Make Easy Money in Real Estate…

Maybe not.  

I ran into a landlord last week who had just finished a case against his tenant.  He complained that he wasted money on his attorney, who “did not do anything for him”.  I asked the name of the person he wanted to evict.  I had never met the tenant, but I was familiar with his name.

Why? He had been evicted multiple times, by multiple landlords, over the past several years. This tenant will send his daughter to court for the first appearance, typically with a medical excuse, and ask for the case to be continued.  The tenant would appear at the next hearing, deny owing any money, demand a trial date, and request that the landlord submit pleadings in advance of court.  If the landlord did so, the tenant typically would not appear in court, and the landlord would obtain a judgement.

On one such occasion, the landlord, looking a little triumphant, asked the judge where he should go to collect his money.  The judge explained that getting the judgment was only the beginning.  He suggested the landlord speak with an attorney to see about collecting.

Unfortunately, the tenant had no bank accounts, worked only for cash, and had no assets in his name.  The judgment was all but uncollectible. I explained what I knew about this tenant and the disgruntled litigant commented that someone should warn landlords of people like this.

I asked the landlord what research he had done before renting to this man.  He indicated that he could read people – he knew he was a good risk, just by looking at him. I gave him the court website and told him to research the name of the man.  A few days later, he called me and told me that “he had been had.”  He began to explain that he had lost over $6000 because of this experience.

I asked him to give me $5000.  He refused. I asked “Why would you give over $6000.00 to a stranger and not give a high school classmate $5000?” He got the message.

The point is this – landlords are lenders.  A good creditor researches whether his debtor can afford to pay him back.  If he is not sure, he probably does not make the loan.  Money that a lender cannot collect is money lost.

At a minimum, a landlord should check to see if a potential tenant has a collection history.  This information is readily available online.  If he or his family members have a history of evictions, they probably are not going to be too concerned about another judgement.  Many times, they have no assets so they are essentially living rent free.

I manage some real estate for a few clients.  I have learned a few things and a few warning signs:

1. Do not allow someone to move in without their check clearing and your background check completed.  Once they are in, you have to go through a court process to evict them.
2. If they need two weeks to finish paying the deposit, they probably do not have sufficient cash flow to meet their requirements.  Proceed with caution.
3. If they explain their past credit problems in a way that reminds you of a country song, expect to hear a new verse from them when they are late with a payment to you.  Chances are that you want the easy money associated with property management.  If you have to chase your rent, or if you have to sue tenants, it is not easy money.
4. If they are not the one making the deposit on the place, get someone who is credit worthy to guarantee the debt.  I have heard from a lot of disappointed landlords who comment that a tenant’s relative/boss/friend made the first payment.  Do not assume they will continue to make the payments.

These are just some of the many issues that can arise. Remember, it is your money. If you choose to take chances on people, make sure you are doing it intentionally.

A Word on Debt

I saw a cartoon today showing the massive amounts of debt that our millennials and beyond will be facing.  I have met with a lot of young adults and discussed debt with them.

I fear they were not taught the values of thrift, deferred gratification, and other lessons my parent taught me.  Worse, they have seen the example of many of their parents, who are not always great money managers.  I have assisted dozens of young adults who have made the mistake of signing up for high interest loans, furniture payments, and timeshare payments.  I think I have come up with some rules to help them avoid the need to visit my office:

1. Do not borrow money.  Need a car?  Walk until you can afford a cash-only rust box.  Sure, your friends will make fun of you, but they are going to do that anyway.
2. If you have a child, life is about to get more expensive.  Buy clothing for yourself and your baby second hand.  Same is true for baby toys.
3. Never trust any businessman who wants to “work with you.”  He wants to get paid.  I do not fault him for this, but you should recognize that the two of you have different goals.  To this day, I like to go into clothing stores looking like I cannot afford to buy anything.  The salespeople leave me alone.
4. If you are on the verge of starvation, charge food.  Otherwise, wait.  I love going to restaurants, as my waistline will attest.  However, when I was in law school, my roommate and I were able to stretch a box of Murray Burgers (box of 50 for 7.99) for a semester of protein.  They were not something to serve to a first date, and you always wanted to be near reliable plumbing afterward, but they were a way to stretch the budget.  Same was true with Rice-a-Roni, Ramen Noodles, and any number of items.  I still like pancakes for dinner.  We were not poor, but back then, credit card companies did not give credit to jobless twenty somethings.  Looking back, that was one of the best lessons I learned.

So, what do you do when things go bad?  Find a job.  Find a second job.  Look for opportunities.  You have the rest of your life to live in a country and a world filled with magnificent opportunity.  I and my generation have not done much to help you, in terms of your job market and your college costs, but I hope you find some solace in the rather pessimistic warning I have given here.  If it makes you feel any better, some of my classmates find themselves in debt, with no assets, with limited job opportunities, and they are old.  I like to think that they may have had an easier go in life had someone told them what I have written here today.

Finally, the foregoing thoughts are a slight paraphrase of the life lessons my parents taught me.  I write this on the occasion of my Father’s passing.  I can hear a lot of his voice in what I have written.

End of Life Issues and Advance Medical Directives

One of the biggest choices that you need to make when preparing for your estate planning is to decide whom to appoint to make your health care decisions when you are unable to do so.

I believe this selection is one of the most important ones that needs to be made.  Sometimes our children are not the best option. Many find it difficult to follow through with a parent’s wishes, primarily because they cannot let a parent go.  Others become self-conscious about the decision – they may not do what the parent wants out of fear that they will offend another relative or that people in the community may disapprove of the decision.

I counsel people to make this decision decisively, and, perhaps more importantly, to inform the Health Care Attorney in Fact specifically of their intentions – if you want extreme measures, tell them – if you do want to be resuscitated, tell them. You are entrusting someone else to make a very important decision for you. Be very clear and specific about what you do or do not want. Doing so will help bolster their confidence and help make it easier for them to make a decision in keeping with YOUR wishes, one that may to contrary to the opinion of friends and family.

I encourage you to give careful thought to this decision.  Consult with your friends and family who may be involved in the process.  Do what you can to make it as easy as possible for loved ones to follow your wishes.

UPDATE on A Neighbor in Need:

Many of you reached out to help my buddy Ruben.  Thanks to your efforts, he has a hospital bed, and he was reconnected to some of the classmates who played sports with him when he was in high school.  It is always gratifying to see our community meet the needs of its neighbors.  Unfortunately, Ruben still does not remember that I was a good basketball player…

A Neighbor in Need

Events in Charlottesville have shaken us all. I have listened to many friends who share my fear that the Rule of Law is at risk in the current agitation and unrest.

I learned long ago that I cannot solve all of the world’s problems. I can, however, help make the world a better place in small ways. Some ways are as simple and basic as helping a person in need.

Most of you know I grew up in Orange. I always wanted to be a sports star. Fact is, I was never good enough to be a sports star. I was close enough, however, to know people who were. My buddy, Ruben Humes, was such a sports star.

My first memory of Ruben is playing basketball against him in the Booster Basketball league. He was one year older than me, but light years ahead of me in basketball talent. Playing with Ruben was my first indication that I was not likely to have a long career in the National Basketball Association. Ruben went on to star at Orange County High School in basketball and football. He stayed in Orange after his high school sports career ended, working at American Woodmark.

I ran into Ruben on the street this morning. The ravages of Multiple Sclerosis have put him in a wheelchair. We talked for a few minutes about my athletic ability. (This is not true. He spent a few minutes making fun of my lack of athletic ability.) I asked him if there was anything I could do to help him with his medical issues. He said he was okay. However, his mother, Mable, asked if I knew of a way to find a hospital bed for him.

I called Ronnie Rankin of Culpeper Home Health and explained my situation. He has agreed to deliver a bed to Ruben’s house at a discount.

So I am asking for your help. The total cost of the bed and the supplies equals $ 3000.00. We have raised $800.00 towards this total. Please send any contributions to me at P.0. Box 1300, Orange, Virginia 22960. I will return any contributions after we have reached our goal.

In the meantime, if you see Ruben, tell him I was a much better basketball player than he remembers.

Changes in Virginia Laws

On July 1st, changes to the law made by the Virginia General Assembly went into effect. The following is not a comprehensive list of all of the changes, but instead, simplified information about altered laws that have captured public attention.

Bicycle Law
Have you ever parked your car and opened the door immediately? You are now required to wait for a “reasonable” opportunity to open a vehicle door on the side immediately adjacent to moving traffic. The fine for this infraction is $50.00, plus court costs. The law was made primarily to protect bicyclists from motorists and will make it easier for bicyclists to sue for personal injury if they are injured by a motorist opening a car door.

Smoking with Infants in the Vehicle
If you are stopped by the police for a violation while driving, and the officer observes that you have been smoking in the car with a child under the age of eight, the police can site you for this violation. It carries an additional civil fine of $100.00.

Service Dog
It is now a Class Four misdemeanor for someone to portray a dog as a service animal fraudulently by using a harness, collar, vest, or other identification, for the purpose of bringing the dog to a public place. It is similar to Virginia’s law against an able-bodied person who is not blind or incapacitated to carry a white cane. I have never known anyone to be prosecuted for this offense. I will be surprised if the law is enforced.

Stalking
Virginia law makes a second stalking offense within five years of a conviction a Class Six felony.

Marriage
Virginia now requires that both parties to a marriage be over the age of eighteen. If they are not, the parties must petition the Juvenile and Domestic Relations District Court. Before, those who were sixteen or older whose parents consented or those who were under the age of sixteen, pregnant, and had the consent of a parent could get married. The law does not indicate the guidelines that a Juvenile and Domestic Relations District Court must follow in granting permission of marriage to minors.

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An important procedural rule to the Juvenile and Domestic Relations District Court was changed that may affect a defendant’s strategy in negotiating plea agreements. Many judges offer defendants an opportunity to attend a class, upon stipulating sufficient evidence of domestic violence in exchange for which the charges would be dismissed. With the law’s revisions, a defendant would now give up his right to appeal a conviction if he does not complete the class and is therefore found guilty.

An Advantage of Small Town Practice

One of the best parts of returning home to practice was the ability to connect and continue developing relationships with people I knew when I was a boy. I was fortunate to get to know these people through work and civic involvement. Although I am not very patient when I serve on committees, the service is worth the trials and tribulations.

I started thinking about this when I learned that my friend, Judson Morgan “Bugs” Gardner, had passed away. Bugs, comfortably in his nineties, lived a life of service, good humor, and abiding decency. He and I became reacquainted through the Rotary Club; he, his wife Elaine, and another couple would often join my wife Karen and me to go on outings in Central Virginia. He was always in a good mood and he was always helpful.

One of the things most people do not know about Bugs was his anonymous service. He
provided design information and suggestions to numerous local projects, at no charge. He may have donated more blood than anyone else in Orange. He never told me this — I heard it from the Red Cross blood drive coordinator.

The house Karen and I share may have been one of Bugs’ last projects. We spent several
evenings in his and Elaine’s home, where we talked about modifications to our house and solved design issues that arose. He made multiple trips to check the progress on the house, although we had not retained him to monitor construction. I found him up there one evening as he checked to make sure everything was being built as he had planned.

I am glad that Bugs was my friend. I will think about him when Karen and I sit out on our deck and watch the mountains grow.

Judicial Elections in Virginia

We have learned that there will be a Judicial vacancy on the Sixteenth Judicial District Juvenile and Domestics District Court.  This vacancies underscore Virginia’s unique selection process related to judges.  Unlike in other jurisdictions, our judges are appointed, rather than elected by the general population.  Our legislature relies on the input from its constituents to identify those attorneys who are interested and may serve to be judges.  

Occasionally, I read in the newspaper grumbling that our selection process is antidemocratic.  I have always believed that the system worked well, because we have been fortunate to attract quality judges well suited to the position.  I am not certain that the prospect of waging an election campaign would attract the same level of judges which we enjoy.

The selection process is always interesting, and rumors frequently swirl about who is likely to be appointed.  The appointment is typically a life changing career move for the interested attorneys, and the decisions affect thousands of people in our district.  I pray that our legislature exercises the same prudence and wisdom that has marked its selections in the past.

How to choose a bad contractor

I frequently advise clients after they have had unpleasant experiences with home repairs and remodeling projects.

Checking a contractor’s credentials before hiring them can help to avoid some of the problems clients face.  The following statements are some of the more frequent misjudgments that lead to my becoming part of the post-construction process, usually in court.

1. “He says he is licensed.”  Verify his license with the state.  Virginia has three contractor classifications and holds a record of any disciplinary actions taken against contractors.  A five minute check of the contractor’s credentials can save a lot of heartburn.
2. “He says he has never been sued.”  Verify this on the Virginia Courts website.  Again, a five minute check on the computer can save you a lot of time and money.
3. “We discussed what I wanted, so we do not need to put it in the contract.”  Did you negotiate for Kohler plumbing?  Add every detail to the contract or it will not be enforceable.  If an upgrade is left from the contract, only the minimum requirements of the Virginia Building Code are required.  I represented a homeowner once whose contractor ignored all of the specifications in the contract, relying on the fact that “the Code only required a lower standard.”  The judge ruled in favor of my client; if we had not had a detailed specification sheet, we would have lost.
4. “I told him I wanted carpet instead of vinyl.  He said we would work out the price later.”  This is a minefield both for the contractor and the homeowner.  Agree on all price changes in advance.  It is cumbersome and can be awkward, but you will be better off knowing the price change.  You may decide you want to add the change to the contract, after all.
5. “He wanted a big advance, but he could start in a few days.”  Run.  It is a crime in Virginia for a contractor to accept money for work and not do the work (VCS 18.2-200.1). Do you really want to set yourself up for a situation where the person you allow into your home may not have any assets?
6. “He said he would get started soon.”  Many contractors are overbooked; to avoid prolonging your home renovation, make sure you have specified the beginning and completion dates of the project in your contract.

These are just a few of the issues that can lead you to court after you have chosen a contractor.  It is a good idea to consult an attorney before embarking on any major renovation or repair.

Small Business Challenges

Many of you are small business owners.  One of the most difficult challenges facing business owners is getting paid for its services.   Having represented business owners in collections matters for more than twenty years, I offer you the following insights:

1. You will likely lose more from bad debt than from theft.  People always intend to pay, until they need YOUR money for something else.  When you try to collect, they will tell you about all of the other people, including their families, who need the money more than you do.
2. Once they owe you more than you can afford to lose, they control your business. Ever seen someone at a slot machine?  The slot machine player is afraid to leave his machine, knowing that the big payoff is one turn away.  Deadbeats use this same logic to their advantage, telling you that you will be paid at the end of the project, but you have to see it through to the end.  Do not fall into this trap.
3. Lawyers cost money. Once you refer a debt to me, you have already lost at least 30% of the value of the work you provided.  You want to avoid the need to hire me.
4. A judgment is not a guarantee of payment. Between bankruptcies, hiding assets and exempt income (disability payments, social security benefits, and certain trust income) your judgment may be no more than a piece of paper.  Worse, the guy you have the judgment against may be driving a much nicer vehicle than you do.  He is probably doing business under the name of a different company.  There is almost nothing you can do about it.

So, what do you do?  Some thoughts:

1. Ask yourself, “Would I loan the customer the money?” if he wants to pay on credit.  If not, do not extend credit.  Seems simple.  The trouble is you need to stay in business.  Set up a credit card account.  Let him borrow from Visa or MasterCard instead of you.  If that is not an option, be very careful.  The Deadbeat will create all sorts of crises to demand that you do the work, and that a check is on its way.  Be very careful.
2. Get the name of his business. If he is incorporated, have him and his spouse sign a personal guaranty.  This is because you cannot go after most jointly titled assets
   belonging to husbands and wives, unless they have both signed the document.
3. Do not extend any credit without a signed credit application that states an interest rate for past due accounts. Otherwise, you are only entitled to 6% interest on any outstanding bills.

Know your customer.  Get a credit report.  If you cannot afford to get a credit report, go to the court website to see if he has any judgments against him.  If he does, get him to explain the judgment.

Adventures in Landlord/Tenant Law

Over the years, I have developed a landlord/tenant practice centered in Orange County. One of the more interesting aspects of this practice is the number of defendants whom we see evicted of a period of years by a number of different landlords.

Fortunately, it has become easier for landlords to protect themselves from chronic deadbeat tenants. The Virginia Court’s website, http://www.courts.states.va.us/, is a valuable resource for the do it yourself landlord.

I have found that credit scores do not reflect how reliable a tenant will be. Eviction history is a much better indicator. This website is informative, because you can verify whether a tenant has ever been evicted by a previous landlord.

As any experienced landlord will tell you, it can be very difficult to evict a tenant, once they have signed a lease and have moved into a property. Rather than losing one month’s rent, because you have not found an appropriate tenant, you can lose several months’ rent by making a bad decision about a tenant. You will run into the trouble and expense of evicting the tenant, and you may find that the tenant has caused considerable damage to the property.

On a related note, I frequently advise landlords to work with tenants who have a tract record of being responsible, but who have suffered short term financial difficulties causing them to be late with rent. These are decisions that are best left to the landlord to “trust his gut” as to whether to take a chance on the tenant.