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By Robert L. Cain, Copyright 2021 Cain Publications, Inc.

As evictions begin in earnest with delinquent renters looking for a new place to live, Fannie Mae (the organization that underwrites mortgage loans for millions of people around the country) is making it easier for renters to buy a home. Of course, renters with an eviction aren’t likely to be candidates for Fannie’s new program, but who will be, and will those candidacies make any difference at all for landlords losing maybe their best tenants? 

Fannie’s program, beginning Sept 18, will allow Desktop Underwriting using rental payment history to boost the credit-worthiness of prospective home buyers.  A buyer with spotty or limited credit can improve chances of qualifying for a mortgage loan by adding a year’s worth of on-time rent payments

Sounds good, but looking even a couple of inches deeper, it doesn’t look like rental owners are in any danger of losing some of their best tenants. troublesome questions temper what might appear to be a worthwhile program. We’ll look at those in a minute.

Some one in five Americans have little established credit history. That’s all Americans. Black and Hispanic consumers skew the numbers with almost three in ten of them falling into the little-credit category. But they pay their rent consistently. This new underwriting program is supposed to improve their eligibility by making 17 percent more people eligible for loan approvals, the number that Fannie suggests would have qualified had this new program been in place in the past.

Fannie estimates that fewer than 5 percent of landlords report renters’ payments on credit reports.  Fannie’s underwriters will be able to access, with applicants’ permission, bank records to prove consistent rent payment.

Pertinent factors go unnoticed in the hoopla surrounding the introduction of this program.

First, these first-time home buyers will likely be looking to buy affordable housing. Problem is, it simply doesn’t exist now.  Prospective home buyers search in vain for any housing much less what they can afford. They hesitate to give up their present home because there’s no guarantee they can find any new home to move into, much less afford.  Precise figures for the lack of affordable housing are difficult to come by, but homes to buy get gobbled up by more qualified buyers competing with each other and running up the prices.  Taylor Morrison Home Corporation CEO Cheryl Palmer was quoted on CNBC on July 7 of this year “We are at multiyear lows as far as new and resale inventory, and, honestly, it’s going to be very difficult for us to make up the shortage, the deficit that we’ve been building up for more than a decade now.”

It’s all well and good to make financing available to people who might not otherwise be able to get a mortgage, but the point is moot if there’s nothing to buy.

Second, there’s the pesky issue of the FICO score. The minimum score a lender will even consider is 620.  Lenders can take into consideration consistent rental payments, but that 620 score just won’t go away for an applicant with a lower score.  Rental history won’t make any difference. Fannie’s underwriting standards state specifically, “DU currently uses credit scores to ensure compliance with the 620 minimum representative credit score requirement.” The reason for the Desktop Underwriting program is to beef up a lack of credit, not improve the credit score.  In fact, Fannie even admits that in their news release about the program. Hugh Frater, CEO of Fannie Mae writes, “there is no way it can hurt their credit score, and it will only be used to help eligible home buyers qualify for mortgage credit. Any records of missed or inconsistent rent payments identified in the bank account data (and not already reflected on the applicant’s credit report) won’t negatively affect their ability to qualify.”  By the same token, if it can’t hurt their credit score, it can’t help it, either. 

FICO scores, as we know, are based on several factors, half of which gauge credit and payment history.  If credit is so spotty or score is so low that it negatively affects eligibility, all the rental payment history in the world won’t help a marginal buyer qualify.

The obvious question arises as to why Fannie instituted this program.  If few, if any, homes are available to buy for any qualified buyer, and if the minimum FICO score will eliminate many borrowers who have limited credit, what’s the point in adding a new set of applicants, getting people’s hopes up, and then dashing them with current conditions?

Part of it may be Fannie’s stock price.  It’s most recent close was about one dollar a share, that’s down from its all-time high of $85.03 on April 1, 2000, and its more recent high of $2.42 on June 10, 2021. They apparently live in hope because after the announcement of this new program on August 11, the stock dropped to $1.17 a share. Fannie Mae declined to comment about the reason for introducing the program right now. Even so, the in-the-tank stock price is a suspiciously contributing factor.

Rental owners are in little danger of losing some of their best tenants, the ones who diligently pay the rent, who have excellent landlord references, and who have steady jobs.  Meanwhile, Fannie Mae has created a program that is good PR, but mostly show.

By Robert L. Cain, Copyright 2007 Cain Publications, Inc.

If you have dealt with contractors, you have probably heard the same lies I have. They erupt from their mouths as rationale for their questionable behavior and unreasonable demands. They are often accompanied by “righteous indignation” that anyone would question this contractor’s forthrightness.

Here, in no particular order of deceitfulness, are four of them.

It’s a standard agreement

Sure it is.  It’s your standard agreement that requires the property owner to give away the store and that doesn’t require the contractor to complete the job in a workmanlike manner or, for that matter, even complete it at all.  The “standard agreement” does require you to pay, though.

One electrician who did work on a property of a landlord I know had a “standard agreement” that didn’t even require him to clean up his mess or repair the wall he put holes in for the wiring.

Everybody does it that way

I certainly hope they don’t, because if everybody did it that way, buildings would be falling down all over the country.  Those are the words you hear when you ask about the corners the contractor cut to get the job done cheaper. Because contractors always “did it that way” we have building codes.  Those building codes were not instituted because every contractor was meticulous in his work.  They were instituted because of the work that goes along with “everybody does it that way.”

I need the money up front

Then you don’t need to work on my property.  You get paid when you are finished and the work is done properly.  Not getting paid should not be a problem for a contractor because of contractors’ lien laws, which can result in a lien on the property they worked on if the owner doesn’t pay.  If the contractor doesn’t have the money or credit to buy the necessary equipment to do the job, that should raise a crimson flag.

I couldn’t sleep nights if . . .

This is the one that says “Liar, crook and scam artist!”  When you hear those words, tell the contractor he has five seconds to leave the property.

A number of years ago I heard those words come out of the mouth of a furnace repairman.  The oil furnace didn’t work and the tenants, instead of calling me, opened the Yellow Pages and called the number in the biggest ad.  They called me in a panic after he told them the “furnace was shot,” and could blow up. When I arrived he tried to con me with those very words.  He couldn’t sleep nights if he didn’t replace this furnace.  I told him to leave in none too kind words.

After he left I called Bill, the furnace repairman I always used.  He came over, fiddled, messed around and tweaked, then said, “Are you sure you’ve got oil?”

When he measured the oil in the tank, there wasn’t any to measure.

Reputable contractors don’t have “a standard agreement,” they have agreements that can be amended and corrected to fit the job. They don’t necessarily do work the way “everybody” does it, they do it the way that is correct. They also have good credit so don’t require money up front. And “they couldn’t sleep nights” if they did sloppy work or cheated a customer. Lies that both you and I have heard are those that should tell us to send a sleazy contractor on his way and call a reputable company. 

By Robert L. Cain

Half of all renters live in SPRs, industry lingo for Small Property Rentals. The Census Bureau defines those as one-to-four family dwellings, and they make up 76 percent of rentals. Individual owners own 92 percent of them. That’s the good news.  I’ll explain why in a minute.

The bad news is that SPRs reported a decline in revenue of more than 10 percent in 2020.  The pandemic resulted in 15 percent of tenants in those properties lagging at least six months behind in rent for a median past-due rent of $2200. With evictions beginning again on August 1, it will mean more vacancies and more opportunities for landlords to do proper screening and ensure qualified tenants.

More good news is that owners of SPRs have an advantage in screening over large apartment complexes. They can insist on face-to-face screening, something the large complexes have difficulty doing. Because with all the would-be tenants scrambling for places to live, many leasing agents get overwhelmed by the number of applicants they need to process. 

Transunion reports that digital fraud transaction attempts have increased 46 percent worldwide and 22 percent in the US alone.

Most large complexes do screening digitally, meaning applications are filled out online, documents presented online, screening done online.  Applicants may rent units sight unseen relying on the photos and descriptions on the apartment websites.  They fill out the forms, present all the documentation online, and only maybe talk on the phone to a leasing agent.  The opportunity for fraud approaches overwhelming.  It turns out, reports Snappt, that 97 percent of properties have experienced some kind of renter fraud and 15 percent of applications have been falsified in some way.

Because they have so many applicants, leasing agents must rely on the truthfulness of the applicants.  Big mistake. “This is where the story really goes sideways,” explains a 35-year property manager in Multifamily Executive who prefers to remain unidentified. “They hit you in a week with 25 applications, and you’re overwhelmed with the paperwork. Then, they inundate the staff, calling and asking the same questions over and over, putting you in crisis mode to wear you out and try to get through. They know the more pressure they put on you, the more mistakes you’ll make.”

As more and more evictions take place, and more and more evicted tenants look for new places to live, more and more falsified documents will show up to “prove” what qualified residents these folks will be.  Considering how long it takes to screen each applicant, and the leasing agent having to rely on the documentation the applicant presents, agents skimp on verifying information.

Leasing agents’ jobs are to get tenants in units, to fill vacancies.  They have to show paperwork to their bosses that they have done their due diligence in screening, but they also need to show they are doing their leasing jobs by filling vacancies. But with so many applications, they can only cull the most obviously unqualified, the ones who haven’t produced the most credible fake documents.

“It’s absolutely a crime,” says Alec Page, vice president at Park City, Utah–based RET Ventures, as reported in Multifamily Executive. “Unfortunately, it’s very hard to track down and prosecute someone who’s rented an apartment sight unseen with entirely fake documents. Once they’ve done that, the damage is done.”

Here’s how they do it. Application fraud comes in three permutations:

One is application and document fraud.  Numerous websites offer fake paystubs, W2s, bank statements, IDs, and anything else for applicants to slither their ways into rental properties.

Two is synthetic fraud. They use synthetic identities to establish credit histories involving false Social Security numbers with credit reporting agencies.  Those synthetic identities are used to obtain credit cards in the names of fictional people; then they use online credit processing to charge transactions to credit cards.

Third is old-fashioned ID theft. They use false, fraudulent, or fictitious identification documents belonging to actual people, using existing accounts, such as credit or other financial accounts.  Javelin Strategy & Research reported in 2008 how they do it:

• Lost or stolen wallet, checkbook, credit card (33 %)
• Off-line transaction (23 %)
• Personal connection to identity thief (17%)
• Mail theft (6.0%)
• On-line identity theft (12 %)
• Data Breach (7%)
• Other (2%)

Once established, they go to town, often on unsuspecting, over-trustful landlords and people whose identities they have stolen.

Brian Zrimsek, industry principal for Cleveland-based MRI Software, says that when a fraudulent applicant slithers through screening, it takes six-and-a-half months to resolve the issue.  Figure average rent in $1500 a month times six-and-a-half months and the loss to the company is just under $10,000 for one unit.  For even a 20-unit building, that puts $200,000 at risk.

Because there’s just no time for multifamily leasing agents to do a proper job of verification with all the applications and to fill those vacant units, SPRs (Small Property Rentals) and their owners have a real advantage.  First of all, the owners take applications in the order they are received, put a date and time on them, and verify first applications first. 

And they verify everything.  Marygrace Navarro of Stonemark Management in Atlanta, reminds all property owners, landlords, and managers, “You can’t just accept the employment and rental verifications the applicant gives you. You have to invest the time and energy to check it all yourself.” Check that the phone and address of the “employer” are real by looking them up online. Check that the previous landlord is real by checking county tax records to verify that the person listed as the landlord actually is. Do a Social Search, which tells every address where the applicant has lived. Get picture ID and meet every adult who is moving into the property.  

That’s how to cut the fraudulent documents off at the knees, how to keep lying applicants from ever getting to move into your properties.  Small property owners have a huge advantage over the huge multifamily companies in screening and ensuring top-notch tenants because they can and will take the time to do it properly with an eye on protecting their investments.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Copyright 2021 Cain Publications, Inc.

In Attorney Tom Moorhead’s excellent book, Owner’s Manual for Landlords and Property Managers, I came across this great point:  “With all the valuable information that you will be receiving on your rental application, why would you ever not give someone a rental application?”

Many landlords dismiss applicants out of hand because the landlords have a “fifth sense” about the quality of applicants due to these landlords’ lengthy experience in the business.  It’s a fifth sense because it doesn’t quite make the grade of a sixth sense and is wrong at least one out of six times. Attorney Moorhead points out that many landlords decide on the spot, for example, that someone is “too young,” that is, under 18, and thus unable to enter into a contract, so never offer an application. That is in spite of the fact that someone being underage would become immediately apparent in the screening process such as when the landlord looks at the picture ID of the applicant.

Here’s my point.  We can’t tell by looking only by screening.  Bad tenants are past masters at appearing to be outstanding, upstanding citizens because they rely on landlords assuming that appearance is everything. Masters of finding new places to live because they have to do it so often, they are “practiced at the art of deception.”  But we can cut their evil plans off at the knees; the best way to get rid of a bad tenant is to hand him or her a rental application that contains the message “we carefully screen all applicants.”

Landlords may dismiss some truly outstanding applicants out of hand simply because they don’t meet some preconceived prejudice.  Suppose, for example, that a construction worker is on his way home from work and sees a for-rent sign, drives by the property, notices the landlord is there, and knocks on the door?  This man doesn’t do too well dealing with the public, but is great at construction work. He doesn’t even talk a good line and stammers when he says why he stopped. Mr. Knows-instantly-the quality-of-an-applicant landlord takes one look at the applicant in his dirty, work clothes and outside at his work truck that could use some washing and immediately acts as if this prospective tenant is imposing on him.

This prospective tenant has worked for the same company for five years, was just promoted to supervisor, earns in excess of $60,000 a year and drives a late-model, paid-for Toyota Camry on weekends.  In addition, he has lived in his current home for seven years and never been late with the rent. His wife wants to move so the kids can go to a better school than the one they attend now that is deteriorating.  But the landlord could tell just by looking that this prospective tenant was unqualified.  He never offers an application.

Later that same day, another prospective tenant drives down the same street on his way back from some questionable activity and sees the same for-rent sign.  This man, well-dressed and driving a new Lexus, has some credit issues. Because he hasn’t made a payment for three months his Lexus is about to be repossessed.  He has to park several blocks away from his current home so the tow truck driver can’t find the car.  He also has to sneak into his apartment because he hasn’t paid any rent lately—or at all.  He has been too busy trying to impress people with his free drinks and meals while trying to suck them into his latest scheme.

He strides into the property full of self-confidence, wearing his $1,000 suit and Hugo Boss shoes, smiles, introduces himself, and compliments the landlord on a “beautiful property.”  He adds that he “could really feel at home in a place like this that is maintained so well.” He wouldn’t live in just any rental home. After all, his home has to be one that fits his carefully crafted public facade.

With his “unerring” fifth sense, Mr. Knows-instantly-the quality-of-an-applicant landlord takes one look at the prospective tenant and knows that this would be a wonderful person to have living in his property.  He thinks about offering an application but decides against it for fear of driving off a potential, platinum-quality tenant by doubting his quality.  In fact, he asks this applicant, “when can you move in?”

As I pointed out above, the best way to get rid of a bad tenant and to entice a good tenant is to offer an application with the words “we screen applicants carefully” somewhere toward the top (and then do it, of course).  The most successful landlords do screen every applicant carefully no matter how “good” or “bad” they first appear and offer each person who looks at his property an application.

#propertymanagment #rentals #landlord #rentalproperty #renting #landlords #getitrented https://www.amazon.com/dp/B072JHCPM8

By Robert L. Cain, Copyright 2021 Cain Publications, Inc.

For the want of a nail the shoe was lost—and eventually the kingdom.  For want of a 57-cent part, General Motors could have been lost. That’s the 57-cent ignition switch part that caused General Motors to recall 2.6 million vehicles in 2014.  For want of a screw, a rental property investment could be lost.

Even the biggest rental owner can’t approach the financial resources that General Motors has much less the likelihood that the government will bail him or her out.  And a kingdom?  No matter how proud you are and how many rental properties you own, it just doesn’t qualify as a kingdom.  Instead, the damage and lawsuit from a lack of such a little thing as a screw can and will bankrupt a rental owner.  Replacing a screw and preventive maintenance are akin to the 57-cent part: it is usually both cheap and easy. Let’s look at the legal principle that governs a landlords’ liability in preventive maintenance and the kinds of things that can arise from it.

General Motors’ liability and subsequent recall falls under the “Constructive Knowledge” principle.  That’s defined as a fact a person who applies reasonable care should have known.  For example, if a screw was missing so a door lock on the front door of an apartment building didn’t work properly, an owner should have known and would be liable for crimes and injuries to tenants resulting from the broken lock.

Explains wiki.legalexaminer.com “The owner/occupier has a duty to exercise reasonable care in the management of the premises to ensure persons are protected from an unreasonable risk of harm.”  A worst-case situation is in those states that have a “strict liability” law.  The Free Dictionary defines it as “the legal responsibility for damages, or injury, even if the person found strictly liable was not at fault or negligent.”  That means even if someone diligently carried out a thorough preventive maintenance program and wasn’t negligent in most states, and the door lock broke seconds before the mugger broke into the apartment complex,  the owner will still be held liable.  Fortunately few states apply that standard except for dog bites.

Prime targets for lawsuits are apartment complexes and office buildings. How can rental owners protect themselves?

It involves making a plan and carrying it out.  Auto repair companies recommend, unnecessarily now, changing your oil every three months or 3,000 miles.  Many of us change the oil in our cars regularly even if it is a little longer.  That costs infinitely less than a new motor.  Yet, too many rental owners don’t deal with repair issues until something breaks and a tenant complains.  How much cheaper and better PR it is to do maintenance checks every three months or so.

That kind of maintenance preserves the physical integrity of the building. Mostly it involves walking around and through the property to discover potential problems before they become expensive. The result of preventive maintenance is corrective maintenance.

Corrective maintenance is nothing more than fixing things that are broken. Repairing leaky faucets, broken windows, broken furnaces and balky locks fall under this category. These are calls you get from tenants saying something needs fixing.

Routine maintenance is the scheduled stuff. (Sometimes the definitions for it and Preventive Maintenance are reversed.) Cleaning the gutters once or twice a year, picking up litter in common areas every day, lawn mowing, parking lot striping and fence painting all fall under this category. Routine maintenance and cuts down on corrective maintenance costs. But it can be a large budget item, especially if regular maintenance has been ignored until it costs considerably more than replacing a screw. In a commercial building, for example, routine maintenance can swallow up 18 percent of the budget, but rental properties may not get the same constant use commercial buildings do.

Why don’t landlords do preventive maintenance and routine maintenance?  The excuses are often such as “I don’t have time,” “It costs too much,” or “I just never think about it.”  I know exactly what you mean.  Even so, here’s an example that may encourage you to find the time or remember to do it.  A number of years ago I got a call from a lawyer who was representing a property owner in a lawsuit because someone had gotten injured on the owner’s property.  The owner didn’t do much preventive maintenance. He was ordering  a book I sold at the time, Preventive Maintenance for Apartment Communities. The book, actually a schedule/checklist, is a list of what things to do when.  Follow that and preventive maintenance is complete.  The attorney was buying it to give to his client.

It was like shutting the barn door after the horse was out but was likely an effort to show that the property owner had changed his negligent ways and was taking more attentive care of his property.

Preventive maintenance means spending a little now to save more later.  It has the additional advantages of first, showing tenants you are on the ball, and second, giving you the opportunity to inspect your properties for not just repair issues but tenant issues.  It’s interesting what you see when you notice how your tenants are living, isn’t it?

Take the time, put it on your calendar, and walk around your property with a checklist of things that could require repair.  Wiggle handrails, check the locks, look for leak evidence, both roof and plumbing, and take care of little things before they result in a lost property. Here’s one free checklist I found.

For Want of a Nail

For want of a nail, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the message was lost.
For want of a message, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail.

By Robert L. Cain

They say they didn’t mean to.  They say their intentions were pure, and those intentions were bushwhacked by a “a computer error.” The April 9, 2021 issue of MIT Technology Review reported that Facebook (the company with the pure intentions) “is withholding certain job ads from women because of their gender.”

An audit conducted by researchers from the University of Southern California (USC) found that Facebook’s “ad-delivery system shows different job ads to women and men even though the jobs require the same qualifications.”  The problem has yet to be resolved because the man who built the software apparently can’t fix it. 

Nothing new here, either.  In October 2016, Propublica “brought the issue to light” showing that the Facebook program allowed “advertisers of job and housing opportunities to exclude certain audiences characterized by traits like gender and race.” They didn’t mean to, but that’s what happened. And they can’t fix that, either.

It doesn’t matter if you “didn’t mean to.” It’s what somebody think you might have meant that matters. Both business owners’ and rental property owners’ “neutral” requirements can backfire and create legal issues that can result in misery and fines that can bankrupt that business or rental owner. Facebook has armies of lawyers to take on the federal government.  Small businesses and rental owners have no such luxury.

Facebook is in trouble because they “unconsciously” steered people to ads by gender when gender was not a legitimate criterion—questions and ads “neutral,” result biased.

To avoid even the hint of bias interviewing questions and ads must be crafted carefully. Good luck with that, but some things will avoid hints of bias. Let’s look at how.

“Objective standards” and questions might be considered discriminatory because they have a “disparate impact” on one protected class of people.  The Fair Housing enforcers created the concept of “disparate impact” because they discovered, sometimes logically, sometimes not, that some rental standards had a different impact on some classes of renters than they did on others.

Using any of these words will likely create a problem.

Restricted: Implies whites only

Adult: Implies children not permitted

Single: Implies children not permitted

Christians only: or Jews, Catholics, Muslims, etc.

Individual: Implies children not permitted

No children

Woman/Man: Can only discriminate if they must share a bath

Retired: Implies families not permitted

No more than two children: Nor can you specify any number of children, only total number of occupants, and even then you have to be careful to follow Fair Housing guidelines (more about that in a minute)

Older children only: or younger, for that matter

Whites only: or Blacks, Asians, Indians only

Workshop for dad: Implies gays and single parents not permitted

Mom will love. . .: Implies no gays or single parents

Family complex: Implies no gays or single parents

His & Hers Closets: Implies gays not permitted

Employed: Discriminates on the basis of source of income

Heterosexuals (or Homosexuals) only: Discriminates on the basis of sexual orientation

Even the following “neutral” words might be construed as biased.

Executive: Can be construed as excluding poor people, and implying whites only, because supposedly they are the only executives

Exclusive: Implies whites only

Private (as in “private club”): Implies whites, Christian or religious only

Integrated: Could be a code word for a minority community

Mature: Implies children not permitted

Physically fit: Implies not suited for handicapped

No play area: Could be construed as discouraging children

Quiet tenants only: Could imply children not welcome

Ideal for professional couple (large family, newlyweds, etc.): Picking out a group it is ideal for automatically discriminates against everyone else

Near Catholic Church, Jewish Synagogue, etc.: Implies steering.  (A HUD official from Boston couldn’t understand the concept of steering, but it is basic real estate law.)

Then there are rental standards. A landlord or municipality might adopt a policy that says that people who call emergency services for help more than once can be evicted.  That presents a problem for people who have survived domestic violence—a protected class. Other ental requirements state that only people with full-time jobs may be considered for tenancy regardless of income. That immediately disqualifies disabled veterans and senior citizens who even if they can afford the rent cannot work—two more protected classes.

Still another example is prohibiting leaving toys in the hall of an apartment building. That might permit leaving a motorcycle in the hall since that isn’t a toy, for most people anyway.  That rule seems to be neutral but has the effect of discriminating against families with children since children are more likely to forget to bring their toys in.  Families with children are another protected class.

Occupancy limits

In 1996 Congress enacted a law based upon a 1991 HUD memo stating that a two-person-per-bedroom occupancy standard was acceptable in most situations. By no means can that be considered a hard-and-fast rule. The figure can change depending on how the property is laid out. More occupants may be allowed if there are unusually large living spaces or bedrooms, and fewer occupants if the opposite holds true. Infants probably don’t  count when calculating occupancy. Those policies could have a disparate impact on families with children.

There’s no sure way of telling what can put a target on the back of a landlord for a Fair Housing complaint. Complaints are subjective, meaning that it the “offended party’s” perception that counts and will result in an investigation.  No one comes out ahead then.

How to write standards that are neutral but accomplish the same goal.

Wrong

Children may not play in the hall.

No more than 2 children and two adults permitted to occupy the premises.

Children may not swim in the pool alone.

Children may not leave toys in the halls or walkways.

Right

Residents and their guests are not permitted to play in the hall.

No more than four people may occupy the premises.  Any new residents must fill out a rental application and be approved by the landlord.

No lifeguard is on duty at the pool.  Tenants and their guests swim at their own risk. Or, children 10 and under must be accompanied by an adult.

No toys, bicycles, or other vehicles are to be left in the halls or walkways.

Back to “not meaning to.” If it’s a discriminatory standard, authorities assume you meant it to be even if you were doing your best to be fair. As to Facebook, who can tell their intentions? Of course they’ll say they’re unbiased and the whole problem is a “computer error.” And they have an army of lawyers to prove it. Small businesses and landlords have no such resources and have to ensure their lack of bias with carefully crafted standards and policies.

By Robert L. Cain

Less than a year after the end of World War II, 1946, household debt was less than 15 percent of the US Gross Domestic Product (GDP). Then, in the 1960s, Bank of America, offering the first credit card, BankAmericard (later renamed Visa), sent some 60,000 credit cards out to anyone and everyone in California. Of course, fraud resulted, but that’s not the focus here. Consumer debt problems and debt are. Both are stuck on ever-accelerating up-escalator with no top floor.

Until the 1980s, consumer debt had hovered at 15 percent of GDP or less. Then, just between 1982 and 2000, household debt blew up from 43 percent to 62 percent of GDP. By the eve of the 2008 financial crisis, it peaked at 100 percent.  That’s right, we consumers owed as much as the total US economy produced.  Then it got “better.” The St. Louis Federal Reserve reported that in the fourth quarter of 2020, it had dropped to 73.38 percent of GDP down from 84,5 percent six months earlier.

So what?  That’s all interesting and seems overwhelming, but how does that affect doing business. Those figures misdirect thinking away from a troubling situation.  The pandemic played havoc with debt but not in the way we usually think of it.  As we reported in March 2021, credit scores have improved because people weren’t paying their debts. Debt is growing, but past due balances are set to current.  That’s playing with numbers, playing with data that without further investigation make it look like things aren’t so bad.  After all, credit scores are rising, but debt’s increasing. People don’t have work and can’t pay their bills, but that’s all right because they don’t have to.  A close examination of who owes what and how it’s not being paid is instructive in that we can see the mushrooming crisis.

Student loans are one example, and the biggest one.  Student loan debt exceeds both credit card and auto loan debt at more than $1.6 trillion. Experian reports that “As many consumers aren’t actively paying down their student loans, individual balances grew by 9%, or over $3,000 per consumer, to a record high of $38,792.”  That’s per borrower. Because of the pandemic, loans are in forbearance, so borrowers don’t have to pay. But balances keep growing anyway because the missed payments get added back into the loan.

That helps in the short term with the burden of monthly payments going to other bills or to savings. But the debt grew, as Experian pointed out, 9 percent in one year. At some point, the money will come due and the lenders will expect payment regardless of whether borrowers have a job or the income to pay.

The people taking the biggest hits to their indebtedness are Generation Z, 18-23 year olds, and Millennials, 24 to 39 year olds.  Gen Z’s average debt increased 67.2 percent from 2019 to 2020 while Millennials appeared “considerably” better at 11.5 percent.  That left their parents, Generation X and Boomers seeming to do best at 3.5 percent and 0.3 percent respectively.  Gen Z and Millennials don’t owe as much money, but their debt increases at a greater percentage than it does for those who earn more money. As we will see, those figures misdirect and mislead.

Even though the vast majority of the increase in debt for the Gen Z and Millennials comes from student loans, Generation X has “the largest student loan burden of any age group,” reports Experian.  That’s because they used Parent PLUS loans for their children.  A 2019 study by the Urban Institute, “Reshaping Parent PLUS Loans,” reported that almost one million parents took out one of those loans and those averaged $16,000 per borrower.

Those didn’t hit the college students’ parents’ credit as hard as the younger generation because Gen X has mortgage debt, something that usually far exceeds a mere $16,000 student loan debt.  Gen X’s average debt from all sources increased only 3.5 percent to $140,643, reports Experian. Even so, Gen X’s student loan debt alone increased 13 percent in the past year, at a greater rate than that of Millennials.

The big picture is that in the 10 years from 2010 to 2020 total debt grew by 22.5 percent including close to 6 percent in the last year from $14.08 trillion to $14.88 trillion.  That’s without much more money being borrowed but simply ploughing itself back into a consumer’s credit but still showing current on credit reports.

Where is this headed and what does it mean for businesses and rental owners? CNN reports that “Federal student loan payments are set to resume on October 1, after an unprecedented 19-month suspension.”  You can’t do just one thing. Ripples of any action affect every situation unpredictably but inexorably. Suspending student loan payment just put off the inevitable, the crash of debt.  Will the student loan borrowers be able to make the renewed payments? The ones with jobs with salaries high enough to repay will, but how many of those will there be?  Will suspended payments be due all at once or added to the end of the loans?  We won’t know until it happens.

Then there is the eviction moratorium, set to expire June 30 unless the administration extends it and a judge says it can.  At that point, thousands of renters will be evicted.  Landlords won’t have to wait because many already have the eviction orders and just need to arrange for the sheriff to carry them out. Many tenants won’t be able to pay current rent plus all back rent so will find themselves and their possessions on the street.  People with a job won’t have a place to live, creating a dilemma for employers. Those without jobs won’t be able to rent because they don’t have jobs and have an eviction of their records.

Homeowners may be off the hook for another few months as the Consumer Finance Protection Bureau has proposed extending the foreclosure moratorium until January 1, 2022.  Again, we don’t know how that will play out when lenders are once again able to foreclose.  Will payments get added to the end of the loan?  Will suspended payments be due and payable when the foreclosure moratorium ends? Again, those people with jobs may be out on the streets in spite of the fact that they are earning income.  Those without jobs will be scrambling for a place to live.

Regardless of the dates, though, the disaster has been riding the up-escalator for more than a year. Renters, homeowners, and landlords may not be able jump off the too rapidly accelerating debt crisis.  

By Robert L. Cain, Copyright 2021, Cain Publications, Inc.

Mornings and evenings couples stroll through the neighborhood enjoying each other’s company, admiring what neighbors have done and are doing to their yards, saying hello to and maybe gabbing with neighbors. Mornings they’re enjoying the cool of the day before the heat sets in.  Evenings, they’re soaking in the remaining warmth.  They stroll and walk because they enjoy it with little if any thought about exercise unless someone brings it up. After all, that’s not why they went for a walk. And by the time the walk ends, they feel restored and content.

There’s nothing unusual about morning and evening strolls; people have looked forward to them for thousands of years. But they are becoming more of a rarity now, even though we still see couples and single people walking every day.

Historically, walks were the only way to get around.  As time went by and technology advanced, they remained the preferred method of transportation, especially in small towns where size lent itself to foot traffic. Even after modes of transportation—horses, wagons, trains, and cars—became well established, walking remained for many people pure enjoyment, something to be treasured. Others, took it one step further; famous writers, poets, and philosophers used and still use walking for formulating ideas and inspiration, getting their heads clear.  Going for a walk is its own reward as people maybe—even unconsciously—realize as they take in the day and evening.

But the fitness industry has reduced the pleasure part of walks and relegated them instead only for “fitness,” exercise, and bragging.  They even use smart-phone apps to prove the exercise accomplished. What happened to the simple pleasure of going for a walk?  Walking has turned into something artificial, something that can be monetized, kept track of, guilt pitched, and obligated. Guilt and obligation demand that a walk be not just a pleasurable stroll and opportunity to see the world, admire sunsets, and greet neighbors but must serve a “fitness purpose.”

How did it come to this?  It hasn’t been pretty, but it has been relentless. In city design, sidewalks became afterthoughts and optional. After all, who walks anymore?  Traffic engineers came to consider walkers “pedestrian impedance,” or “vehicular delay.”

Fewer and fewer people walked. After all, walking met with discouragement. Instead, they got in their cars and drove to see friends and family even as short a distance as around the block. My neighborhood uses community mail boxes that are at most a block away from someone’s front door. But that block is “too far” for many people; they drive to check their mail then turn around and drive back home.

Society has denigrated pleasure walking. After all, you don’t have to walk to get anywhere, so why walk? You can drive, get a ride, or take public transportation. The health of the American people deteriorated. The result: an entirely new industry developed.

These days everything gets measured and reported, judged, and decried by those who would profit from it with their own “solutions” to whatever problem the data “proves.”  Since 1976, for example, 24/7 Wall Street reports the average weight for men has increased 13.5 percent and for women 16.8 percent, up from 172.2 and 144.2 pounds in 1976 to 195.7 and 168.5 pounds respectively in 2018.  As they berate us daily, lack of exercise constitutes a good share of the reason for ballooning weight.

Taking full advantage, the fitness industry has lobbied and rung in government to provide “guidelines” for how much we are supposed to exercise for good health and maybe fitness.  How has that worked? Not much difference, is there?

The added lip service to “eating well” is suspect at best and completely wrong at worst, simply prolonging and provoking even more weight gain and declining fitness, eating food that packs on pounds, provides little nourishment, and makes people feel worse.

As health and fitness deteriorated. the constant high-pressure sales from fitness trackers, gyms, and exercise gurus redoubled. See them pitching guilt to those whose inclination is to sit at home and venture out only as far as the car where they can the drive-through McDonald’s and Taco Bell. The guilt works up to a point.  Then it becomes self-defeating for both the hesitant exercisers and the fitness industry.

What can they do? It’s simple, the fitness industry ups to the standards, redoubling the guilt and obligation. They get employers to encourage or even mandate, specific numbers of steps a day and insurance companies to require fitness tracking for policyholders to get the best deals on policies. How do they know how many steps?  That’s easy. Provide fitness tracking devices that tell how much exercise someone gets and report that to the “proper authorities.” Oh, the guilt!

Why is it self-defeating? Because of guilt. Pitch guilt and after a while people say enough is enough.  They stay home and let those “other people” go out and walk, driving instead of walking. They quit the fitness tracking because it makes them feel bad. They replace possible  enjoyment of a walk with obligation, guilt, and demoralization.

Sure, walking is good for you.  It gets blood moving, lets you breathe fresh air, loosens up muscles, and gives you a glow that will last for hours. But if you feel obligated to do it in order to get fit or report your exercise to a boss, an insurance company, or the government, it won’t be long before resentment sets in and excuses pop up for not walking. It’s much easier at that point to rationalize why you don’t want to walk, why it’s just a waste of time, why you can put it off. It will interfere with the game you want to watch. Besides, it looks like it might rain, or is too hot, or is too cold. Your knee is “acting up,” and you’ve got some yard work to do (that may be a reasonable one). With all that to consider, the dog doesn’t need a walk right now, and you’re too tired, anyway. You have a big day ahead and don’t want to exhaust yourself. The exercise can wait until tomorrow. . . .  You might be able to think of a few more “good” excuses.

Meanwhile, folks in their neighborhoods thinking nothing about exercise, only about the pleasure of a walk, go out for a stroll to enjoy the cool or warmth, each other’s company, friendly neighbors.

So instead of thinking of walking as exercise, as only for fitness, as an obligation, if you thought of it as something to be fully enjoyed and anticipated. How might that change motivation?  Even a walk as short as around the block can rejuvenate even the more wayward body.

My thoughts turn to where I will walk today not how far, how fast, how sweaty, or whom I’m going to brag to. What haven’t I seen for a long time? A “long time” might mean a week or a month, but I don’t keep track.

I feel a walk coming on and I’m going to fully enjoy it.

#naturewalks #walkers #takeawalk #onfoot #walkingforhealth #naturewalking #walkingbook #bookofwalking https://www.amazon.com/dp/B08BDDP3KC

By Robert L. Cain

Just because a debt drops off a credit report doesn’t mean a debtor doesn’t owe it anymore. Just because the statute of limitations for a debt passes, doesn’t mean a creditor can’t still collect it. We’ll look at debts and how they hang around even if people think they’ve gone away or are uncollectible. It’s in the best interests of the person or company owed the money to do whatever is legally possible to get what is owed.

After seven years, an unpaid debt drops off a credit report. But it’s not gone. Sure, when someone pulls a credit report, that aged-out debt has vanished. Debts are considered uncollectible when they go 180 days old. That’s when collection agencies work their collection machinations. The letters start, the phone calls become more and more invasive, the threats, idle or not, get worse and worse and continue as long as legally possible. Collection agencies work on the badgering principle. Get tired enough of our harassment and you’ll pay up. Squeakiest wheel. When the badgering doesn’t work, the debt vanishes from the credit report after seven years.

The debt remains in full force when the statute of limitations prevails. Statutes of limitations vary state to state, and after the debt passes that time period, it’s no longer owed—officially anyway. A couple of wrinkles can make it collectible again. We’ll look at those in a minute. Six states have statutes of limitation of 10 years. Illinois, Indiana, Iowa, Kentucky, West Virginia, and Wyoming say a debt is collectible for 10 years. That means, yes, it’s dropped off the credit report after seven years, but the state says you still owe it. The largest number of states, 21, have a six-year statute of limitations, and nine give it three years, which means, of course, that the statute of limitations expires before the credit report drops the debt. To find out your state’s law, call your attorney or do a search online.

But written into laws are a couple of caveats: tolling and partial payments. Tolling is a legal term for suspended. The statute of limitations can be tolled for several reasons. First, the debtor is in jail. You can’t collect a debt from a prisoner, so the statute of limitations time waits until the prisoner re-enters society. So if an unpaid debt is a year old and the debtor goes to jail, the counting stops until he’s out. Thus, if the statute of limitations in that state is six years and he’s in jail for six years, the counting doesn’t start again until the prison sentence is over. That means the state says the statute of limitations applies for one year plus six years plus six more years, or 13 years.

Second, the counting stops when someone leaves the state where the debt is owed. Same drill as when someone is in jail. Thus, if an unpaid debt is a year old and the debtor moves from Wyoming (10 years) to California (3 years) and lives in California for 10 years then moves back to Wyoming, the counting starts where it left off. That’s one year plus 10 years plus nine years, or 20 years. What a surprise to move back and the letters and phone calls start again.

Insanity also stops the count, as does being a minor. Once the debtor is no longer insane or a minor turns 18, the clock renews or begins.

Covid-19 may also toll a debt. Some states have stopped the count until the pandemic is judged to be over. How they will decide when the pandemic ends varies state to state, so asking an attorney how it affects your delinquent debt might be worthwhile.

Once all the permutations get satisfied, the debt becomes “time-barred.” That means the collector can’t sue for payment but still has other options. They can still contact a debtor about the debt. The Federal Trade Commission says that if a collector contacts a debtor about a time-barred debt and the debtor asks if the debt is time-barred, “the law requires that his answer to truthful.” The FTC suggests three possible responses to the debt. One, pay nothing on the debt, two pay off the debt, or three make a partial payment. However, a partial payment revives the debt and the counting begins as if it were a new debt. “It also means the collector can sue you to collect the full amount of the debt,” reports the FTC. It also shows up on the credit report again. 

The FTC further warns, if a collector sues, the debtor had best go to court to show that the debt is time-barred. Otherwise, the collector gets a default judgment and it’s as if the debtor agreed to pay the time-barred debt.

For a creditor who figures never to get paid, there’s a way for that creditor to give some sleepless nights to a debtor, even though the creditor won’t get paid. The IRS can be the collection agency by filing a Form 1099-C, Forgiveness of Debt. Investopedia explains, “Form 1099-C is used to report a canceled or forgiven debt of $600 or more. The lender submits the form to the IRS and to the borrower, who uses the form to report the canceled debt on his or her income tax return.” Many debtors won’t know what to do with the form, but the IRS considers the forgiven amount to be income, income that must be reported. Fail to report it, and the IRS investigates. It doesn’t matter if the debt is time-barred, off a credit report or anything, save a few exceptions listed on the IRS’s instructions for using the form. The only time the debt could appear on a credit report is if the IRS prosecutes or gets a judgment for a debtor’s failure to report income.

The important consideration is that it is rare for any time-barred debt and debt that’s dropped off a credit report, to appear when a landlord or employer pulls credit on an applicant. Thinking creatively about unexplained discrepancies on an application and credit report could protect against getting stuck with someone who hasn’t paid, or doesn’t or won’t pay bills.

Written for Zip Reports where they do employment and rental screening. ?Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Copyright 2021, Cain Publications, Inc.

“Wow! $10,000! I kind of knew the roof was on its last legs when I bought this place, but I never found out how wobbly the legs were or how much it would cost to fix it.  What a surprise!”

There are no good surprises in real estate.  I think I say that somewhere during the presentation every time I do a speech or seminar.  I know I did when I was doing a seminar on the “11 Rules of Real Estate Investing” when I spoke to an organization in Missouri a number of years ago.  But this time, when I said that, a woman in the class piped up and said, “Oh, no, I got a good surprise.”  Then she recounted that after she had bought the property, she discovered there were beautiful hardwood floors under the wall-to-wall carpet.

Even though I didn’t say it, my first thought was why was that a surprise?  Didn’t you check the flooring before you plopped your money down?  Suppose it hadn’t been “beautiful hardwood floors”?  What if it had been rotten flooring made to feel sturdy by some 1/4-inch plywood reinforcement?  That would have been a surprise, too, and you wouldn’t have bragged about that one.

My point is this:  when we buy a property, there should be no surprises.  That’s why we have property inspectors and engineers to tell us what, if any, problems there are that might crop up down the road, or even next week.  Once we know those, we can factor in those costs to our profit calculations.

“Wow, a $10,000 roof” should never be “What a surprise!!!!”  Rather, from day one, the replacement cost amortization should have been a budget line item even if you had factored in the replacement cost into the price.

How can we set this up?  We need a reserve account where we stick money reserved specifically for replacing things that wear out, such as roofs, dishwashers, HVAC, and refrigerators.  That money comes out right after the mortgage payments and gets tucked securely away where we won’t be tempted to spend it on anything else.

Here’s an example of how to do that.

Say, when we bought the property, we knew that the roof had about 10 years of its 20-year life left, and after consulting our trusty roofing contractor, found out that its replacement cost would be $10,000.  That means we have to factor in $10,000 divided by 10 years, divided by 12 for each month.  Thus, the reserve per month needs to be 10,000/10/12, which equals $83.33 per month. 

Then that money needs a specific accounting.  Get out your property management software, create a “Reserve” account, and start adding items.  So for example, this item would be set up something like this:

Item     Property Address        Current Life    Expected Life Replacement cost        Balance

Roof    1234 Main St.             10 years           20 years           $10,000                      

The software should calculate the declining balance if you tell it to.

Now, how about appliances?  The same technique works.  But here we might have multiple appliances in individual properties.  For example, there might be a four-plex with dishwashers of varying ages in each unit.  Dishwashers cost $400 for a builders’ model, probably what we want to install.  Thus, a one-year-old dishwasher would have eight of its nine-year life ahead of it.  So the line item would be 400/8/12, which equals $4.17 a month in reserve.  A dishwasher with only two years left on its life equals $16.67 a month, or 400/2/12.

It’s important to separate out each of the items for each property, not only so we know where we are, but also for tax purposes.

Understand that I am not an accountant and, moreover that I am “accounting indifferent.”  I have gotten this information from people who know how all this works. Fortunately, we all have access to those individuals, and they love doing this stuff.  They can be saviors in keeping us from losing our shirts on repair and replacement costs and avoiding “surprises” that never should have been surprises in the first place.

I repeat my mantra, “There are no good surprises in real estate.”  If something is a surprise, we have not been diligent.  That applies not only to repairs and maintenance, but tenants.  But tenants are a subject for another time.  The major lesson here is that we need to question everything. That’s one giant step to successful property management and investing.