I am new to Bigger Pockets. I am trying to help my mother who is in a difficult real estate situation (I apologize for this lengthy email in advance but it is a complex situation). She lives in Hawaii but purchased a rental property (3bd/2bth) in Memphis, TN in 2008. She invested $10,000 in renovations at the onset. She had been renting out the house from 2008 to 2013 at $1,000 per month. However, the rent rates fell below $1,000 in 2014 so the property manager decided not to manage the property anymore (this particular property manager does not manage properties with rents less than $1,000). So she received a referral to a different property manager that handles rents under $1,000 per month.

When my mom hired the new property manager, she conducted a new Property Condition Report that recommended $5,575 in renovations to achieve $1,000 in rent. My mom remitted $5,000 to the property manager and requested that the remaining $575 be deducted from future rent. The property manager placed a tenant in the property in November 2014 at $850 per month.

Over the last eight months, the property manager has collected $6,120 in net rent (net of his 10% management fee). The property management agreement states “Broker’s duties are to initiate repairs as needed and pay for such from collected funds.” However, in another email he states “Repairs are handled on a per item basis. I will not spend your money unless approved by my mom except in case of emergency, such as broken water line, flood, fire, etc.” He has charged $5,709 in maintenance charges over the course of nine months (see operating statement below)! As a result, the property manager will only mail $411. The maintenance expenses under the new property manager do not seem to qualify as an “emergency” and my mom has not provided approval for any of these repairs. These repairs also seem excessive given in 2011, 2012, 2013, and the first nine months of 2014, the previous property manager conducted $664, $2,600, $1,900, and $210 in operating expenses each year, respectively.

Furthermore, whenever my mother asks for documentation that the repairs were conducted (ie receipts or pictures) or were considered an emergency, the property manager does not respond. She also has asked repeatedly for the lease agreement and the property manager ignores her request. We would like to contact the tenant to verify these repairs (and if a true tenants exists) but he does not provide the tenant’s contact information – Since she lives in Hawaii, she is unable to physically see the property. I suspect that this property manager is overcharging my mother because he also owns the repair company that is conducting these repairs. This same property manager was a defendant in a fraud claim in 2008. Unfortunately, the internet does not state the outcome of the case.

I understand that there are horror stories of poor tenants that destroy the property and properties that require a significant amount of maintenance expenses. However, I am suspicious of this property manager because he refuses to disclose the lease agreement and proper documentation that the repairs were conducted or were needed. In addition, this property manager owns the repair company which poses a conflict of interest.

I’ve reviewed the property management agreement and the property manager has violated the contract and is in violation of several property management duties:

1. Breach of contract:

Section 3.E. Broker will report to owner on a minimum monthly basis total reconciliation of property rent collections and expenses, and present to owner a rent roll when requested. Broker did not provide monthly reports from April 2015 to July 2015.

2. Breach of fiduciary duties:

The property manager has a fiduciary responsibility to the client and shall at all times act in the best interest of the client. The property condition report indicated $5,575 amount of repairs that needed to be done. However, the property manager conducted $11,284 of repairs over the last eight months (including the repairs per the property condition report).

3. Misrepresentation / Fraud

In the correspondence on 9/26/14, the property manager quoted “I will not spend your money unless approved by you.” There are numerous charges that have not been approved as noted in the operating statement below.

4. Negligence

The property manager has negligently and carelessly allowed excess damage and other losses to property for which they had a duty to take care and manager. Excessive damage is damage beyond the property condition report. The property condition report indicated $5,575 in necessary repairs. However, my mother has paid $11,284 of repairs over the last eight months (including repairs per the property condition report). In comparison, in 2011, 2012, 2013, and the first nine months of 2014, the previous property manager conducted $664, $2,600, $1,900, and $210 in operating expenses each year, respectively.

What action can my mother take to force the property manager to pay her the rent and reduce the expenses? Also, if she is planning to sell the property, can/should she ask the real estate agent to visit the property and verify certain charges?I’ve considered the below courses of action. He runs his own company so my mother can’t escalate the issue to his superiors.

1. File a civil lawsuit to recover the rent and unnecessary charges based on the breach of contracts listed above. Memphis courts would cost around $300 in court fees. This could be lengthy and costly. Also, how strong would our case be if the contract states that the property manager’s responsibility is to initiate maintenance and deduct from collected rent but he stated in an email that he would not conduct expenses without my mother’s authorization?

2. Threaten to file a fraud claim with the authorities. I don’t believe this would recover any rent but it could encourage the property manager to be more cooperative. As mentioned earlier, this property manager was accused of fraud in 2008.

3. Threaten to file a claim with the national association of realtors. The property manager offered to sell the property for my mom so I’m assuming he has a real estate license. Can a property management complaint be filed with the national association of realtors in this case? If so, I would imagine that this could threaten his real estate license.

4. Threaten to file a claim with the Better Business Bureau.

5. Due to this horrendous situation, my mother is in the process of engaging a real estate agent to sell the property. Are there any issues with selling now or should she sell? The property is valued at the same price she bought it.

6. File a complaint to the person who referred her to this property manager. I’m not sure this would have a direct impact but the referrer probably knows the property manager and may encourage the property manager to be more cooperative.

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