Finding Home: 'Serial Evictions' A Money-Maker For Corporate Landlords
If you're looking for a home to rent there's an increasing chance it's going to be owned by a large corporation. A new report shows that 15% of Charlotte homes sold last year were purchased by investors, and investors purchased 25% of the lowest-priced homes. The rise in investor-owned housing can have big consequences when it comes to evictions.
Journalist Jon Hanrahan has been exploring this as a producer for the WNYC program On The Media and its series The Scarlet E: Unmasking America's Eviction Crisis. He joins us now for this week's edition of Finding Home.
Marshall Terry: First you report on the ownership structure of investor-owned housing. They're usually LLCs and they give owners' protection. Can you explain the benefits of this ownership structure?
Jon Hanrahan: Well part of it depends on where you register your LLC. If you register your LLC in a place like New York it's actually pretty easy to figure out who's behind that LLC. But if you manage to buy up properties under an LLC or maybe even several LLCs that are registered in a place like Delaware, for instance, where it's really hard to figure out who's behind those LLCs, you can protect your assets and you can protect your identity if maybe you're not the best landlord in the world. And the LLC that is at the heart of some of your reporting did just that they set up in Delaware. It's called Cedar Grove.
Marshall Terry: You focused on that this week in the series. Now this is an LLC that ran into problems in Richmond, Virginia. It's since expanded operations here in North Carolina, including in Charlotte. What did it do exactly in Richmond?
Jon Hanrahan: Well, it's less a matter of what they did and more a matter of what they didn't do. They did not take care of gas leaks that caused a risk of explosion. They didn't take care of several leaks that led to collapsing ceilings and they didn't show up to court when there were proceedings against them. So they were slapped with contempt proceedings.
Their buildings were condemned and eventually sold off by the bank when their assets were being devalued. But the end of the story is that because of their LLC structure in Richmond, Virginia, where they had 11 different LLCs under 11 different names all registered in Delaware, they were able to escape pretty much unscathed after all of this mismanagement and trouble for their hundreds of tenants.
Marshall Terry: So why was Cedar Grove attracted to North Carolina in particular?
Jon Hanrahan: Well, I don't know why they were attracted to North Carolina in particular, but I do know for certain that they are. In the past several years, they have bought up nearly 3,000 apartment units in the state of North Carolina, including over 400 in Charlotte alone.
Marshall Terry: We've reported how evictions are on the rise in Charlotte after years of decline. Are people more likely to get evicted from a corporate landlord?
Jon Hanrahan: I don't know that we have the data to say whether or not that is true. We do know that corporate landlords are much more likely to engage in innovative ways to increase their profits through rigorous debt collection, non-refundable security fees, pet fees, other related fees and automatic, sometimes algorithmic evictions. We don't know that the rates of eviction filings from these corporate owners are necessarily higher but we do know that they are integral components of their business structures.
Marshall Terry: And something that gets pointed out in the series is this notion of "serial evictions." What is that exactly?
Jon Hanrahan: Well, we think about eviction as this tragic thing that happens once. You fall behind, your landlord says you gotta go. A court orders a marshal to kick you out and that's the end of that. Really what the eviction lab at Princeton – our partners in this project – have found is that often eviction filing is more like a debt collection strategy.
You're not necessarily looking to kick a tenant out. What you're really looking for is to refocus their priorities. Maybe you get to the courtroom. You cut a deal. You figure out a way to repay that debt. Ultimately it's not about kicking somebody out and replacing them. It's about making sure that you are making your money. In a place like New York, that's less common because it is so expensive to file for eviction and there are new protections for tenants in housing courts.
In places like South Carolina for instance, your southerly neighbors, it is very cheap to file for an eviction. It's something like $40 or $50. So it is much more common in places like South Carolina. In fact the eviction lab found that roughly one in two eviction filings are serial eviction filings - they're filings against the same tenant. So for instance The Atlantic reported that some corporate landlords are able to use eviction filings and other fees to increase the cost of living for delinquent tenants to up to 22% per year.
Marshall Terry: So in a sense it's beneficial for landlords to keep these tenants instead of just kicking them out and finding a new tenant because they can make money off of them if they just keep hitting them with these evictions month after month?
Jon Hanrahan: Absolutely. And to be sure the costs of evicting a tenant are high. There's a vacancy, you have to paint the apartment, turn it over and all that. But yes, if you have a tenant who can't reliably pay their rent on the first of the month but who can eventually always get caught up somehow, it is beneficial to keep them in that apartment even if you have to file an eviction every single month. So looking through court records in South Carolina's East Gaffney, for instance, I found one tenant who had been filed on by her landlord 14 months in a row.
Marshall Terry: When you look at what happens in the Charlotte housing market, what stands out to you?
Jon Hanrahan: One thing in particular that's becoming part of the national conversation is Charlotte's single family zoning. So in late 2018, Minneapolis made the sort of radical decision to do away with single family zoning. Meaning, they would allow the construction of modest duplexes, fourplexes – the sort of missing medium in housing in the entirety of their city.
In Charlotte, the majority of your residential areas are zoned for single family houses. What that means is lower density, lower affordability and a higher likelihood of the perpetuation of segregation. In April, though, the Charlotte Observer reported that some city leaders in Charlotte are considering doing away with that kind of zoning and replacing some housing with affordable, more dense apartment buildings.
Marshall Terry: Our series Finding Home has obviously focused on the Charlotte area, but how similar are Charlotte's housing problems to what you're seeing across the country?
Jon Hanrahan: Well really in some ways Charlotte does stand out. In 2016 the Eviction Lab found that Charlotte's eviction rate was about 6%. That's about twice the national rate. The problems with affordability in Charlotte from what I've read are not quite so similar to the highest evicting cities in the country — places like South Bend, Oklahoma City. There is some gentrification occurring in North Carolina that is contributing to unaffordability. At the same time it's not the same kind of gentrification that we see reported on so often in the media in places like the Bay Area and Brooklyn, New York.
Marshall Terry: If this is a national problem what's holding us back from a national solution?
Jon Hanrahan: Well, part of what's been holding us back is that we haven't really been talking about it. This is really the first presidential election cycle in most folks' lifetimes in which many candidates have released housing policies, not just talking about our urban areas or our homes but they're releasing policies about how to address our legacy of redlining. How to address skyrocketing rents. How to address the severe lack of affordable housing and even the severe lack of housing in general in places like Charlotte and elsewhere.