“I always thought stealing was wrong,” real estate investor and developer George McCleary remarks at the end of a viral video posted on social media last month, “But turns out, if you steal a house, it’s not even against the law here.”
The video details how McCleary easily broke into a rental listing in Portland, Oregon, fabricated a lease, put the utility bills in his name, utilized a taxpayer-funded legal assistance program to avoid eviction, and was ultimately given $10,000 to leave the property after nine months without facing any legal consequences.
Commenters speculate that McCleary, a boutique real estate firm owner who has worked in real estate for the past two decades, didn’t actually break into a rental home and trash it, but the scenario he presented was nevertheless a realistic possibility, given robust tenant protections in Portland. The video exposes the dangers of widespread efforts to expand tenant rights in cities as a response to the housing affordability crisis.
How Squatters Take Over Rental Properties
In McCleary’s video, which was widely shared and collected more than 6 million views, he explains how he navigated to a vacant rental property listed online and followed YouTube video instructions to break into the lockbox. He then forged lease documents and called local utility companies to put the bills in his name.
“When the owner showed up, I politely explained that this is my house now, and they need to leave,” McCleary says in the video. The police, after viewing the fake documents and utility bills, let the owner know that this was a civil matter.
When the owner hired a lawyer, McCleary mentions he called a legal advocacy group, which “gives me a lawyer that’s 100% free and funded by taxpayers.” After a months-long legal battle to evict the squatter, the owner gives up and writes a check for $10,000.
“I didn’t even have to clean the place up, and that’s a good thing, because I do a lot of drugs, and the house looks every bit of it,” McCleary states satirically. “So I just got nine months of free rent in a house that otherwise would have cost me three grand a month, plus a nice cash for keys check, and I wasn’t even charged with anything.”
It may seem like a far-fetched tale, but similar scenarios have played out across the country in recent years. The National Rental Home Council estimates that more than 1,200 homes in Atlanta are now occupied by squatters. In one case, the occupants used the property to operate an illegal strip club.
Here are some more ripped-from-the-headlines cases:
- In Beverly Hills, a group of squatters took over a mansion and threw wild parties, charging for tables and rooms and using a fake lease to avoid being removed from the premises.
- In Texas, a squatter with a history of evictions locked a homeowner out of her house and forged a lease for the property.
- In Maryland, squatters took over a woman’s home while she was on vacation and sold $50,000 worth of furniture.
- In Chicago, where evictions can take six months or more, a homeowner struggled to remove a squatter with a criminal history who had changed the locks on a two-flat last year, even after an incident of gun violence at the property.
- In New York, a homeowner tried for three years to evict a squatter, leaving her with a hefty utility bill by the time the squatter was arrested.
These crimes rarely lead to prosecution and cause significant losses for property owners. Owners are forced to continue to pay taxes and other homeownership costs, even if they don’t have access to their own properties.
In some cases, the trouble starts with a legal lease agreement. A tenant may move in, pay the initial required deposit, and then violate the lease terms down the road by failing to pay rent, damaging the property, or committing other infractions.
But even in the absence of grand larceny and fraud, policies that expand tenant rights can have unintended and dire consequences for small landlords—and the wider housing economy.
The Role of Policies That Expand Tenant Rights
Even before the pandemic hit, rents were rising more rapidly than wages, and renters’ budgets were strained. Everything came to a head when the economic slowdown put millions at risk of eviction, causing lawmakers to put in place $45 billion in rental assistance and a moratorium on most evictions. This turned the tables, and eviction rates declined.
When the federal eviction moratorium expired in August 2021, many municipalities and states chose to keep the ban in place longer. Rents were still rising, and over 40% of renter households were considered cost-burdened (meaning they spent more than 30% of their income on housing costs). Policymakers also pushed for stronger tenant protections, ranging from rent control measures to free legal aid programs for renters, both ideas that garner strong bipartisan support from the public.
There’s also been a wave of legislation banning criminal background checks on prospective tenants, as is the case in Oakland, or requiring landlords to ignore a tenant’s criminal history outside a specified look-back period, like in New Jersey. In Minneapolis, landlords can’t consider misdemeanors from more than three years ago when evaluating tenants, nor can they set a minimum credit score for applicants. Low-income renters are also entitled to free legal help if they face eviction.
Policy initiatives like these make it tough for landlords to prevent issues with tenants and respond to them in a timely manner. And they also benefit scam artists who come to possess a rental property illegally.
Many cities have made crimes like trespassing a low priority for the local justice department. “In jurisdictions where people know they can get away with crime, they’re much more likely to commit crime,” says McCleary in an interview with NewsNation.
Though fabricating a lease is a criminal offense, the document creates the possibility of legitimacy, and the dispute between the property owner and the scam artist becomes a civil matter. Even after the fraud is uncovered, the squatters rarely face criminal charges.
In most states, adverse possession laws require a squatter to live in a property for years before they have any legal right to ownership. But in New York City, squatters can claim their right to inhabit a property after just 30 days of residing there without interruption or objections from the owner. After that, the owner can face charges for changing the locks or removing the squatters’ possessions. That’s how an heir to a $1 million home in New York ended up in handcuffs when she approached the strangers living on her property.
But even in jurisdictions where property owners have a leg to stand on against fraudulent tenants, lengthy eviction proceedings can destroy a landlord’s finances.
Can Robust Tenant Rights Laws Solve Homelessness?
It’s important to note that just as fraudsters take advantage of lax laws in jurisdictions that are soft on crime, some landlords abuse their power in areas with weak tenant protections—there are both bad tenants, with and without legal leases, and bad landlords. And in many municipalities, landlords can evict tenants without just cause.
But policies should aim to strike a balance between renter and landlord protections to avoid the negative consequences of favoring one party or the other. Research should also focus on the best ways to prevent homelessness rather than attempting to prove that landlords play a role in the housing affordability crisis.
Case studies conducted in cities where tenants are provided with free legal representation show that these programs lead to lower eviction rates. Cost/benefit studies also show that legal aid programs that prevent eviction help cities save money on other social safety net programs provided to the unhoused.
However, many of these studies fail to consider the financial impact on landlords and the ripple effect on the housing market. Other solutions may have similar benefits without the fallout.
For example, a Massachusetts study found that the commonwealth saved $2.40 in homelessness costs for every dollar spent on eviction representation for tenants. A new study from the University of Notre Dame shows that emergency rental assistance provides similar benefits, saving cities $2.47 for every dollar spent providing assistance to renters. The latter solution, however, keeps tenants in their homes without costing landlords an average of $3,500 per unit in eviction losses.
Two recent studies, one from a Clemson University professor and one from a Ph.D. candidate at Stanford University, examined the long-term impact of tenant protection ordinances intended to prevent evictions and found similar results: The cost to landlords led to increased rents and a decrease in the supply of housing, adversely impacting low-income renters and causing a rise in homelessness.
“On the surface, strict landlord regulation sounds good for tenants, but our paper points out, the solution isn’t that simple,” says Clemson University professor Lily Shen. “The research suggests that conventional thinking on the issue of more regulation may have the opposite effect on tenants.”
Most eviction filings occur due to tenant nonpayment of rent. Yet some researchers point to evictions as a “primary cause” of homelessness. While it is true that displacement worsens outcomes for low-income people, contributing to a cycle that traps people in poverty, it’s misguided to primarily focus on preventing evictions through tenant representation when the root cause of displacement is that tenants lack sufficient funds to pay their rent.
The Impact on Landlords
Pandemic eviction moratoriums provide an extreme example of how eviction challenges impact landlords and their tenants. These moratoriums disproportionately impacted small landlords, according to the Joint Center for Housing Studies of Harvard University—landlords who owned fewer than 20 properties were more likely to experience catastrophic declines in revenue.
Furthermore, landlords of all sizes were more likely to sell their properties during this time, and about a third deferred property maintenance, a sharp increase from the 5% that reported doing so in 2019. These consequences were cause for concern about a long-term decline in the availability, affordability, and quality of rental housing.
Most rental properties aren’t owned by corporations. About 70% are owned by individuals with one or two properties, according to 2018 Census data. Research shows that small landlords file far fewer evictions than large landlords, often resolving issues with tenants directly, and are far less likely to evict tenants due to nonpayment of rent.
Despite this evidence, the sentiment that “all landlords are evil” and the policies aimed at preventing eviction often fail to distinguish between small landlords and corporations.
Urban Institute acknowledges that small investors play an important role in the availability of affordable housing, noting that policies should “incentivize capital investment by local residents and stakeholders” and that anti-eviction policies “should target the market’s largest landlords, who likely also have the highest eviction rates.”
In addition, it’s small landlords who are also more likely to be hurt by scam artists who take advantage of tenant protection laws because they have fewer resources and are less capable of absorbing losses.
In Seattle, a tenant claimed low-income status to avoid paying rent and keep the utilities on. Meanwhile, the tenant turned a profit renting the unit on Airbnb. The landlord, who was forced to continue paying the utility bills without rental income and couldn’t get help from city officials, essentially became homeless. “I consider myself lucky that I was able to build out a nice little camper van, given the situation,” he said.
The Bottom Line
In many areas of the country, landlords have more rights and resources than tenants, which may threaten housing security even for honest tenants. But in recent years, dozens of states and municipalities have tipped the scales too far in the other direction, leaving landlords vulnerable to tenant nonpayment and fraud.
Some of these jurisdictions have simultaneously gone soft on crime, allowing even illegal squatters to benefit from laws intended to protect tenants from displacement. And taxpayer-funded legal aid programs fail to address the root cause of displacement and have unintended negative consequences on not only the livelihood of small landlords but also the rental market and homelessness. Rental assistance programs and other solutions are more likely to keep renters housed without long-term adverse effects.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
