Forms, Laws, and Hats Made Simple
by Mike Butler
Forms, Laws, and Hats we wear will be made simple and we’ll tackle and address
the painful, hidden confusion and frustration of trying to “do the right thing”
as an investor.
When I got started as a real estate investor, I had a job as plain clothes
detective in my town. I’d like to think I was promoted from uniform patrolman
because I did a good job. Some of the baggage associated with being a good cop
involves your knowledge of the laws, your people skills and a good work ethic,
along with an acceptable and not too offensive level of confidence and authority
when needed.
With all of this cop stuff already in my noggin, I had a huge handicap I failed
to see or grasp. I was totally in the dark on this one. I thought or I assumed I
had it all figured out on the "legal side." I was the guy who was going to court
every day, dealing with the "criminal side only" of the courthouse and slamming
defense attorneys at every opportunity when they represented or tried to help
"dirtbags and tax-eaters" who take pride in ripping off tax payers and good
people. This is one of those police characteristics that also drive attorneys
absolutely bonkers when police think they know all of the laws.
So, I captured a little 2 bedroom HUD house, renovated it using my hands and
elbow grease (to save money… big mistake) and then plugged in an ex-con who went
to prison for writing bad checks. At that time, I had no clue how to process a
rental application or where to even get one. Here’s what I did. I ran up to my
local Office Depot office supply store and started browsing through the forms
section. Ah-ha! I found it! A rental application and a lease! I’m in business!
Here comes some of the dangerous behavior on my part. Having never had the first
class or book on anything about investing or landlording, I simply chose to do
what I thought I knew. So, my applicant fills out the rental application, and
looking back on this today, what I’m about to tell you is absolutely wrong and
illegal. Ignorance of the law is not an excuse; however, I was dumber than a
brick in this situation.
My applicant fills out the application and I simply made a bee line for my
police office and I did a little local check to see if he’d been arrested. Sure
enough, not only had he been arrested, but he had a history of writing bad
checks and had even been sent to prison for “hanging paper.” Now, I think and
assume I am a sharp cookie for this neat little discovery and meet with my
applicant again. Once again, my confidence level combined with a little
authority sort of puts me in a unique situation. I simply confront “Jim” about
his little financial habit of writing bad checks and proceed to let him know he
can be a cash only customer and tenant. Jim agrees and I immediately pulled out
my Office Depot Lease Agreement like an expert investor doing the paperwork and
giving him the keys.
I was lucky. Jim turned out to be a great guy and I can write a whole article on
just our relationship over the years. We made a win-win relationship for both of
our families. Jim and his family are still with us today in their 3rd Vista
home. His two oldest kids are grown and married with grandkids and his youngest
is in high school. After having done this first rental house slick as a whistle,
I repeated the exact same process on our 2nd rental property. Here’s where my
School of Hard Knocks really begins. The house across the street from the first
rental house went up for sale. It was identical to the first one. Same floor
plan and square footage. I used the same rental application and the same lease
agreement from Office Depot.
I’m guessing about 3 or 4 months down the road, Jim kept paying on time like
clock work. The 2nd rental house tenant was another story. Long story short, I
probably went through all of the grandmothers dying, aunts and uncles getting
sick, paychecks lost in the mail, sickness and more…I fell for the hook, line
and sinker and allowed them to make small measly little payments that couldn’t
put a dent in the total amount owed. Then my wife, Tammy, jerks my chain. I
think she might have even called me stupid for putting up with these folks. The
Big E word is lurking around the next corner for me. Here I am, the all knowing
about the courthouse and legal system and I’m totally in the dark about this
thing called an “eviction.” I didn’t have a clue where or how to get started.
After realizing these tenants were not going to pay, it was time to take some
legal action. I traveled to the courthouse and looked for this special room to
start the eviction process. I filled out the paperwork handed to me. The clerk
gives me a court date and tells me I must pay about $50 or so to file the papers
to start the eviction process. The court system calls this a “forcible detainer
action.” I assumed not paying rent was a crime and I was a victim… Totally wrong
on my part. That was a shock to me because I usually got paid to go to court and
I’ve never seen a “victim” charged a fee to go to court. (Attorneys are grinning
big time on this one).
The Court Date
After paying my $50 or so to the clerk, I was given a court date. I asked “Why
am I getting a court date? These folks have not paid their rent for almost 3
months and I want them out now!” I about to get my wings clipped again. I was
informed the tenants are given the opportunity to appear in court and present
their side of the story to a judge. I’m beginning to boil now. It was totally
shocking to me that these dirtbags get to stay in my house while this whole
process is going on. To really tick me off, my court date was about 3 weeks
away…. Now another month with no rent. I’m getting my clock cleaned on both ends
now. The tenants are grinning and laughing at the stupid cop landlord and Tammy
is on my butt something fierce. We have house payments to make from our grocery
money.
It Gets Worse!
I’m foaming at the mouth and waiting for my court date. I’m used to going to
court and flat slamming my opponents… the criminals. I always have my I’s dotted
and my T’s crossed. One of my favorite sayings to defense attorneys “Let’s T it
up!” (meaning I am not afraid to go to trial because I have my whole case in
order with absolutely no loose ends.) Off to Eviction Court I go. I got my
files, my great log book of chronological activity in dealing with this tenant
and I’m just so looking forward to “Slamming” them and getting them thrown out
of our rental house. My tenants show up in court with a free attorney from legal
aid. The judge calls our case and I proceed up to the bench in front of the
judge and my tenants with their attorneys do the same. I even knew the judge I
was standing in front of. This detective Mike Butler had a great reputation in
this courthouse as a very good and thorough police officer and detective. (I
thought I might have an edge with this judge knowing me…false).
The judge asked me about their non-payment of rent. I informed the judge they
haven’t paid rent for over 3 months. Then the judge asks the attorney for my
tenants to respond. Their attorney immediately takes off on some tangent about
not having received proper notice from the landlord. I respond by pulling out my
little chronological record of corresponding with the tenant and I told the
judge on these specific dates I told the tenants I would evict them if they
didn’t pay… Plus I had the signed Office Depot Lease agreement with me where it
spelled out in Paragraph 7 they would be evicted if they did not pay rent.
Kaboom!… I’m thinking no brainer. I win. Tenant loses. False. Landlord loses!
What in the world is going on? I’m about to explode! What part of this story did
the judge miss? They did not pay their rent. I’m a victim!
Here’s The Real Deal. I just graduated from the School of Hard Knocks and never
knew I was in the classroom. In my town, just like most in America today, we
have our local and/or state Landlord/Tenant laws. In my town, landlords must
give a tenant who does not pay rent a 7 Day Notice to Pay their Rent in full or
return possession of the rental unit to the landlord. In most states, there is
very specific language or words that must be included in this Pay or Quit
Possession Notice. Many states spell out specifically and in important detail
how this notice is to be given to your tenant. Some states say certified mail or
registered mail.The bottom line is I did not follow our Landlord / Tenant law
and my case was unfortunately… Dismissed! I had to start over!
I was madder than a mashed duck! I was furious! This is not fair. Plus, when I
told Tammy what happened, I think she called me “stupid” again. Unbelievably, I
discovered I could not return to the little room in the court house to file for
another court date. I would only repeat the same process I just finished. Here’s
what I later learned the hard way:
If a Tenant doesn’t pay rent in my town, I must:
- Send the Tenant a 7 Day Notice to Pay or Quit Possession. It must include the
proper language and some more stuff specific to my state and county.
- I have to be able to prove the Tenant received the notice.
- I better not accept any partial payments of rent from the tenant during this 7
day period or my eviction process will be thrown out and dismissed. I know this
because I did it and received another certificate from the School of Hard
Knocks.
- Only after giving the tenant 7 days to make their rent current, could I file for
and start the eviction process in the court system.
- In my town, I would get a court date about 3 weeks down the road. If things go
my way, the judge gives the tenant 7 more days to get out, and then I have to
file for what’s called a “writ for possession” or a court order to be executed
by the Sheriff’s office where they physically remove the tenant from the
property and return possession to the landlord.
Wow! So brutal! This month’s issue is not about evictions. There’s a whole lot
more to it than this little bit.
Here’s another frustration from the school of hard knocks. Several years ago,
(before I figured out how to screen applicants the right way), I had another
tenant who chose not to pay rent. Ah-Ha! I’m all over this one! Got my 7 day
letter out the right way and dotted my I’s and crossed my T’s. Tee it up! Yup, I
hit a home run. Tenant found guilty. I win and we move forward in the court
system to finally reach the physical “set out” of this tenant from our property.
The Sheriff’s Deputies show up along with our 5 guys to forcibly remove the
tenant and all of their personal property. It’s all placed carefully at the
street on the curbside. I had brushed up on my Landlord/Tenant law after being
burned in those previous situations. I instruct my guys not to touch the
tenants’ property sitting at the curbside for at least 48 hours. Our landlord /
tenant law states the landlord shall leave the tenant’s property on the street
for at least 48 hours to allow the tenant the opportunity to gather their
belongings and move on their way.
Well, here comes another Kaboom! Mike loses again. Now the local city inspector
happens to ride down the street and sees all of the junk set out at curbside.
Guess what the city inspector does? The property owner, me, gets a citation and
a $100 per day fine for having all of this junk improperly set out at the curb.
Once again, I’m become furious! How can this be? Make up your dang gone mind!
This landlord / tenant law says I must give the tenant 48 hours before cleaning
up their mess and disposing of their junk. Now the city is citing me for trying
to do the right thing!
What’s the Method to the Madness?
Here’s the point I’m trying to get across. There are many, many different forms,
rules, regulations, and laws. You can not become an expert on one particular set
and assume you’ve got all of the bases covered. Many laws contradict each other!
You will find local, state, and federal laws that have different rules and
regulations on the exact same topic or situation. This is our wonderful legal
system. Get used to it. It will not change. The long and short of the
frustration about the tenant’s property being placed at curbside from an
eviction:
- Landlord/Tenant law says it must sit there 48 hours.
- Local City Ordinance issues a $100 Day fine.
What’s the answer? As an investor, I’m in a catch 22 position. I’m backed in a
corner and sunk either way. But I know one thing for sure…. I am not touching
their personal property for 48 hours! I can appeal to some boss about the $100
daily fine, but if I violate the landlord/tenant law, the tenant might be in a
position to take me to court to replace all of their valuable personal property
(junk to you and me).
Hats We Wear. In one position, you’re wearing the hat of a property owner. The
other hat labels you as a Landlord. Then you see all of the other hats involving
your job, family, investor, coach and more. This is not information about the
eviction process. This information is intended to show you how frustrating it
can be to operate legally and successfully in our world of real estate
investing. Here’s another goofy example. Odds are you’ve probably heard of HUD’s
Section 8 Program and FHA. Both are federal government agencies involving
residential housing across America.
This made me pull my hair out when I discovered this the first time. Let’s look
at house inspections. The Section 8 program requires the housing unit to pass
the HQS “Housing Qualification Standards” of the Section 8 program before a
family can be placed in your unit and receive subsidized rent payments from HUD.
Being a good and responsible investor, I got my own copy of the HQS Housing
Qualification Standards for Section 8. Here’s a couple of things I recall. In
order to qualify as a “Bedroom,” the room must have a minimum of 70 square feet,
a ceiling height of no less than 84 inches (7ft) and a window with a minimum of
5 square feet for exit in case of a fire. Sounds pretty reasonable doesn’t it? I
thought it was pretty reasonable except for the 7 ft on the ceilings. (As a kid,
I stayed in an upstairs room with a ceiling height of about 5.5 ft.)
During part of my early investing career, I also bought broken houses, rehabbed
them, and sold them at retail prices usually to a first time home buyer. Almost
always, the first time home buyer would use some kind of FHA guaranteed loan
resulting in a home inspection to meet FHA housing guidelines. I dropped my
teeth again. I took an ugly house, made it real pretty and nice. A Super
renovation! New cabinets, wiring, roof, kitchen, bathroom and all of the bells
and whistles. This beautiful renovated home failed the FHA inspection because
there was not a closet in a bedroom. This house happened to be a shotgun style
house and never had closets in the bedroom. I made a huge mistake assuming the
HUD Section 8 Program housing guidelines were used by all federally funded
agencies. Wrong! FHA have their own housing qualifications and many items are
completely different than other federal agencies.
The Ultimate Icing On The Cake!
In the late 90’s, Dick and Sandy Vreeland along with Rob Massey encouraged me
along with several other investor/brokers in our town to create a local chapter
of NARPM. (National Association Of Residential Property Managers.) I signed on
as one of the local charter members. We met once a month at a nice country club
and the leadership of our group would have a speaker at our luncheon to keep us
up to date in our field of investing and managing property. One of the very
first meetings featured an “enforcement officer” from the federal fair housing
agency/office. This was a very eye-opening experience for me as both an investor
and a landlord. This well educated lady represented her agency very
professionally and offered a question and answer session following her
presentation. This was the same era about the ADA rules and regulations were
coming out of Washington.
Here’s the eye-opener. There were many questions about Rental Applications
especially since this new ADA law was out in our world. This enforcement officer
after being asked a question, rattled off a small list of things you can ask and
not ask on a rental application. I can’t tell you how many real estate investor
seminars and conferences I’ve attended where I was blasted for having certain
questions on my rental application, one specifically being an applicant’s date
of birth. Me and about a dozen other very sharp investors about fell out of our
chairs when the enforcement officer told us…. “It’s OK to ask for a date of
birth for Identification purposes on your Rental Application…. You can not ask
an applicant for housing how old they are!” Talk about our tax dollars at waste!
We could not believe what she just said. Here’s what is amazing…. This lady was
dead serious. She was not laughing!
What Can You Do?
Here’s some tips to minimize your forced placement into the School of Hard
Knocks.
- Get your own hard copy of your state’s and your town’s Landlord / Tenant Laws
and become familiar with the basic do’s and don’ts.
- Find a competent local real estate attorney who’s knowledgeable about real
estate investing in your town. Avoid family members and friends at work or
church. Remember, Veterinarians and Brain Surgeons are both called “Doctors.”
- Join a group in your town allowing you to network and stay abreast of local laws
involving investors.
- Be super cautious with forms. Run it by your competent real estate attorney or
take the ideas from these forms and work them into your forms by adding another
paragraph or section.
Bio:
Mike is a focused, aggressive real estate investor, who takes pride in avoiding
banks to buy investment property.
Mike realized early on he MUST have a strong foundation to grow quickly and
safely. Mike has reviewed many property management software programs only to
discover they fell short of what he needed. Mike has spent thousands of hours
tweaking and researching Quicken and QuickBooks Pro. His method is getting the
results that he needs.
In May 2002, Mike was invited to be a featured speaker at a regional conference
of CPAs and the rest is history. His simple laid-back street level teaching
style is easy to understand and benefits all levels of investors, from the
beginner to seasoned veteran.
Successful investing utilizing tenant tracking and effective property management
and bookkeeping techniques enabled Mike to retire in March 2000 after 13 years
as a Louisville Police Detective.
He was featured in Money magazine, June 2001, in the article “Can Real Estate
Make You Rich?”. Mike Butler is a Kentucky licensed real estate broker, a
realtor, member of KREE, and a charter member of NARPM.