Is my property management company doing something illegal?

[Rob B.]

Here's the situation: I bought a 16-unit complex in Fresno in May. It's in a bad neighborhood and I knew it would take a lot of work so I hired a property management company. Normally I manage my own properties, but I'm really busy with some recent purchases and work so I decided to pay out the money so that I wouldn't have to worry about it. The problem is that they've been negligent, ineffective and possibly criminal. Without too much drama or embellishing, I will try to give you the bullet points. 

• They're running their repairs through their own maintenance company. This was disclosed to me at the beginning, but they are billing me extremely high for some very basic stuff. They're also not putting unit numbers on some of the bills so I have no idea what unit it was for. 
• They have four vacancies and when I scoured the web looking for listings of the vacant  apartment, I could only find postings on Trulia and Zillow, none of the auxiliary sites. 
• They recently informed me that one tenant was withholding her rent because she had been advised to not pay until repairs were taken care of. They tried to make it seem like she was being unreasonable, but they couldn't even tell me what the repairs were that she was asking for. 
• They send me statements at different days of the month and they skip the last few days of the month. It's not 6/27-7/26; it's 7/1-7/26 and 8/1-8/26. So they're just sending out statements and not waiting for the end of the month. They also forgot to send me a statement in July and got an attitude when I asked why it hadn't been sent. 
• I just found out that the "lawyer" that they're charging me $900 for evictions is actually the office manager of the company who does nothing more than serve papers. This was NOT disclosed to me. She took three weeks to file the most recent unlawful detainer of a tenant who had gotten into a fight and was two months behind on his rent. I don't mean three weeks to decide to do it; I mean I told her to evict him and it took her 23 days to file the paperwork with the courts. She claimed to be trying to get ahold of him but when I asked her how many times she had been out to the property, she admitted it was three times in as many weeks. So she cost me almost a month's rent with her laziness. I also went through the charges on her invoice and they add up to $880, but the total is $900. I went back to my last eviction and it was the same. They also get a flat fee every month for management, not a percentage of rent collected, so they make more money if they put bad tenants in my property, which strikes me as a huge conflict of interest. And the more that the tenants trash the place, the more repairs they can charge me for. 
• One of our tenants moved out in July. There's a $100 bill for cleaning his unit that was charged to me on 7/16 and a statement saying that his apartment was in the same condition that it was when he moved in so they gave him back his full deposit: dated 7/17. They took the $100 out of my owner draw, instead of out of his security deposit. So either they didn't do a walk through, or forgot to charge him or something, but either way, they decided to try to skate it past me and hoped I wouldn't notice. 
• Since before the purchase was complete, I told them that I wanted a section of the roof repaired since there have been problems with leaks and tenants have even reported it to the city (under the previous owner). It's been over three months and they haven't even gotten me a bid. 
• There were bed bugs when I bought the property. I told them that I wanted the entire complex heat treated. It took them two months to schedule this. 
• The statements, the invoices and the owner draws never match up. I am getting ready to print out everything they've ever sent me and enter it all in myself to see what the heck is going on. 

Do you want to know the really twisted part? I am a property manager! I own a property management company in the San Jose area, but since business has grown so much, I decided that I didn't want to deal with an out of town property in a bad area. I assumed that they would handle things the way that I handle things for my clients. Since I've never screwed up this badly, I don't know where the line is between lazy and breech of contract. They've lost me money and instead of making my life easier, they've made it harder because I have to try to figure out what they're doing. This is not an exhaustive list, there's a lot more. My concern is that when I purchase the building, the bank required me to sign a one year property management agreement as part of the deal if I wasn't going to manage it myself. It's only been three months and they've already done a lot of damage. I've never tried to hold a client who wasn't happy with my services, but I'm worried that they're lazy enough to keep the contract and continue billing me $85 for 2 lightbulbs and 3 outlet replacements on every unit. They're taking home more money than I am from this property each month. 

Do I have any options other than trying to be a big enough pain that they let me go as a client? I'm genuinely concerned that things are only going to get worse from here. 

[Charles M.]

Rob,

Sorry to hear about your current situation. First off, I would expect some amount of chaos in the beginning of a transition period, both in the new relationship between you and a new PM as you "train" them about your expectations and also for them to tackle existing issues with tenant behavior modifications needed for inherited tenants. I use PM's for my entire portfolio and am extremely happy with the services provided (in the Visalia/Tulare areas). I too, work full-time.

That aside, the poor decisions, non-responsiveness, exorbitant repair charges, lack of detailed answers to your inquiries, etc. are each potentially deal-breakers on their own but collectively, I'd absolutely be be jumping ship if it were my property.

I haven't yet changed PM's or term'd a PM agreement so I cannot speak to the specific legalities but would certainly assume that if I were in your shoes, I would shop around NOW! Cancel/disapprove all non-emergency repairs and evictions until new Mgmnt is in place. Get a new PM lined up first so you don't have to manage in between. I would make an appt. w/ current PM, take a couple hours off work, have a physical list of grievances with a copy to retain for your records, inform them of your dissatisfaction and demand that they waive any early termination clause and/or fee's (if applicable) associated with that. In addition, I would have some type of dated, liability waiver written up for them to sign that states in writing that they legally waive all interest in the existing contract that specifically renders existing contract null and void as of a certain date and time and releases you of any and all obligations of said contract. Regadless of fee's though, even if they will charge and won't waive early termination fee's the $3-500 fee (if applicable, likely not) will be WELL worth the investment to exit this relationship.

Specific responses to your bullet points:

- Nothing wrong or abnormal about PM having it's own handyman/repair company or in-house personnel. Feels like a conflict of interest but it can aid in lowering repair costs, responsiveness & times.

- I thought the same thing when I first started out. However in today's environment, vacancies are likely to be filled in less than 1-3 weeks in this area with limited advertising. More exposure is always better but it hasn't been used or need in my situation yet.

- Inexcusable.

- Inexcusable. Get it together people!!!

- I can't speak to the legalities of needing an eviction lawyer for small claims but I wouldn't think it's a requirement, legally speaking. However, any good PM will have this type of attorney on call to represent their case to the judge AND PM will be present in court for each and every eviction hearing on your behalf. (If I remember correctly, my only eviction cost me about $3-500 in attorney fees).

- Cleaning fees, depends what specifically was cleaned and why. If it was in any way due to tenant not leaving unit as they acquired it, then it should be withheld from tenant deposit.

- Inexcusable. I've had repair quotes anywhere from same day to no more than a week out.

- Bed bugs.I have no experience here.

- You should absolutely be using excel, quicken or a piece of paper every month/every unit to reconcile gross rent, all expenses and draw. Mistakes happen and consistent, owner diligence is the only real solution and no doubt, some PM software ledgers are horrible to understand and PM should be able to clearly explain every, single question regarding your statement(s) and on the day of your inquiry. However, in my experience, if you are finding more than one error every 6 months...the PM needs a serious conversation at the very least.

I don't use any Fresno based PM's at this time. Hopefully the next few comments will be able to give local recommendations. In the meantime I use & would very highly recommend;

- Investors Prop. Mgmnt, 103 W Tulare Ave, Visalia, CA 93277 (559) 733-8360 ask for Lyn.

- Total Prop. Mgmnt, 144 N M St, Tulare, CA 93274 (559) 687-2780 ask for David.

Hang in there, Rob & good luck!

- Charles McNelly