stories like Nefesh’s become public, Invitation Homes and other rental slumlords are getting a bad reputation. Prospective tenants will avoid them, and only the most clueless and weakest credit prospects will rent from them. Whether they recognize it or not, they are trashing their own business, not just their properties.

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  1. vlade

    I’d say the real question is do they care they trash their business? If they believe (rightly or wrongly) that with a nice massage to the numbers and superoptimistic predictions they will be able to securitize the stuff, and that investor will buy it because there’s nothing else to buy (and I don’t mean nothing else with yield, I mean nothing else, because CBs bought most of the stuff, and you as investor may have a cash cap in your covenant so have to buy something… ), why would you care?

    And if IH is nicely structured, Blackstone can extract any cash out of it and leave an empy shell for investors to sue (should they have guts to do so, which history shows they don’t).

    1. Yves Smith Post author

      If they keep up like this, they won’t be able to securitize. Word will get out that the risk of high vacancy rates is greater than was previously thought. That will need investors to demand more overcollateralization and higher rates on the riskier tranches. That will screw up the economics of securitization to them.

      Remember, only a small % of properties have been securitized relative to the total number of homes purchased for rental. Trashing your asset, particularly in a visible way, before you are a significant part of the way through your exit is just dumb.

      1. sd

        Seems like the word is pretty much out in the greater Los Angeles area not to rent single family homes from corporate operations. Renters are seeking out landlords who own at most just a handful of properties.

      2. vlade

        in a rational world, I’d agree with you. But the same argument could have applied to the liar-loan CDO squared, and the situation for investors is even worse now since as I wrote CBs bought pretty much all the good paper that can be bought (I’m going over the top, but not much). I believe that some investors have serious problems where they have too much cash and not enough to invest in – and I don’t mean not enough good stuff, but just not enough stuff.. “Investors” are in most cases investment managers on someone’s behalf, and actually making investment return is often less important to looking like trying to make investment return while following a process. The process is king, and if the process can be gamed (and any deterministic process can be gamed by definition) for profit, someone will try to do so.

  2. armchair

    This was pulled from a dot-com site, so it is not at citation level, but . . .

    OCGA § 44-7-14
    “[t]he landlord is responsible for damages arising from defective construction or for damages arising from the failure to keep the premises in repair.”

    On a different note, Google Scholar is making legal research super easy and cheap, which means Westlaw and LexisNexis might soon be in trouble.

  3. McMike

    At this point, everyone knows someone who has been:

    – victim of a crapified privatized service
    – screwed over by a pathological bank
    – screwed over by a pathological health insurer and gouged by providers
    – had their lives “ruined” by an arbitrary unilateral pathological company and its kafkesque policy torture chamber
    – received a total lemon product or service and been forced to eat the cost and walk away
    – witnessed a company Hoover-up public preferences and subsidies, and then break all its promises
    – seen a company destroy all the jobs along with the community by outsourcing and crapifying the remaining jobs
    – seen a WalMart and big boxes eviscerate a local retail economy
    – been screwed over in a crapified workplace

    And yet the neoliberal myths are still repeated. People still vote for these policies. We are stuck in some weird and tragic kabuki.

    And the band played on.

    1. gonzomarx

      wow! that’s really hitting the nail on the head.
      this needs to be printed on to a leaflet or business cards and left everywhere.

  4. diptherio

    If there’s one thing I can’t stand, it’s unscrupulous landlords. At least one person in charge of this fustercluck should be publicly pilloried, tar-and-feathered, and rode out of town on a rail–you know, just to set a good example.

    Housing, like health care, is too important, too necessary, to be left to the machinations of the profit motive.

  5. bmeisen

    “…communities like to encourage home ownership”
    nice summary of pros. there are cons that responsible housing policy makers are aware of. where is the sustainable balance between ownership and rental? the point beyond which the threat of bubbles and collapses increases? 100% ownership is possible in gated communities – the help has the slum down in the floodplain. 40 – 50% seems to be the target of social democracies. the challenge is to regulate the roll of securitizing landlords in a sustainable housing market.

  6. crittermom

    “…only the most clueless and weakest credit prospects will rent from them.”
    Those of us who lost our homes in the HAMP (PONZI) scheme ARE now the weakest credit prospects.
    That was part of their plan (& appears to be working just as smoothly as stealing our homes, doesn’t it?).
    And since the banksters aren’t prosecuted, “landLORDS” such as this will go unpunished, as well, in our current system of government. We the People should all be outraged!

    1. Yves Smith Post author

      In any location, these newbie rental landlords are not the only game it town. They don’t even come close to having a monopoly. And even in that space, some of the PE buyers (not Blackstone but others) were much more careful about the homes they bought (as in they got in early and stopped buying early) and make a point of trying to keep good tenants. So Blackstone’s bad behavior will allow better landlords to skim off the more attractive tenants.

      1. Otter

        Only if the attractive tenants know about Blackstone’s bad behaviour.
        And if they know they are dealing with Blackstone.

        For that matter, why are tenants, attractive and not, ignorant about being tenants.

        1. PeonInChief

          There are several reasons for this. The first is that good information is hard to find. And bad information is everywhere. After I wrote my tenants and foreclosure blog at the end of 2007, I got email from tenants who referenced other websites where the information conflicted with mine. So I spent some time trying to stamp out incorrect information. I quit when I realized it would be a fulltime job. Some states had no information for tenants at all, as I discovered when I tried to find information for tenants who had written to me from other states. Others have incorrect or outdated information. In California, the state Department of Consumer Affairs was supposed to have published information on the new protections for tenants in foreclosed properties by March 2013. It has still not been published.

          In addition, a lot of tenants’ rights are very technical. It’s difficult to make technical information interesting. Even I, who follow this stuff pretty closely, announced that one court decision protecting an important right in California, made my eyes glaze over.

          Finally a lot of rights look good on paper, but are interpreted by judges who have little interest in protecting tenants’ rights. As a practical matter, tenants don’t have the right to repair and deduct or withhold rent in most situations, even though the statutes may indicate that they do.

        2. Yves Smith Post author

          First, it’s in the news.

          Second, if you search on the Web, you can find lots of stories on sites where you’d look into landlords.

          So the question is how many tenants are savvy to worry about the quality of their landlord. In NYC, where a lot of people rent, most renters recognize this to be a real issue. As renting homes becomes more common, I’d expect more prospective tenants to wise up.

  7. PeonInChief

    I hate to be practical here, but this tenant is in a really bad situation. Tenant lawyers tell tenants to avoid an unlawful detainer (court eviction) at almost any cost. That’s because tenant screening services collect unlawful detainer information, and having an eviction on your record will make it difficult to impossible to rent another place for life. In refusing to accept the rent payment unless the tenant pays the additional fees, Invitation is setting up for an unlawful detainer for nonpayment of rent. The question is whether the landlord can refuse to accept a rent payment that doesn’t include disputed fees and charges. Invitation is banking that it can, because unless the law is very clear on that point, judges will likely rule for the landlord. This forces tenants to pay the disputed charges and then sue to recover them.

    (In this, they’re following the example of mortgage servicers like Ocwen and Green Tree, which often attach escrow and other fees onto the mortgage payment, and then refuse to accept a payment that doesn’t include these fees.)

    1. J.

      Invitation is no doubt trying to set her up, but it is clearly violating Georgia law. I’m not a lawyer but I can provide a couple of links.

      From the Georgia Landlord Tenant Handbook:

      My lease agreement says that the tenant is responsible for all repairs. I thought the landlord was responsible for repairs?
      In all residential leases, the landlord has a responsibility to keep the rental property in good repair. The lease should not require the tenant to make repairs or waive the landlord’s responsibility for maintaining the property. Any lease provision, which makes the tenant responsible for repairs, is challengeable under Georgia law. The landlord is responsible for maintaining the building structure and keeping operational systems such as the electric, heating, and plumbing. The landlord is also responsible for repairing any appliances including heating and air conditioning included in the rental unit. A landlord is further responsible for meeting all local ordinances and minimum safety standards. The tenant should not be charged for repairs
      caused by ordinary wear and tear. Before a landlord can be required to make a repair, he must be given notice of the defect. The tenant should give the landlord written dated notice of the problem needing repair. The tenant should keep a copy as a record of any such notice.

      The city of Atlanta also has an office of code compliance she can report the violation to:

  8. sd

    Plumbing repair story…landlord tells tenant that he is responsible for all repairs in his unit including a leak from an upstairs pipe. Tenant replies, “Ok, I’ll fix the leak. I’ll just cut the pipe and cap it. Problem solved. Of course, your upstairs tenant won’t have water, but that’s his problem not mine.” Needless to say, the landlord fixed the leak.

    Roof leaks? Cover it with a blue tarp so the entire neighborhood can see it and stick a sign on the lawn that says “Another fine rental from Invitation Homes.”

  9. Alisha

    This is a scam I paid rent and they turn it out and ask me and my family to vacate the premise in a week !!!! This is ridiculousness

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