Property Manager Problem

37 Replies

Hello,

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:

  1. 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:

  1. 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

  1. 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

  1. 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.

Why not ask a local attorney that does real estate work.  I suggest you write a letter to the city attorney and they will look into it and you will probly get some referrals or directions as to what to do.   Also the state attorney general is a good place to send letter as they are more into the criminal aspect and they do like to look into things like this.

Why not publish the PM"s name and info here.

@Lance W. I am sorry to hear that you are experiencing this in Memphis. I am a local investor here and if you want, contact me offline and I can get to the bottom of what's going on there! I will go to the property and verify if there is even a tenant occupying the property. Also I can check into the property manager you have hired as I know most of the legitimate PM's in town. Let me know how I can help.

I can tell you the BBB is a ineffective as far as settling disputes,it only puts a black mark on their company.

The BBB is only a platform for owners and tenants to communicate back and forth with the management company, if the management company even responds.

You might want to complain to the person that referred her and ask her if she knows of any good attorneys that specialize in tenant landlord law that can help your mother or if there is a real estate commission that oversees property managers.

I would also recommend that you Google for real estate attorneys in the area and see which ones practice for specialize in property management and tenant landlord law.

Also, you may want to find out if property managers are required to have a real estate license to do property management in Tennessee as some states do require licenses and other ones do not.

If you find that they do require real estate license to do property management there is a real estate commission that you may be able to file a complaint with and depending on what their findings there could even be a recovery fund.

I would probably start with finding a good real estate attorney with specialized landlord tenant knowledge to give you some good professional advice.

Just for future reference, a good way to find a good property manager is to go to www.NARPM.org and do a search for property managers in that local area, particularly ones with designations or certifications.

I always hate to hear when landlord runs into a bad property manager it is never good news.

Good luck in getting this resolved for your mother.

Sincerely,

Kevin Knight

Originally posted by @Stephen Akindona:

@Lance W. I am sorry to hear that you are experiencing this in Memphis. I am a local investor here and if you want, contact me offline and I can get to the bottom of what's going on there! I will go to the property and verify if there is even a tenant occupying the property. Also I can check into the property manager you have hired as I know most of the legitimate PM's in town. Let me know how I can help.

 This is why I love Bigger Pockets!

This post has been removed.

@Lance W. $11,284 is darn near a full rehab in many cases. Given that your annual maintenance expenses were just a fraction of that before this property manager, it sure looks suspicious. As @Account Closed  pointed out, the BBB is not going to be of any help. Your only recourse is to hire a good real estate attorney. Do you know if the PM is even licensed?

@Dennis Jayy, @Stephen Akindona, @Kevin Knight, @Frank Jiang , @Mike D'Arrigo

First, I'd like to thank all of you for being soooooo helpful and reading through my lengthy post. You guys have provided thoughtful and useful information. We will be reaching out to several local real estate attorneys to see how to attack this issue. It's good to know that the realtors association has a potential recovery fund. To follow up on some of the questions asked.

1. According to the property manager's linkedin profile, he is a certified property manager with the national association of realtors and a certified residential special with the national association of realtors. In addition, according to this website, a license is required to be a property manager in Tennessee.

http://www.allpropertymanagement.com/propertylaw/property-management-law-in-tennessee.html

2. I am willing to provide the property manager's company in a private message but I'd rather not publish his name on the forum just in case this person is scouring these message boards (I know it is unlikely but I'm a little paranoid about the situation).

I can't help you with the property manager but there are a few things that make me think it may be a not so good tenant all the sewer rotorooter issues, cutting the lawn, and the garage door openers. (loose the garage door openers) they cost you over $1000.00 .  Bugs in February..too.   There is more you can do but you also should look into the tenant, that is where a bad PM can hurt you, placing a bad tenant.

@Colleen F. Yes, I would like to contact the tenant but the property manager refuses to give us the tenant's contact information or lease agreement. I understand that the property manager may not have placed a high quality tenant. My suspicion surrounds his avoidance in providing a lease agreement, justification for any/all expenses, and excessive expenses.

My logic that these expenses are excessive is because the "property condition report" suggested $5,575 in repairs/upgrades to restore the property to rentable condition. After making these repairs, the property manager has charged $5,709 additional of repairs over the last eight months (including the repairs per the property condition report).

Search your address and you should be able to get the name of the current resident?  Just a thought.  The PM isn't really entitled to refuse your mom the information but maybe you have to get a lawyer.  Do you have a termination clause because it sounds like time.

This is disgusting and I'm sorry to say that it sounds like your poor mother has been scammed. If it were me, I would simply avoid further damage by firing the PM immediately. Find a new PM who has a good reputation to take over the management.

1. I would proceed with immediately switching property managers.  There are several Bigger Pockets members in Memphis that can give you recommendations of adequate property management firms.  This property manager is at the very least failing to communicate with you and provide basic document requests.  At worst he's falsely billing you for repairs from his co-owned repair company.

2.  I'm not really into filing lawsuits over past issues like this.  When I find myself in these types of messes I like to move as quickly as possible to sever ties with the offending party and get things working going forward.  Getting attorneys involved and filing lawsuits is an expensive, stressful, time consuming process that sounds great in theory, but in reality is usually just miserable.  Perhaps you can write a review on the property manager on Google, Yelp, etc.  that factually documents their poor performance.  

Good luck and let us know how everything turns out!

Michael

Regarding selling the property with another agent. It seems that many PMs who are also licensed real estate agents will have a clause in the PM agreement that requires the property owner to use the PM to list the property for sale if the owner decides to sell during the agreement. So before getting into a listing agreement with any other agent, confirm that your PM agreement does not handcuff you in this manner. 

@Colleen F. The property management agreement specifies that if the owner terminates the agreement within the term, owner shall pay broker all fees which would be due both the present and future months until the end of the property management agreement. This clause does not specify situations that the owner may terminate the property management agreement.

@Nat Chan Thanks for your advice. We will be selling the house because my mom is so frustrated with the situation.

@Michael Rogers Yes, we will definitely alerting the general public on this property manager's shady operations on Yelp and Google.

@Steve Babiak You bring up a good point. I did review the property management agreement and did not find  a sales clause that requires my mom to use this property manager to sell the property. The only "Sales" clause I saw was "If owner sells the property to the tenant, either during the term, or thereafter, not less than 4% of the sale price at closing."

Originally posted by @Account Closed :

If you find that they do require real estate license to do property management there is a real estate commission that you may be able to file a complaint with and depending on what their findings there could even be a recovery fund.

Thank you for this suggestion. Kevin. State Real Estate Commissions exist to protect the consumer from real estate fraud and other injury. Start with them. Find out if the license is in good standing and then file a complaint.

If you're not aware, a recovery fund is used for restitution to clients who were harmed by a license.  The commission/division then goes after the license to recover the money (not you or a lawyer).  

Good luck.

@William Hochstedler Thanks for the additional insight. After talking to my mom, we will likely file a complaint with the national association of realtors. Depending on how that turns out, our backup plan is legal action.

One place where I could see this getting tricky is if you don't get in touch with the tenant and the PM offers them an extension or renewal.  Check what the clause is on lease renewal and what they get if the tenant renews.   At minimum your mom would save additional fees for "repairs" if you terminate with them even if you have to pay a management fee.

@Colleen F. That's a good suggestion. Do you have any suggestion on how to get in touch with the tenant if the property manager refuses to give us the tenant's contact information or tenant lease and my mom lives in Hawaii?

@William Hochstedler Thanks for the clarification!

Search your property address on the net.   My tenant names come up  on the voter rolls as being at our address.  Also in our area we have excise tax or personal property tax on vehicles.     Sometimes address.radaris.com will give you names but they can be outdated so I verify the name by looking for tax to that name on a vehicle.   I have done this in reverse to make sure someone is not listed at the address.

Utilities won't tell you the occupants name but if you call on the address they will tell you if the electric is on and sometimes how long it has been on. Avg bill too.   If there is a utility in your name such as water you can use this as a way to contact the tenant without their name.  Ask  them to verify occupancy.  Tell them the last tenant of record is...   can they verify that is still correct. If not supply current tenant name.  They may or may not do it.

Frankly aside from doing some work arounds  like this I would think you can place a legal demand to comply by serving the demand, a lawyer might advise how you do this.

@Account Closed  I was looking at the details of the Tennessee Real Estate Commission Recovery Fund. It appears that funds will only be disbursed from this fund after I have been adjudged (awarded restitution by a court of law). It appears that if I file a complaint, the Tennessee Real Estate Commission cannot recover funds. Is this your understanding as well?

https://www.tn.gov/commerce/article/rec-real-estate-education-and-recovery-account

https://www.tn.gov/commerce/article/rec-file-a-complaint

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