Denver couple face felony charge over Airbnb

35 Replies

Wow, this is interesting ... Denver has filed felony criminal charges against a Denver couple for operating multiple Airbnb short-term rentals in violation of the primary residence.

According to the people I talk to in the city, this has been a long time coming. The key point here is that anyone who applies for a short-term rental license with the city of Denver has to sign an affidavit affirming that the rental is your primary residence. The Denver district attorney's office says these folks -- real estate agents, no less -- lied on those forms. The formal charge is attempting to influence a public official.

And we get this exact question all the time in our classes about Airbnb laws: Can my spouse and I have two different "primary residences." Yes, of course, if you happen to have a unique relationship and actually live in separate homes. The thrust of Denver's short-term rental law is clear: You can only rent out a place for short-term if it is where you live. We hear a lot of "creative" solutions to this for the savvy investor, but the city knows all those "creative solutions" and has been taking steps to crack down. 

We always advocate that you work within the law because:

  1. It's the law
  2. A legal investment is a better long-term investment
  3. No one wants to look bad in the news; 
  4. Running a successful, legal Airbnb is possible (within your primary residence or in Colorado Springs as a pure investment)

Agree with your advocations but from a legal perspective, I'd be truly shocked if this charge stuck.  The wording of the influencing a public official statute seems to be more geared towards the prevention of bribery and coercion, not lying on a form.

Wow, thank you for sharing!!  Under C.R.S. 18-8-306 - Any person who attempts to influence any public servant by means of deceit or by threat of violence or economic reprisal against any person or property, with the intent thereby to alter or affect the public servant's decision, vote, opinion, or action concerning any matter which is to be considered or performed by him or the agency or body of which he is a member, commits a class 4 felony.

I agree, “a legal investment is a better long -term investment!”

I know that Colorado is a beautiful place, but I find it amazing that you can grow, sell and use drugs legally that are illegal under federal law, and Denver allows the use of psilocybin mushrooms which can be quite dangerous, yet renting out a house by the day or week is a felony.  What these folks are doing is hurting no one, and not themselves.  It will not possibly lead to a death from drugged driving, it will not result in an addiction for an adolescent, it will not result in lost work time, dangerous actions, etc., but it is considered a felony.  This is a reason we need strong lobbies to protect businesses that are just not popular.  It has pretty far reaching implications.  What if it becomes unpopular to raise rent and rent controls come, what if it becomes unpopular to evict people, so you get anti eviction laws, what if it becomes unpopular to have some people own more than one residence so they take all of your residences but one and give them to others who did not pay for them or earn them.  This will be a really interesting case to watch.  I can see some holes in it, but there is also evidence that may result in a conviction.

Police and DAs file any kind of charge they can in hopes they will get something to stick. This being termed a felony seems quite harsh to me. If they are convicted what will be the sentence. Life? Electric chair? I can just see them sitting in a jail cell next to a mass murder when he asks what they are in for.

@James Carlson this is nothing more than the city trying to push as hard as they can against them to make an example. The problem is this will never stick. They'll try to settle for something stupid like community service and fines to make it look good but their lawyer will know it's a losing case, take it to a jury and win. That will be 2-3 years down the road though and by then the city has scared the other investors into submission

Prosecutor with over 6 years of experience here (including prosecuting a real estate-related fraud case):

Setting aside whether or not this is a JUST law (and not to be a keyboard warrior), but I don't imagine the people saying the charges will never stick have ever put anyone in jail and/or defended anyone in a felony case. 

Without knowing more facts than what has been presented here, there is probably not a problem with making a prima facie case against them (the public official being the planning office, the influence being the deceit on an affidavit, the public servant's decision being whether or not to grant the license...).  You can argue about whether or not the law is a good one, but not whether it applies in this case.  And in all likelihood it does.

The whole reason I'm writing this reply is not to say "You're a bunch of dorks who don't know what you're talking about."  My point is that some people may be encouraged by thinking "If they aren't convicted, it's all probably okay and I'll take my chances."  Just the court/attorney's fees alone can be crippling.  Try adding those into your BiggerPockets Calculator (TM, probably).  

Upshot:  Don't get cutesy with the law.

Oh, @Thadeous Larkin , you and your "law." Silly concept. As a former journalist for 10 years -- beat that, Mr. 6 Years Prosecutor -- I found people often confused their beliefs about the "rightness" of a law with the law's applicability. 

The city telegraphed this move, by the way. (Not to brag, but I predicted this six months ago in a forum here. (Okay, to brag a little. There's a reason the city of Denver changed the short-term rental/Airbnb rules in April to require an actual affidavit to be signed affirming their primary residence. They wanted to set up something that, when violated, gave them teeth to set an example. Now they have that example. 

It will be interesting to watch how this plays out.  

From what I've heard around the grapevine, these people had a couple of warnings over the last year plus and ignored them. They broke the law which is stupid. Then the published the evidence online about where they actually live.

It reminds of all the people on BP who publically ask questions about breaking rules and/or committing loan fraud. It's stupid to break the law and more stupid to publicly admit it. They deserve what they get.

Originally posted by @Jerry W. :

I know that Colorado is a beautiful place, but I find it amazing that you can grow, sell and use drugs legally that are illegal under federal law, and Denver allows the use of psilocybin mushrooms which can be quite dangerous, yet renting out a house by the day or week is a felony.  What these folks are doing is hurting no one, and not themselves.  It will not possibly lead to a death from drugged driving, it will not result in an addiction for an adolescent, it will not result in lost work time, dangerous actions, etc., but it is considered a felony.  This is a reason we need strong lobbies to protect businesses that are just not popular.  It has pretty far reaching implications.  What if it becomes unpopular to raise rent and rent controls come, what if it becomes unpopular to evict people, so you get anti eviction laws, what if it becomes unpopular to have some people own more than one residence so they take all of your residences but one and give them to others who did not pay for them or earn them.  This will be a really interesting case to watch.  I can see some holes in it, but there is also evidence that may result in a conviction.

I was thinking of analogies, the one I drew was to FHA fraud, not drugs. If you declare owner occupancy and don't live there, you are committing fraud in order to take advantage of a federal benefit. So, this AirBnB case is fraudulently taking advantage of rules that Denver has created. Since they are licensed real estate agents, they both know damn well what they are doing. Seems somewhat reasonable to me, although I am open to my mind being changed.

@Chris Lopez

Yes, I hear the same. They were told by people in the know within the city of Denver that they were being watched and still didn't do anything. Set aside that you should follow the law -- you should, by the way -- but to paraphrase a great Robert DeNiro movie, you should also be smart enough and disciplined enough to pull back from something when you feel the heat around the corner.  

That said, before I get too high and mighty, I will also say that I empathize with anyone who has to be the example case. Literally a few months ago, a Denver man had his license revoked for flouting the primary residence rule. Because these two renewed their license more recently and signed the new affidavit, they are now facing felony charge for flouting the same rule in the same way. That's tough. 

Originally posted by @Jerry W. :

I know that Colorado is a beautiful place, but I find it amazing that you can grow, sell and use drugs legally that are illegal under federal law, and Denver allows the use of psilocybin mushrooms which can be quite dangerous, yet renting out a house by the day or week is a felony.  What these folks are doing is hurting no one, and not themselves.  It will not possibly lead to a death from drugged driving, it will not result in an addiction for an adolescent, it will not result in lost work time, dangerous actions, etc., but it is considered a felony.  This is a reason we need strong lobbies to protect businesses that are just not popular.  It has pretty far reaching implications.  What if it becomes unpopular to raise rent and rent controls come, what if it becomes unpopular to evict people, so you get anti eviction laws, what if it becomes unpopular to have some people own more than one residence so they take all of your residences but one and give them to others who did not pay for them or earn them.  This will be a really interesting case to watch.  I can see some holes in it, but there is also evidence that may result in a conviction.

 oregon and Wa are already there on rent control and making it hard to evict.  Oregon passed STATE wide rent control. 

Originally posted by @James Carlson :

@Chris Lopez

Yes, I hear the same. They were told by people in the know within the city of Denver that they were being watched and still didn't do anything. Set aside that you should follow the law -- you should, by the way -- but to paraphrase a great Robert DeNiro movie, you should also be smart enough and disciplined enough to pull back from something when you feel the heat around the corner.  

That said, before I get too high and mighty, I will also say that I empathize with anyone who has to be the example case. Literally a few months ago, a Denver man had his license revoked for flouting the primary residence rule. Because these two renewed their license more recently and signed the new affidavit, they are now facing felony charge for flouting the same rule in the same way. That's tough. 

home owner in Napa CA refused to stop renting his out and found himself in jail and the house being confiscated like a drug dealer..  but to be fair this guy was warned time and again. but refused to cooperate.

I love the concept of AirBnb. I am also terrified by it and other very progressive thinking ideas of the sharing economy.  In general, I believe people are acting openly and honestly, but these examples show that not everyone is doing that. I operate an AirBnb/VRBO "long term" (29 nights or more) because Fort Collins put in rules regarding "short term" rentals in the last 18 months. There was no vote, there was 7, relatively liberal city council members that enacted this ordinance with very minimal knowledge other than what their committee brought to them. I disagree with the rules they put in place, but will play by them. 

Ultimately, this short term industry is being more and more regulated and rightfully so. I was introduced to AirBnbs by a fraudulent renter who rented my unit long term and turned around and rented is short term on AirBnb. 

These people absolutely would have received numerous letters/opportunities to cease operation and continued to operate illegally. What else were they doing in their unit/business illegally? These for profit operations need oversight. 

It is the wild west of the sharing economy. Love the ideas and opportunities, excited to see the progression of the industry.

@Thadeous Larkin , I agree with most of your assessment, the possible holes I was thinking of was the fact that the video was made in 2014, and the law was not passed until 2017, and the property was being operated as a VR since 2016.  So there are a lot of other things that could be evidence, but I would not rely on a video done 3 years before the law was passed as my main evidence of fraud.  I would expect they have something a lot better than that, but I find it utterly stupid the report stresses the importance of a video done 3 years before the law was passed.  They may try to claim some kind of unjust taking under the constitution since they were already engaged in the business before they regulated it.  The thing I find amazing is the obvious plan to make this a FELONY, when the number of deaths from drugged driving has increased massively from legalizing mj and shrooms.  I just don't get the logic.  One of the biggest problems schools have now is getting bus drivers.  My brother does the transportation for 3 different small school districts and he really struggles to get bus drivers.  Almost half of them 70 years old and many more are well into their 60s.  Folks say hey mj is legal, but federal regs require testing and one failed test and you are gone for good.  I don't condone folks breaking the law, I just struggle with the mind set of the folks who passed this.

@Jerry W. - You're absolutely right - the stated intent behind each of these laws can't be reconciled with their real-world effects. I said it when Colorado Springs passed their ordinance and I'll say it again, nothing you listed (MJ legalization, etc.) nor these new STR regulations/ordinances are actually meant for public safety. These are purely revenue-gathering measures.

Not to hijack this thread with my own personal observations, but when you hear that someone is advocating for "reasonable" regulations, they're really saying they want to open the door to regulating.  And once something is taxed or regulated, those taxes/regulations never go away.  It is a million times more difficult to repeal a regulation than it is to prevent its introduction.

So if you don't want regulations in your jurisdiction, the trick is to never allow them to see the light of day in the first place.  All the work is done on the front end.  Otherwise, you just have to live with their results. 

This also allows me the opportunity to shoehorn in one of my favorite Abe Lincoln quotes - "The best way to get a bad law repealed is to enforce it strictly."

This wasnt just Harry Homeowner making a mistake and getting caught. These were Real Estate Licensees, with nearly 20 years experience each, whom are held to a higher standard than the general public, who committed fraud that is related to their professional licenses.  Seriously, every state I am aware of makes licensees take a CE class on ethics every 2 years.

Also as someone who has been intimately involved with short term rental legislation in my own market, at least here we had 4 jurisdictions pass similar ordinances, and I can tell you hear public lobbying for the regulations was absolutely overwhelming, with nearly no opposition.  Each jurisdiction that passed the regulations had a unanimous vote. Seriously, nothing gets unanimous votes ever, but short term rental regulations did.  At least here in the DC area, homeowners dont want short term rentals in their neighborhoods.

I think there are two parallel conversations going on here. 

1. The worthiness of the laws. I don't have a problem with STR regulations. If you choose to live in a neighborhood -- to paraphrase Oliver Wendall Holmes -- your property rights extend only as far as my nose. (Now I find some of the neighbor complaints overwrought and reeking of "get off my lawn" old cranks, but there are certainly issues we can foresee with unabated STR growth.)

And the fact that we have societal problems that some deem more serious (i.e. drugged driving) doesn't mean we shouldn't address other issues in society. Rape and murder seem more serious than petty theft from a supermarket, but we still pursue charges for the latter. We can walk and chew gum at the same time. 

In my watching of the council meetings in Denver and Colorado Springs, cities purported reasons for laws are not for public safety. Denver and Colorado Springs were pretty clear that they thought this new stream of income needed to be taxed. And in Denver's case, they say clearly that the regulations are also aimed at curbing a flood of investors in a low-inventory market plagued with affordable housing issues. 

2. The fairness of these felony charges. I tend to agree with @Russell Brazil . While many may think real estate agents are sleazy, we do have a code of ethics, and we should stick to that. Part of that is following the law. 

"I don't have a problem with STR regulation"

@James carlson

May I ask, why not? Not looking for a flame war or competing political diatribes. 

I just don't understand why investors (even left leaning ones) are so indifferent to the state telling you what you may and may not do with your property. Why let them have more power?

For those who would argue that 'Denver doesn't want investors bidding up property values' or 'short term rentals cause problems' I would say: When does government picking winners and losers or price controls ever work?  This restriction will just create unnecessary externalities that serve no one.

Someone made the comment that the sharing economy is the wild west. That's a good thing. Look how much wealth and value for customers was created in such a short time. Property owners get vetted tenants and the collection and marketing services of airbnb, the tenants get vetted places to stay and a rating system for the properties. What's not to like?

@Matt Swearingen not everyone wants to live in a location like Houston with little or no zoning regulations.  The quiet enjoyment of ones home extends beyond their lot line to the type of neighborhood they want to live in.  If the vast majority of people do not want commercial businesses in their neighborhood (and thats what a short term rental is) then they can lobby their local representatives to place restrictions in place, which is what has been happening in many localities nation wide. Conversely if the majority of the people want it, then they too can do the same, and we see in other locations, such as beach towns that short term rental businesses are welcomed with open arms where the population wants it.

@Russell Brazil

I am firmly in the “less regulation is better” camp, the issue is more of changing the rules in the middle of the game. Many investors bought properties at market value based on the income potential that was taken away from them and therefore devaluing their property 

We all agree there needs to be regulations at some level. No one wants their neighbor having 10 cars in the front yard or a dozen dogs in the backyard.  

I would be more in favor of grandfathering those already in operation or a limited number of permits given even on a rotating basis. Saying that, all I have read about this case is they were given opportunity after opportunity and rubbed the cities nose in it. With that, you get what you get