So quick backstory about me.. I have 2 rental properties on Long Island, NY and they're both located in the same town.
Property #1
-Legal 2-family duplex (2 units)
-Does not need to be owner-occupied since it’s a legal 2-family
-Has active rental permit with the town
Property #2
-Single family house w/accessory apartment (2 units + illegal basement apartment)
-I live in the upstairs unit
-Needs to be owner-occupied in order to get rental permit for the 2nd unit since it’s not a legal 2-family
-No scenario where the basement apartment will ever be legal
My family has been renting this house without a rental permit for several decades without any issue. We also have a pretty good relationship with all the neighbors which I'm sure helps.
The reason for me not getting a permit once obtaining this property is very simple -- I was given this house from my father, and the town that I'm located in, you're not able to get a rental permit unless the house is owner-occupied. I'm getting married in the next year and starting a family, and we plan to move out when that happens, which means that even if I went through the permitting process now and was granted a rental permit w/the town, I knew that ultimately I was going to find myself screwed when the time came to get a renewal on it (every 2 years), and I wasn't able to prove that the property was still owner-occupied. Also, I knew that they would 100% discover the illegal basement apartment and I would be screwed. This 1br1ba basement unit generates $1,800/month so I'm trying to keep it under the radar for as long as possible, especially since I have such a great tenant in there.
I recently had vacancy in 1 of the units in my house which is a 3br1ba. I had the listing on Avail (which I use as a rental manager, and posts to many other popular rental sites), Zillow, and Facebook Marketplace.
I already have a Section 8 tenant at Property #1 (which I acquired during the purchase), so I'm not opposed to the program at all, and to be honest, they pay above market rent in my area, so that worked for me. I also know I live in a state that is not very landlord-friendly, so the guaranteed rental income is very alluring to me. I've had such a good experience with the Section 8 tenant at Property #1, that I said multiple times via e-mail months ago to Section 8 that I wanted to go "all-in" on Section 8 properties and build a whole portfolio around it.
Now the issue is that Section 8 is super particular about making sure you have all your paperwork and permits in place before being allowed to onboard Section 8 tenants at your property. Since I didn't have a way to get a rental permit for Property #2, I knew I wasn't going to be able to accept Section 8 tenants, even if I wanted to.
Aside from all this, I was always told that I was not legally required to accept Section 8, so I was completely under the impression that I could tell applicants that I wasn't going to accept it.
Out of all of my applicants, I'd say about 15-20% of them asked if I accepted Section 8 vouchers. In all of these scenarios, I kindly replied "Sorry, no vouchers", or "I'm sorry, we're not accepting vouchers at this time". Pretty much everyone was pleasant and said no worries or asked if I knew someone who had a unit who did.
Some time goes by, I end up renting to a single guy, and all is well in the world. That is, until a few weeks later, I receive 12 notices from New York State Division of Human Rights that a local non-profit have filed 12 complaints against me on behalf of 2 individuals for "discrimination" of source of income. These 2 individuals appear to be a mother/son. They filed 4 complaints jointly, and 4 each individually (12 total). This non-profit specializes in fair housing practices/housing discrimination on Long Island, "Our mission is the elimination of unlawful housing discrimination and promotion of decent and affordable housing through advocacy and education." These complaints read as lawsuits would with the rectangle box on each one with "Complainant vs. Respondents".
Each complaint is accompanied by a form that I'm supposed to fill out to give my argument against why or why not I discriminated. In addition, the complaints are reading that the non-profit used actual actors/"testers" to reach out to me on these listings to confirm what these 2 individuals were saying was true, which of course, I also replied, "Sorry, no vouchers".
Now I've had to hire a lawyer who specializes in cases like this, and has actually gone up against this non-profit in the past, but with a much bigger client who owned 20+ apartment buildings, and was also openly saying "no Section 8 vouchers". They ended up settling that case for something like $380k. I had to pay this lawyer a $7,500 retainer for them to even talk to me.
Obviously this is BS, especially considering out of the 4 units that I have rented, 3 out of 4 of them are occupied by African American tenants, and 1 out of 4 of them are rented to Section 8. Also, I have e-mails going back months with Section 8 stating that I want to go "all-in" and build an entire portfolio around the program. In this scenario, I physically couldn't accept Section 8 because the house didn't have a legal rental permit. My lawyer is hoping to argue that against them but it seems like the most likely route is settlement, which means I'm paying thousands of dollars for nothing. Also, they state that if I'm found to have violated these peoples Human Rights, that I can lose my other Low Income Housing Tax Credits (aka Section 8 at my other property).
The complaints also state that these individuals suffered "anguish" for
Even if we decided to fight this, which we probably would have a decent chance at winning, it will cost me thousands in lawyer hourly billings vs. just paying out a settlement to these people.
At this point, my lawyer has filed an extension with NY Division of Human Rights and should be reaching out to the non-profit behind all of this mess some point soon.
It sucks because it will be more expensive to fight it and win, than to just take the L and pay them out a settlement. It looks like this lady works for a local homeless shelter, which makes sense how she knew to file the complaint with this specific non-profit the day after it happened. I'm starting to think she does this professionally and is a real estate "ambulance chaser". The complaint also states that they've experienced "anguish" over this ordeal.
At this point, only time will tell what they want to get out of this whole thing. It's pretty obvious that they want money, but I guess how much, only time will tell. I just wanted to share this story with you guys so you know what you're up against in the current world we live in.
I'll circle back and update everyone when I have more information or updates.
Wish me luck. smh.
