The largest owner and landlord, Wall Street Landlords, of single-family rental homes in the United States is fighting a class-action lawsuit filed in California that alleges illegal and overly punitive late fees in Arizona, Oregon, California, Washington, Colorado, Utah, Texas and five other states in which it operates.
Invitation Homes, which owns nearly 7,500 properties in Arizona and more than 82,500 properties nationwide, is one of a group of real-estate investment companies that went public and, plaintiffs say, have allowed stockholder demands to unfairly affect how the companies are run. The growth of Wall-Street-owned single-family landlords came after the 2008 financial crisis, when equity companies and institutional investors bought foreclosed homes in bulk.
The plaintiff in the class-action lawsuit is Jose Rivera, a tenant in a home owned by Invitation Homes in Sylmar, Calif., a community of about 100,000 in the San Fernando Valley area of Los Angeles County. His lease said that a fee of $95 would be charged if rent was late by even a minute.
It was Rivera’s routine to pay his rent through the company’s online web portal. Occasionally, however, the portal would be down.
“For example, once, in February of 2017, Mr. Rivera tried to pay his rent online but the portal was not working,” the lawsuit states. “He called Defendant (Invitation Homes) and Defendant told him to not ‘worry about it’ and to just ‘keep trying.’ Mr. Rivera tried multiple times to pay online, but the online portal would not work. Eventually Mr. Rivera just mailed in his rent payment. It was technically ‘late,’ although through no fault of Mr. Rivera.
“To his surprise, Defendant returned Mr. Rivera’s rent check back to him in the mail. Defendant had refused to accept the check because Mr. Rivera had not also included additional fees and penalties for the rent being ‘late.’ ”
Because Invitation Homes had a policy of not accepting partial rent payments, it had determined that because Rivera had not added the late fee, his payment was a partial payment.
Landlord threatened eviction
Invitation Homes threatened to evict Rivera for not paying the added fees, saying it had already begun eviction proceedings. According to the lawsuit, Rivera, who thought he might lose the home he had lived in for years, paid the $95 late fee and an additional $895 in “legal fees,” which the company said were required.
The lawsuit alleges that the late fee and the “legal” fees function as “illegal penalties,” which are against the law in all 12 of the states in which Invitation Homes does business. In those states, landlords must show actual harm and must illustrate how fees for damages are calculated. In the case of Invitation Homes, the lawsuit states, rent that is only a few hours or days late causes no actual damage. And the fact that the late fee is uniformly $95 – regardless of whether the rent is $1,000 a month or $3,000 a month – shows that no attempt to determine actual harm is being made.
The lawsuit also singles out Invitation Homes’ practice of “stacking penalties upon penalties.
“Defendant imposes the $95 penalty. Defendant then systematically imposes a ‘legal’ fee. Then, separately and month after month, Defendant stacks another $95 fee on top even when a tenant is carrying a minimal balance, and even if the tenant has paid the base rent for that month.”
Invitation Homes classifies past late fees as “rent,” which means a tenant’s record shows that they are late on rent, not late on a late fee. In subsequent months, any current rent the tenant pays is applied to the late fees first, which then makes that month’s rent late as well, incurring yet another late payment.
“Some people have been evicted purely as a result of this late rent penalty and, in particular, this penalty stacking practice,” the lawsuit says.
The lawsuit was filed at the end of May. Invitation Homes subsequently filed a motion to dismiss, saying that the lawsuit failed to specify how its business practices are “unfair,” failed to state specific claims upon which relief could be granted, failed to identify the state laws that allegedly were violated, and that Rivera does not have the standing necessary to represent out-of-state residents.
In August, Rivera’s lawyers filed an amended claim, clarifying the civil codes and laws violated, comparing the “pyramiding” of late fees to illegal banking schemes, and asserting why the case has correct legal standing in each of the 12 states (Arizona, California, Colorado, Florida, Georgia, Illinois, Minnesota, Nevada, North Carolina, Tennessee, Texas and Washington).
Wall Street landlords crowd out mom and pop landlords
In January 2018, a report researched by MIT graduate Maya Abood and co-sponsored by the Alliance of Californians for Community Empowerment Institute (ACCE), Americans for Financial Reform (AFR), and Public Advocates titled “Wall Street Landlords turn American Dream into a Nightmare” illustrates how the foreclosure crisis transformed large slices of American home-ownership into a home-rental industry dominated by a group of Wall Street corporations, the largest of which is Invitation Homes.
Some of the report’s conclusions:
- Prospective homeowners and “mom and pop” landlords are crowded out of the home-buying market by cash-heavy investors who want to convert homes to rentals;
- Wall Street landlords must steadily increase their profits and answer to their investors, which puts extra pressure on landlords to set higher rents, collect late fees and evict tenants quickly;
- Low- and moderate-income families and people of color feel disproportionate impact;
- The federal government ends up subsidizing these corporations, because many of them receive substantial tax breaks due to their status as Real Estate Investment Trusts (REITs).
This last point reflects the path of Invitation Homes. In 2014, Waypoint Homes joined with Starwood Property Trust, an international REIT. The new company, Starwood Waypoint Residential Trust, merged with Colony American Homes, becoming Colony Starwood Homes. In 2017, Colony Starwood merged with Invitation Homes, which was controlled by The Blackstone Group, a major player in private-equity. The combined company, Starwood Waypoint, owns more than 82,000 homes across the country.
“Single-family home rental used to be a small-scale and local business, built around direct ties between landlords and tenants,” the report says.
“In the new Wall Street rental empires, the relationships are impersonal, property managers come and go, and the executives who call the shots often have trouble hearing the voices of their tenants over the clamor of their investors.”
Wall Street landlords evict at higher rate
“Wall Street landlords often evict tenants at astonishingly higher rates than other single-family landlords: in the Atlanta area, nearly one-third of all Starwood Waypoint tenants received eviction notices in 2015,” the report says. “Rent increases follow the same trend – with tenants facing as much as $1000/month increases.
“Across the nation, single-family homes are currently exempt from local rent-control laws, which is a big part of the market’s appeal to Wall Street. Investor pressure has also led to fee-gouging of a kind previously associated with credit cards and payday loans.
“These companies create extra revenue streams of excessive late charges and maintenance fees that shift the costs and responsibilities of traditional landlords onto tenants to an unprecedented extent,” the report concludes.
In addition, rental companies who value Wall Street needs over their tenants’ needs have less motivation to keep their tenants happy. The Better Business Bureau’s complaints log reports 604 complaints about Invitation Homes in the last three years, with 530 of those in the area of “Problems with Products and Services.” The Arizona Republic recently did a story on tenants of Invitation Homes who could not get maintenance requests answered or needs met.
Kathy and Kim Suszczewicz’s family moved into one such home in 2016. Two years in, they say they regret leasing the home.
“If anybody is talking about finding a rental, I always say, ‘Stay away (from Invitation Homes). Don’t even bother with it,’ ” Suszczewicz told The Republic.
During the two years, the family has had problems with the electric front-door lock randomly locking and unlocking; with one inoperable toilet and another one leaking; and with a shower that was not able to run hot water. They also were unable to use their swimming pool for a year – even though they were paying $95 more per month for it – until the landlord approved the expense for a new pool filter.
The company admitted that there had been delays and issues with the property the Suszczewiczes were renting, and said it regretted any inconvenience the family experienced. Shortly after the story ran in the Republic, the family received a phone call from the vice president of operations in Nevada and Arizona and an $850 refund of the pool fees they’d paid while it was unusable.
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