How to hold a property management company accountable for negligence?

Question

Hello BP community,

I've had a terrible experience with a PM company in CO. They approved a tenant in Dec. 2023, with 4 prior evictions (latest being in 2018), and some other misdemeanors, and the PM ended up evicting them in early July. The tenant owes 3 months of rent, unpaid utilities, and trashed my 2022 built condo and left several days before the sheriff had to break into the condo as no keys or forwarding address was left by the tenant. Considering this tenant is most probably judgement proof, who would you go after in this situation? The PM company has it on their website that "If you have been evicted from a property, we consider this a legal event, and the application will be denied."

When I looked into the tenant's background check, I found 3 forcible detainers and 1 civil filing from 2009 through 2018. When I asked the PM about this, here are their answers to my questions:

Question: What is the reason for her application approval despite having multiple evictions?

Answer: As I explained on the phone. I am seeing 0 evictions on our report.

Question: When asked about her rental history, you mentioned that her history was checked for the past 2 years, and she had been living with a family member for those years. Was she paying rent to family during those years? Can you please provide us with evidence of rent payments?

Answer: She was not rewarded any points for her landlord since it was family. She did get points for having the same rental since 2019.

My conclusion from their answers: I can NOT understand how 4 evictions slipped through the cracks!!! Looks like no rental history was checked as living with family and not paying rent, does not count towards rental history.

Other than filing a lawsuit, are there any other ways I can report this company? Or should I consider a lawsuit? (My total damages are around 10K) and I do not live in Colorado...

What would you do if you were in my shoes?

Drew Sygit · Answer

@Farnaz Z. what does your management contract state about applicant screening?

It's probably pretty vague.

If so, you're highly unlikely to win in court.

Also, it appears you may be incorrect about your eviction assumptions.

You state you, "found 3 forcible detainers". Please explain to us how the definition of a "forcible detainer" below equates to an evition?
https://www.lawdistrict.com/legal-dictionary/forcible-entry-...

Also, how does a civil filing equate to an eviction?

Lastly, the last background issue you found was from 5 years prior. What length of time were you expecting an applicant to have a clean record for?

What property Class is your rental?If Class B, C  or D, then what credit score are you expecting from an applicant?

Here's our advice about selecting a PMC, you may want to read it and apply it for better results in the future - coincidently, we do use tenant screening as an example of what owners should ask more questions about!

Recommend exploring as many sources as possible to get referrals AND cross-reference them to get as much accurate information as possible.

Check out NARPM.com, BP’s Property Manager Finder (BiggerPockets: The Real Estate Investing Social Network), etc.

Also, encourage you to learn from the mistakes of others - by reading posts here on BiggerPockets about owners not having their expectations met by their current Property Management Company.

To avoid going through the same poor experience, keep reading.

Even if someone gives you a referral here, do NOT make the mistake of assuming that the PMC will meet your expectations, just because they met the expectations of the referral source.

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – so, they often select the first PMC they call or that calls them back!

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

A well written management contract should clearly spell out what is expected of both the PMC and the owner, to PROTECT both and avoid misunderstandings. Why do you think purchase contracts are so long and have such small print?

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

Bill S. · Answer

@Farnaz Z. so... it's complicated. While it appears to be a clear cut case of negligence, getting financial relief can be more challenging. Clearly you are unhappy. You have called and they have stonewalled according to your accounting.

If this tenant, in fact, had no previous evictions, would your opinion of the PM change? Eviction records are challenging as there is no clearing house for them like there is with say credit reports. What was their credit like? I find it very difficult to believe that a tenant had 4 prior evictions and you got them out in 3 months. With that many prior evictions, your PM was very on top of it. Most people with that many evictions never pay (they are professional scammers), and then use the court system to stall and stretch out the whole process. Unless you ran a full credit, criminal, and eviction check using the tenants SSN and drivers license (which you must have their permission to do) you can't be sure that the records you are viewing are in fact one and the same person who was your tenant. Easy results are not equal to accurate results.

The best relief is usually accomplished in person. Sit down and meet with the PM company and LISTEN to their side of the story.

I would say that being out $10k is probably on the low side for most full blown evictions where the unit was "trashed". While this is a significant sum, trashing a unit by damaging the paint and flooring can easily result in expenses over $10k plus the lost rent, court and attorney costs.

The only thing that you have said that makes me question the PM outright was the lack of a key for the sheriff to gain entry. The PM should have had a key to the unit, but again, that might not be the PM's fault if the tenant changed the locks against the provisions of the lease.

How is it that you consider the tenant to be "judgement proof"? It's not that hard to get a judgement. The challenging part usually is collecting on that judgement. After you get the judgement you have to garnish their wages to collect which means you have to follow them from job to job to collect. You can even get judgements against someone on disability or social security but you can't garnish that those to collect your funds.

Once you dig into it. It really boils down to time. How much time do you have to chase the money from the PM or from the tenant? How much is your time and mental energy worth to you?

If you have the time and desire. Got to the wall with the tenant. What you don't get from them, go after the PM for in the same manner.

Small claims is the best approach which has a limit of $7,500 in Colorado. If you sue for more than that, you have to hire an attorney and would likely end up paying the attorney more that you collected no matter who you sue.

With small claims it is set up for you to go mano a mano with the people that owe you money. You will have to appear in court (probably multiple times) and you said you are out of state. Think about the travel time and expenses. The people I know who are successful at the process are those that do it often and know and understand the system. Just learning the process takes a good bit of time and effort. Generally, you pursue the first one out of principle and apply the learning to subsequent cases. After about 3 or 4 you are at break even. After that, you know the process and can actually make it worth your while to pursue collectable tenants for the money they owe you.

The alternate option with the PM is to first threaten them with reporting to the Real Estate Commission and then if they don't play ball actually report them to the commission. I have been audited by the commission (the result was minimal issues to address) and it is no fun. It costs money to defend against the commission as I hired an attorney help me and it was worth it.

The final alternate approach to the PM company is also to threaten and again if no traction is made to contact the state attorney general about their business practices. The Colorado attorney general recently collected a $1M settlement with no admission of guilt from a large Boulder property management company. This was related to how the PM company treated tenants so you might not get as much traction with the AG's office since you are not a tenant.

Finally, you are obviously hurt and angry and want to be made whole. I can easily construct a scenario where the PM did absolutely nothing wrong despite your current perception. My advise is to get as close to seeing the PMs side of the situation as you can before you take any action against them. Of the PMs in the world, 10% are great, 80% are adequate, and 10% are bad and deserve to be spanked and put out of business. In my mind, nothing you have said, definitively puts them in the bottom 10%. It's possible, but it's also possible that is not the case. Consider the downside (what if you take them to court and end up with nothing) before you jump in the deep end.

I hope this situation resolves itself for you and doesn't put you off of investing in real estate. This is a bump. There will be others as well. No matter the track you take, note your lessons learned and apply them to the next situation and move forward.

You asked what I would do in your shoes. Meet with the PM and see it from there perspective. If they did not come of as 100% criminal, I would move on and mark up as a learning experience.

Nathan Gesner · Answer

Start with a demand letter, usually 1 page long with some supporting documentation. Explain the damages and how much is owed. Let them know that if they do not make this right, you will file a complaint with the state and sue them.

If they don't settle, file a complaint with the Colorado Dept of Regulatory Agencies: https://dre.colorado.gov/complaint-process

Be as detailed as possible and provide copies of documentation (letters, emails, texts, phone records, etc.).

When the property manager is notified of the complaint, they will probably try to work out some form of settlement. Settling with you is often much cheaper than dealing with an investigation from the state, so they usually prefer to make the problem disappear. Be prepared to accept a settlement somewhere in the middle of what you think is owed. I recently filed against a CPA that cost me $22,000 and we settled on a $12,000 cash payment. I wouldn't have made that much if I hired an attorney and fought them for a year.

If filing the complaint doesn't work, you can consider Small Claims or some legal action.

Theresa Harris · Answer

Why did the sheriff have to break down the door?  A call to a locksmith should have been enough not to mention the PM should have had another key.  I'd ask the PM to pay for those repairs as that was on them-they should have had a key.

If they only looked at the last 2 years, that's how they missed the other evictions. question is why did they only look back 2 years?

I'd fire the PM and move on.  You aren't going to get money out of the tenant and the PM is unlikely to give you anything either. I'd also demand that they give you 100% of her deposit. Make sure you give them a review on the platforms and if you want, you can report them to whatever accreditation board they have, but that may not result in anything.

And get a second, independent estimate on repairs.  In your shoes, I wouldn't trust the PM's estimate (even if it is right).

Michael P. · Answer

https://www.narpm.org/about/ethics/ethics-complaint/

Theresa Harris · Answer

I'd ask the junk removal people what took them so long to empty the fridge and ask for an itemized invoice.  As for them not having the correct key code, that is on them and they should pay for that as it is clearly their negligence.  I had two crappy ends to tenants back to back (right before covid and right after).  No PM, but it sucked.  In the long run because of rent caps, I was able to rent it for more and that essentially made back the money I 'lost' due to damage and unpaid rent.  It still sucks, but if the place was empty, then that is one less thing to do.

Farnaz Z. · Answer

Drew Sygit, Thank you for your post. Here's something you might want to educate yourself about: What is a forcible detainer in Colorado?https://www.courts.state.co.us/userfiles/file/Court_Probation/18th_Judicial_District/18th_Courts/Eviction%20Plaintiff(1).pdfSo forcible detainer is the step after the Writ of restitution is signed by a judge and it is even worse than an eviction record on file. Now we can get to your comment on the last paragraph; I simply asked a question and asked for advice from the community. I do NOT understand what you have stated about trashing PMs in general!!! What does that have to do with my experience??? You have completely gone off-topic here and you have NO right in doing that. Your post is one of those posts that I will have to ignore completely because you're making assumptions that are incorrect and totally partial towards PMs.

JD Martin · Answer

I think the best you can probably do here is sue them in small claims court to keep your costs at a minimum. If they are insured and lose the case their insured will pay out assuming they don't want to appeal. You may get a settlement instead if their gross negligence is obvious to the insurer.

Russell Brazil · Answer

Where did the PMs company eviction report come from?

Where did the report you had with different information come from?

Drew Sygit · Answer

@Farnaz Z. thanks for the education!

It's unfortunate you took my advice as an attack on you or a defense of PMC's in general.

There are a LOT of bad PMC's and I have no problem calling them out.

But, I also have no problem holding owners responsible for their poor hiring decisions.

We've only heard your side of the story and I've learned many hard lessons from jumping to conclusions with only half the story.

Best of luck to you:)

How to hold a property management company accountable for negligence?

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