Today, the majority of Americans renting housing are severely burdened by their monthly rent payment now made worse by the global pandemic. Back in 1934, Dr. Isdow Lubin, Commissioner of the Bureau of Labor Statistics, asserted that 20% of an American’s monthly budget should go towards housing. Currently, however, Americans are paying well above that —some as high as 50% to 70%. Unsurprisingly, with so much monthly income directed towards housing, Americans have difficulty building up their savings or dealing with surprise bills.
When a medical or financial emergency arises, some tenants are unable to make their rent payments on time and in full. What’s worse, even when tenants try to set up rental payment plans to stay in good standing, the property managers are often unsympathetic and generally move forward with eviction procedures quickly. Late rent payments and eviction procedures will generally be noted on a renter’s history, and this information available will be given to other housing complexes, meaning this unfortunate renter will have significant difficulty finding new housing.
For example, thousands of property managers who use the RealPage Artificial Technology platform share data on millions of tenants and use a secret algorithm to determine who to rent to and what to charge each user. The “black box” has contributed to the strong spike in rental rates in major metropolitan cities which also happen to have ballooning homeless populations.
These eviction procedures are costly for renters, typically totaling hundreds of dollars. On top of eviction costs, property management companies also stack on fees and late charges to the past-due rent, usually doubling the renter’s debt. The practice of “stacking late fees” by charging additional penalties on late fees even when rent is current is illegal but still happens.
At this point, tenants attempt to move may be complicated by the technology put into place by a property manager on behalf of the property owner. “On-site property management teams can identify prospects who are attempting to skip or who have left another community with money owed.”
As an example, Experian RentBureau worked with Riverstone Residential, which received more than 400 hits that their tenants applied to another apartment. Riverstone Residential, under agreements, informed RentBureau of rental applicants attempting to move into a community while still owing a rental payment debt elsewhere, enabling the property managers to stop those tenants from getting a new lease until they satisfied their outstanding debt. As outlined in Chapter 5, the tenants cannot move unless the property manager group consents.
Excessive fees mount, eviction is inevitable, and the tenant scrambles to keep their finances afloat. At every turn, housing is closed to the tenant because the original property manager demands payment.
If friends or family are not able to provide temporary housing, the tenant’s plight will take a dangerous turn, and they may attempt to enter shelters.
Predatory leasing entails massive illegal debt collection activities. Property Managers then send tenant’s past-due accounts to collection agencies, and a new round of harassment begins. The former tenant is pushed into bankruptcy as their only means to get into housing.
As tenants struggle to get back into housing, they only find barriers. Generally speaking, property management companies screen tenant applications for bad credit and criminal background and a minimum of 2.5 times the monthly rent as an income qualifier. Finally, property management companies deny any applicants currently in bankruptcy.
Financial ruin sets in as the tenant receive no protections from bankruptcy because the property managers, who control all types of properties, will not accept an application from the tenant until the tenant pays the original landlord all fee income due. If the tenant cannot arrange to pay that debt, then they move to step 9.
By the time the tenant enters this step, they are usually out of funds, and their fees from the previous landlord have been compounding. Historically, the tenant would have applied for subsidized housing. However, the property managers who administer market-value properties are also the managers of subsidized housing, and, even in subsidized housing, property managers will still typically not accept an application until the tenant has paid all fees and monies owing to their previous landlord.
In the end, the tenant has no choice but to remain or become homeless. Opioid addictions and drug use have become commonplace for the once-productive tenants who just fell on hard times—only one hospital bill away from the streets.
Long-time banker and broker, James M. Nelson, noticed rental rates sky-rocketing across America and sought to discover the cause. He recently published a book detailing his findings, Stealing Home: How Artificial Intelligence Is Hijacking The American Dream.