Some Landlords Are Abusing a State Fund for Poor Renters

ANGELA WASHINGTON’S already-bumpy relationship with her landlord reached a new level of antipathy last year, after his surveillance camera caught her walking on decorative lava rocks in the yard to avoid mud.

“He just cussed me out,” Washington recalls. “I mean, it really turned into a bitter situation.”

Things progressed from there, and by the time a small claims suit against Washington was complete last October, court documents show she owed landlord Marcus Hale $4,031. Washington, a working single mom whose household income is low enough that she qualifies for federal rent assistance, was able to argue the total down, but was still charged $2,600 for scratches her couch made to a new hardwood floor at the property on SE 190th.

“I didn’t think it was fair,” she says. (Hale did not return a phone call.)

Which is why it’s lucky Washington’s debt was ultimately paid. “I don’t know who they were, but they sent me a notice in the mail that it was paid for,” she says. “That was amazing.”

The woman’s savior was the Housing Choice Landlord Guarantee Fund. Created as a concession to landlords in a 2013 law that banned discrimination against tenants based on source of income, it supports the largest rent assistance program in Oregon: Section 8. The federal program brings in nearly $200 million annually, which goes to 13,000 landlords and helps 32,000 Oregon households—8,418 in Multnomah County.

For the last several years, the guarantee fund has helped Section 8 succeed, supporters say. But now, it’s running low—it has $115,000 remaining as of January after paying out $611,439 in claims—and House Speaker Tina Kotek says it’s been the target of “abuses” by landlords.

Kotek’s hoping to change that. This legislative session, the speaker has introduced House Bill 2944, which would require that landlords prove they’re owed damages to a judge instead of a court clerk, and stop a state practice of attempting to collect fund payouts back from tenants.

Under the guarantee fund, anyone who rents to low-income voucher holders can claim $500 to $5,000 in reimbursements if a tenant doesn’t have the money to pay what’s owed for damage to a property. The fund essentially provides insurance that can help convince landlords to open their doors to Section 8 participants, who earn 50 percent or less of their area’s median income.

But testimony in support of HB 2944 reveals two problems plaguing the fund: “abuses” by landlords, in Kotek’s words, and money.

“I’m more worried about the fund running out myself,” says Jim Straub, a legislative advocate for the Oregon Rental Housing Association. “If that fund runs out, the risk goes up for landlords, and you’re going to see them mitigate that risk.” That could come in the form of higher security deposits or stricter screening criteria, he says.

Straub was one of the key partners who worked to craft legislation that led to the guarantee fund. Without this $5,000 backup plan, he says, the risk of renting to low-income tenants is simply too great for many landlords.

Kotek’s concern is different.

“I’m not worried about the fund running out, what I’m worried about is abuse by landlords,” she says.

The way things currently stand, Kotek testified February 23, a landlord can bring a “faulty” claim, like damages from normal wear and tear, and win a payout—typically in the form of a default judgment when a tenant doesn’t show up to court.

Under the proposed “emergency” bill, which takes effect upon passage, the state would only pay following a hearing in which a landlord proves damages. State officials would also stop trying to force tenants to pay the fund back.

Within the $74 billion state budget picture, the guarantee fund is small potatoes. And Lindsey O’Brien, of Kotek’s office, says HB 2944 “has nothing to do with the financial health of the Landlord Guarantee Program.”

Yet the bill will protect the fund financially if it reduces exaggerated claims, and also by stopping a fruitless collections process.

Oregon Housing and Community Services (OHCS), which administers the fund, says payouts to landlords have been averaging $30,028 per month in the last six months. “At that rate, and assuming no new funding, the fund is estimated to run out midway through June,” OHCS spokesperson Ariel Nelson says.

The 2017-19 governor’s budget includes $280,418 for the guarantee fund from the state’s general fund—money that could replenish the fund when the next budget kicks in this July. But at the current spending rate, that influx would last less than seven months, Nelson wrote.

Of claims to the fund, 54 percent have been between $4,000 and the maximum $5,000, state documents show. John VanLandingham, a tenant defense attorney for Oregon Law Center who helped create the fund, says there are some landlords for whom it’s like “free money.”

One big reason: 82 percent of the fund’s court judgments are “default.” The tenant never shows, and the landlord wins.

“It would be better if the defendant showed up and challenged the landlord,” says VanLandingham. “But these are low income people, and they’ve got all these life issues going on.”

Washington didn’t believe the court would treat her fairly. She showed up “five minutes” late, she says—so her landlord won by default. Judge Michael Zusman later accepted her request for mediation.

To be reimbursed from the fund, landlords send an application to OHCS, to which they attach court documents. In Washington’s case, Hale wrote a dollar figure on a court document for the amount of his claim, and a brief description:

“Plaintiff left unit in dirty, unswept conditions, with garbage left behind,” he wrote. “Damages to hardwood flooring, painting and cleaning required. Not normal wear + tear.”

State documents show landlord claims have risen from a handful a month in late 2014 to a dozen a month in January. Multnomah County began submitting claims in January 2015, and accounts for the second-highest portion of the 166 total claims filed to-date: 22, to Marion County’s 48.

One aspect of Kotek’s bill that could be controversial—but should help the fund’s bottom line—is the removal of any requirement for tenants to pay back damages.

Trying to collect from recently evicted, low-income renters has cost Oregon more than it’s brought in. Of 64 collection actions in state documents, six showed a repayment, most for a fraction of what was owed.

“The [state] has spent over $44,000 to collect from tenants, and they’ve gotten $7,000 out of it, to repay the fund,” Kotek testified. “Right now we’re spending almost six dollars for every dollar we collect.”

Straub agrees cancelling collections is the right thing to do.

“The overall good that this does, I think is outweighed by this small concession,” he says.

Kotek’s bill passed the House unanimously March 21 and is now in a Senate committee. “I think that the landlord advocates want to preserve the fund, as do the tenant advocates,” says VanLandingham, who predicts it will pass.

“We believe it’s good policy to back up the landlords here,” Kotek says.