AB 1800 responds to rental scams!

We are nearing the end of summer, which legislatively means that bills are stacking up waiting for the Governor to sign them into law. For a list of the legislation that is currently waiting for the thumbs up or down from the Governor’s office, visit  Around the Capital at http://www.aroundthecapital.com/bills. Once a bill is passed by both Houses, the Governor may sign the bill into law, veto the bill, or allow the bill to become law without signing it, but by letting time pass. Generally the Governor must act within 10 or 30 days. 

Currently, there are a number of bills which have passed both the Senate and the Assembly which are of interest to landlords and tenants in California.  In this series, we will look at three of them. 

AB 1800 (Hagman-Ma)
The first of our three bills, AB 1800, is a response to the numerous scams that have arisen out of the on-line rental market and the increasing number of owners renting their own units through on-line listing services.

The scam
The scam is a simple one. A scam artist advertises a housing rental on the Internet, often on Craig’s List. Often they have lifted the information from another site on the Internet, replacing only one important piece of information - the contact telephone number or email address. The deal is often too good to be true and generates a significant amount of interest and often a sense of urgency to act on the part of unsuspecting prospective renter, so as to not miss out on the “great deal”.

The scam works for regular long-terms rentals, as well as shorter vacation rentals; and it works for regular long-terms leases, as well as sub-leases. In the end, it appears to be most successful in the case of vacation rentals, which means that the San Francisco market is particularly vulnerable.   The scammer convinces the interested party to place a deposit or to pre-pay rent on the unit and obtains the money up front from the prospective renter. Sadly the scammer has nothing to do with the rental and is accepting the money under false pretenses. In the end, the unsuspecting tenant loses their money and has no rights to the rental, if there was a rental. AB1800 (Hagman and Ma) is intended to enhance protections for the unsuspecting tenant from scams such as this by increasing the penalty.

Amending Penal Code 602.9
The legislation, if it becomes law, will amend Penal Code 602.9 and increase the penalty to a year in jail and/or a $2500 fine per offense. Unfortunately, merely increasing the penalty deals with the scam problem after the fact. This means that for the legislation to be effective, someone must have become a victim to the scammer.

How to avoid the scam?
To avoid the scam entirely, what can a prospective renter do?

• • First, conduct business with a recognized local real estate company or rental agency. By spending some time doing research on the Internet, you can locate legitimate local rental agencies, as well as get a sense of who has the better reputation in your area as a responsive and responsible landlord and manager. While not all reviews are legitimate, you can get a fairly accurate picture of the style and reputation of a company by reading the available reviews on the various review sites now available. Don’t make big decisions - pro or con - based on a single review.
• • If the unit is not represented by a leasing or real estate company, make sure you are dealing with the owner by looking up the owner of the property on the Internet. Verify that the individual you are dealing with is the owner or agent of the owner. If necessary, ask to see the driver’s license or some other form of photo ID.
• • Don’t place a deposit on or pay rent for an apartment unit which you have not been able to see. Scams often include stories about the unit being unavailable to view at the time of the meeting or the owner being “out of town” and unavailable to show the unit. If you can’t see the unit in person, don’t place a deposit on the unit.
• • Never agree to accept keys to the unit through the mail. Legitimate owners have local representatives who provide keys, do walk-through inspections and are available to you in the event of an emergency during your occupancy. There should never be a reason you have to do business through the mail.
• • Red Flag: You have a difficult time obtaining the address of the rental unit.
• • Red Flag: Watch out in doing business with people who say they are out of town or out of the country. Even if they are legitimate, who wants an out of town landlord?
• • Don’t give anyone cash. A legitimate rental agent or landlord will not require that you pay them in cash.
• • If there is urgency and a rental deal too good to be true, be suspicious.

In response to the increasing number of scams on the Internet, the site http://www.lookstoogoodtobetrue.com/ has evolved and is now a resource to those suspicious of Internet deals or offers.  If you are suspicious about an offer you find advertised on the Internet, check it out on Looks Too Good to be True.

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LEGISLATIVE COUNSEL’S DIGEST
AB 1800, as amended, Ma. Unlawful rental of residential dwelling:
penalties.
Existing law makes it a misdemeanor, punishable as specified, for
any person to claim ownership or claim or take possession of, or
cause another to enter or remain in, a residential dwelling for the
purpose of renting or leasing the dwelling to another without the
consent of the owner or the owner’s lawful agent.
This bill would increase the misdemeanor penalties for this
offense, as specified. Because this bill would change the penalty for
a crime, it would create a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: 
SECTION 1. Section 602.9 of the Penal Code is amended to read: 
602.9. (a) Except as provided in subdivision (c), any person who, 
without the owner’s or owner’s agent’s consent, claims ownership or 
claims or takes possession of a residential dwelling for the purpose 
of renting that dwelling to another is guilty of a misdemeanor 
punishable by imprisonment in a county jail not exceeding one year, 
or by a fine not exceeding two thousand five hundred dollars 
($2,500), or by both that imprisonment and fine. Each violation is a 
separate offense. 
(b) Except as provided in subdivision (c), any person who, without 
the owner’s or owner’s agent’s consent, causes another person to 
enter or remain in any residential dwelling for the purpose of 
renting that dwelling to another, is guilty of a misdemeanor 
punishable by imprisonment in a county jail not exceeding one year, 
or by a fine not exceeding two thousand five hundred dollars 
($2,500), or by both that imprisonment and fine. Each violation is a 
separate offense. 
(c) This section does not apply to any tenant, subtenant, lessee, 
sublessee, or assignee, nor to any other hirer having a lawful 
occupancy interest in the residential dwelling. 
(d) Nothing in this section shall preclude the prosecution of a 
person under any other applicable provision of law. 
(e) It is the intent of the Legislature that this section shall 
not preclude the prosecution of a person on grand theft or fraud 
charges. The Legislature finds that this section has never precluded 
prosecution of a person on grand theft or fraud charges. 
SEC. 2. No reimbursement is required by this act pursuant to 
Section 6 of Article XIII B of the California Constitution because 
the only costs that may be incurred by a local agency or school 
district will be incurred because this act creates a new crime or 
infraction, eliminates a crime or infraction, or changes the penalty 
for a crime or infraction, within the meaning of Section 17556 of the 
Government Code, or changes the definition of a crime within the 
meaning of Section 6 of Article XIII B of the California 
Constitution.

Time for the narrow-casting of rent control benefits?

Rent Control Economics 101

It is not a surprise that the benefits and costs of rent control are hotly contested and debated in San Francisco. Most tenants, especially those who are long term residents, will espouse the benefits of rent control concluding with the very real and very personal benefit:  “I couldn’t live here without it.”

But when you ask a rental property owner, you hear a very different story.

More often than not, a property owner will have a rent control horror story which often ends with the owner selling the building in frustration, taking their housing units off the market in protest, or out of fear, the payment to of thousands of dollars to a hostile and unappreciative residential tenant, merely for them to vacate the unit.

Rent Control Benefits

Still, there is no doubt that rent control in San Francisco has legitimate benefits to identifiable San Francisco renters. No doubt some of these renters need financial assistance. No doubt, some actually deserve it.  No doubt there are societal benefits that stem from rent control that should not be dismissed or overlooked.

The question is not can we find some good in rent control; of course we can find some good. The question to be asked of all of our social safety-net systems spawned before the turn of this Century is: could there be another, better way to get to the same, or even a better result?  

Narrow Cast Rent Control Benefits

A look at the available evidence leads down a road which suggests the current rent control system is outdated, inefficient and overkill in the new economy we face in 2010.  Like so many of the programs of the past, rent control as a “public policy” is ready for a major overhaul and improvement.  It is time for rent control to become surgical and to narrow cast the benefits, rather than broadcast the benefits.

The San Francisco rent control public safety net, which is entirely privately funded, is too wide, too deep and too inefficient. Like so many of the entitlement programs of the 1970s, it mis-allocates and overspends limited resources.

The current rent control system transfers resources to the entire general populace of renters, when only a few are in need.  Instead of providing $50 of assistance to a single needy resident, the current system takes that $50 and distributes it among 10 residents, irrespective of need. The deserving few are forced to share assistance benefits with renters who can and should take care of themselves.  Imagine food stamps for everyone, just because a few people deservedly need them?  It makes no sense and we can’t afford it.

Marketplace distortions 

In addition to the public transfer of private resources for a public good, rent control distorts the behavior of the market place.

Go to any free market city, even a desirable one with a tight housing supply like San Francisco, and you will find rent specials and promotions, as building owners attempt to entice customers into moving to their complex or building. 

Missing concessions

Now look at San Francisco. No promotions. No market incentives.  No negotiations.  No DEALS. The dynamic market is dead.  Why?   Because concessions- inducements- incentives- and negotiations can be and have been used against property owners to reduce the base rent of tenants. The result?

New San Francisco residents receive none of the typical market concessions we see in dynamic free markets. Concession dollars are reallocated in budgets by San Francisco owners to allow longer periods of vacancy.  Money that could be in the pockets of residents, remains locked inside the building.

Price reductions slow to occur

A related distortion is that rental rates are not lowered as quickly as they are in other cities. Go anywhere else and you will see a market that reacts in real time.  Rents are reduced –and discounted and adjusted sometimes daily and even hourly.  These market adjustments happen quickly, in prompt response to a changing market.  As a market slows, rental rates go down.  It if slows further, the rates go down further.  You will not find these consumer benefits in San Francisco.

In San Francisco you can see pricing stagnate week after week as owners refuse to drop pricing because it is permanently lost.  In todays environment of annual increases that are typically only $1 per thousand in rent, a $50 per month price decrease equates to a lifetime of rental increases. 

Do price controls work? The anecdotal evidence is lush with stories of inequities and problems. The academic literature indicates “no”.  A Goggle search comes up with paper after paper and research article warning of unintended consequences and market distortions resulting from price controls.  Economic models teach us price controls provide a short term solution at a significant long term cost. 

But for a real answer look at the San Francisco rental market. At times of increasing vacancy the San Francesco rental housing market does not react as a typical healthy free market.   But it could; it should; and it can.

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Do you have an opinion about San Francisco rent control?  How would you improve the system?  Share you ideas through Comments.  

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San Francisco Board of Supervisors attacks Rent Ordinance and property owners

Newest assault on San Francisco property owners comes from the Board of Supervisors

Seven members of the SF Board of Supervisors have put forth a sweeping proposal, in the form of a Charter Amendment, to fundamentally change the way the San Francisco Rent Control Ordinance is implemented and monitored.  The measure should appear on the November 2010 ballot where San Francisco voters can approve or reject it.  Perhaps not surprisingly in a city like San Francisco, the proposal is unabashedly and mathematically pro-tenant. 

Current Rent Board Commission structure

Currently the Rent Board Commission is appointed by the Mayor and is made up of 10 members, 5 of whom vote and 5 of whom are alternates and vote when a voting member is absent.  Each body of 5 is made up of 2 tenant commissioners, 2 landlord commissioners and 1 neutral.  The qualifications are simple.  To be a tenant commissioner you must be a SF tenant and not own property.  To be a landlord commissioner you must own SF residential rental property.  To be a neutral you must not be a tenant or a landlord.  Generally this has meant the neutral is a homeowner. 

The Commission structure has changed only once since the inception of the Ordinance in 1979.    Previously, Commissioners had designated alternates; if both a voting commissioner and their specified alternate were absent, there was no vote for that seat.  Now if that occurs and the other alternate is in attendance, the secondary alternate can vote instead.  

The Commission is important because it holds two critical functions.  First, the Commission makes the rules which implement the Rent Ordinance.  Over the years, it is rule changes that have provided some of the most important shifts in the implementation of the Ordinance.  Second, the Commission is responsible for the hearing of cases that are appealed from the administrative hearing decisions of the Administrative Law Judges, as a result of cases filed with the Rent Board by both landlords and tenants.  This appellate judiciary function is critical to the fair implementation of the Ordinance. 

The Charter Amendment proposal

The new proposal changes every aspect of the Commission structure formula.  First, the Commissioners would no longer be appointed exclusively by the Mayor, but appointments would be shared with the Board of Supervisors, furthering weakening the position of the Mayor in San Francisco. 

Second, the Commission would mathematically favor tenants, who would own the largest number of voting representatives with three, landlords with two and neutrals with two, for a total of seven voting members.  With this guaranteed built-in majority, the tenant community would effectively and easily block any future landlord sponsored legislation or changes.  Any successful landlord vote would always require both neutral votes.  The other unlikely scenario is that one tenant commissioner would have to break ranks with the other tenant commissioners along with a single neutral vote and vote with the landlord group. 

In comparison, the tenant community four votes would need only a single neutral vote to move forward with any change.  And with four tenant votes, a missing neutral would always result in either a tie vote or a tenant win.  The built-in imbalance would always favor the tenant community. 

Finally, since over the years the tenant community has lost some of their favorite commissioners to home ownership, the requirement that tenant commissioners own no property is removed from the tenant qualification standards.

Perhaps the most alarming part of this modification stems from the Rent Board Commission’s function as an appellate adjudicatory body.  Any quasi-adjudicatory body should be balanced and fair.  A built-in numerical advantage is neither balanced nor fair. This new structure would undermine any remaining public confidence in a Rent Board where fair results are possible. 

The last time a proposal was put forth to change the structure of the Rent Board was in 2003, when Supervisor Daly attempted to have the Rent Board elected. 

The current seven sponsoring supervisors are Campos, Alvalos, Daly, Mar, Maxwell, Mirkarimi, and Chiu.  It takes only six supervisors to place a measure on the ballet. 

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What do you think of this proposed change?  Please respond in Comments, or share you point of view privately at Examiner@LightnerGroup.com

 First published on Examiner.com.