Tenants from Hell : Professional Deadbeats, ‘Petition Mill’ Scam Artists Imperil Small Rental Property Owners Unfortunate Enough to Select Them as Renters

Joan Harrow of Chatsworth was not a wealthy landlord. Like many small investors, the now-retired schoolteacher was hoping to build a financial nest egg for her golden years. So back in 1980 she bought an investment townhouse and began renting it out.

“I had some wonderful tenants,” she said. “A few bad ones, but nothing really severe.”

All that changed in 1990 when she put the house on the market. Unable to attract a conventional buyer, Harrow agreed to a lease-option with a man who proved to be nothing less than a tenant from hell.

“I had a year of utter, unbelievable torture,” Harrow, 64, said of her experience with the tenant whom she later found had put four homes into foreclosure and now appears in the process of financially terrorizing another unsuspecting landlord. “He took a year of my life and flushed it down the toilet.”

The headaches of owning rental property are well-known to every landlord. But small-time rental property owners, especially those who rely on the income from their secondary property, face substantial financial risks if they choose the wrong tenant.

Among the culprits these days are savvy, professional deadbeat tenants who make a career out of defrauding landlords, a la the 1990 movie thriller “Pacific Heights.” And then there’s the sour economy that’s helped the proliferation of so-called petition mills, which specialize in promoting rent fraud and false bankruptcies.

Each year, landlords statewide lose at least $338 million to renters who refuse to pay, according to the 1991 Unlawful Detainer Study, sponsored by the California Apartment Law Information Foundation (CALIF).

While some of the losses stem from valid tenant gripes, most are believed to be the result of unwarranted claims of renters who choose, for whatever reason, not to pay.

“They (landlords) lose houses, they lose apartment buildings, they lose commercial property,” said Los Angeles landlord attorney E. Houston Touceda. “And the tenant from hell just disappears into the sunset leaving the bodies behind.”

What’s more, he said, honest tenants, who far outnumber the dishonest ones, end up footing the bill.

“Because the landlord has taken a $2,000 loss in Unit A, he then has to make it up in Units B, C or D, or he loses money and can’t maintain the building as well,” he said.

Roberto Aldape, directing attorney at the Legal Aid Foundation’s Eviction Defense Center, agreed:

“One rotten apple can spoil the bag, and that’s what they’re doing,” he said of the dishonest tenants. “They portray a negative image that’s perceived by landlords to apply to all tenants.”

Fred Szkolnik, a Los Angeles landlord attorney, said landlords should beware of two kinds of tenants.

The most ominous are the professional deadbeat tenants who employ well-thought-out plans to bilk landlords out of rent, often bringing them financial ruin.

But in recent years, a new cottage industry--petition mills--has proliferated in Los Angeles. Disguised as paralegal services, these mills promise tenants months of free rent in exchange for fees ranging from $300 to $3,000 and then proceed to abuse the legal protections designed to safeguard honest tenants.

“They want to buy as much time before the inevitable and do it somewhat maliciously,” said Dan Fowler, president of the Apartment Owner’s Assn. of Southern California. “They abuse the court and do things that they’re legally entitled to do, but they do so in bad faith.”

And while some tenants knowingly become involved with these mills, many others are unwitting, often non-English-speaking residents who may even have valid defenses but instead become victims of the scam operations. Instead of contesting their evictions, the mill operators merely delay them, which usually results in the tenant owing back rent.

“Many of the tenants involved really aren’t bad guys,” attorney Touceda said. “They’re approached by these services and the tenant has no idea of the types of scams instituted on their behalf.”

Judge Richard Paez, a supervising judge of the Municipal Court Civil Panel, says rental abuse is widespread. In fact, in most eviction cases that come before him and his colleagues, the tenants contesting the evictions never appear to defend themselves in court, suggesting frivolous filings.

“There’s only about 20% of the cases where the tenant actually shows up,” Paez said.

Even still, the landlord is often far from victory.

A standard eviction takes at least two to three months to complete. But if a tenant knowledgeable about the system sets out intentionally to scam as much free rent as possible, it can go on for a year and more.

“A person who really wants to be abusive or is desperate can do additional things,” Paez said.

One tactic is the filing of phony “Arrieta” claims. The Arrieta claim is named after Sarah Arrieta, a Los Angeles tenant who fought eviction with a legitimate claim. Her landlord had taken eviction action against her former roommate, and Arrieta didn’t learn of it until a marshal came to her door, ready to evict her and her family.

Now, however, petition mills and individual tenants file thousands of false Arrietas each year in Los Angeles, claiming that another person not named in the eviction lives in the rented apartment or house.

And while Paez says “99% are denied” by the court, it still buys the tenant at least 21 more days it takes for the paperwork to be filed and the issue to make it before a judge for hearing.

After that the tenant can take it a step further by filing for bankruptcy. The federal bankruptcy law imposes an automatic stay on all collectors. And while rental property does not qualify for protection under bankruptcy, the landlord must still spend about a month and several hundred dollars to lift the stay.

What’s worse, each adult living in the house can file separate bankruptcies for further delays. Federal law allows a person to file only one bankruptcy every six months, but it’s difficult for the overloaded court to keep track of the filings, essentially enabling tenants to file many more bankruptcies. The end result is a landlord loses thousands of dollars in rent and sometimes many more thousands in legal fees.

Moreover, the already overburdened bankruptcy court wastes time on these false claims.

According to the U.S. attorney’s office, 25% of the 80,000 or more of the personal bankruptcy cases filed in Southern California are fraudulent.

“They take a lot of the court’s very limited resources,” said Federal Bankruptcy Judge Geraldine Mund. “For each bankruptcy case a file must be created, notice must be given to creditors, hearings are set . . . and in a very large number of these the landlord will come in for a motion for relief.”

About a dozen more steps must be taken, she says, before that makes it to court.

“It’s unfortunate,” Paez said. “I sympathize with the landlords, but there’s very little the court can do.”

“Everything is within the law,” Szkolnik agreed. “They find ways in the law that they can stall the process. Clients ask me all the time how they can stop them from filing bankruptcy. I say, ‘Pray. You can’t stop them. They have that right.’ ”

Jenelle Hardwick, 33, of Corona Del Mar knows the story all too well.

In 1989, Hardwick invested in a house with a partner who planned to live in it. But a change in her partner’s business forced him to move elsewhere. The couple tried to sell, but the depressed market made it impossible to get their price.

Out of financial desperation, the two entered into a lease-option and all went well for the first year. But then, the $2,000 monthly rent payments stopped and for 10 months the man, and later his college-age son, lived in the house free.

When Hardwick finally got the tenant out of her home, she was left financially devastated--in the hole for $20,000 and thousands more for legal fees and repairs to the house. She is now losing the home in foreclosure and is facing bankruptcy.

“I never wanted to be a landlord in the first place,” Hardwick said recently. “I didn’t want to be the bad guy. Whenever he said he didn’t have the money, I tried to be nice. This is what happens when you’re a nice person.”

Mom-and-pop owners, such as Hardwick, are prime targets of tenant fraud, said Fowler, of the apartment owners group. “There’s a lot of owners out there who don’t properly screen,” he said. “You need to run credit checks, you need to find out if they’ve been evicted before and you need to demand to see their driver’s license so you can know you’re renting to the person they say they are.”

Still, he admits, a savvy con artist can find ways around all this with false identification, false references and myriad other tricks.

And what’s worse, he said, is many of these tenants just “tear the apartment to pieces” before finally being evicted.

Szkolnik said the damage he often sees amazes him.

“I’ve seen places where the tenant literally must have taken a sledge hammer to the walls, bathtub and sink, and there’s really nothing I can do to help them. It’s really heartbreaking.”

Hardwick said the damage to her home sent her reeling.

The outside was bad enough, the weeds were knee high. But nothing could prepare her for what she found inside.

The thermostat had been ripped from the wall, exposing dangling wires. The once white carpet was stained brown and yellow and smelled of pet odors. The dining room chandelier was torn from the ceiling. Towel racks were missing, light fixtures in every room were stolen, the doors and walls were pock-marked with holes. The tenant went so far as to remove a shower head and every light bulb in the house.

The repair bill: $7,800.

“After I got done walking through, I just started to cry,” she said.

The only recourse is getting a court judgment against the tenant. But most landlords are quick to discover it’s next to impossible to collect from a con artist.

“The landlord seldom gets anything back,” Touceda said. “The judgments are just a piece of paper, never paid, never honored. The tenants don’t voluntarily pay them and the landlords don’t have the mechanism to collect judgment. The tenant would have to be steadily employed or an owner of real property and that takes out most of these tenants.”

Harrow has so far won $15,000 in judgments against her tenant, but to no avail.

“I just had a collection agency return my material to me,” she said. “They say they can’t touch him because there’s no wages to attach wages. We can’t find his wife’s Social Security number so they say if I want to hire a private investigator to follow her I might be able to get some information. But I’m not going to put another penny into him.”

Harrow calculates her losses at $70,000, including the $37,000 in lost sales price the delay cost her, lost rent of $19,500, more than $5,000 in legal fees and nearly $7,000 to clean up and repair the damage left by the tenant.

Both Harrow and Hardwick say their biggest mistake was trusting the tenant.

“I always check credit references,” Harrow said. “But this character came up, very slick and he said, ‘Look, I don’t have a credit record, I want to be honest with you. I suffered a business bankruptcy and this is my one chance to get back into property and re-established.’ I’m always a sucker for honesty like that.”

Harrow’s tenant put down $5,000 cash and agreed to $1,500 a month. But once he moved into the house, he immediately began causing problems, Harrow said. It started with his refusing to sign the escrow instructions. The few payments he did make were always late and accompanied by numerous complaints about the house.

Soon, he became abusive, began harassing her regularly and then stopped payments all together. Harrow, through a favor from a friend, put a private investigator on his trail. Her findings: That he and his wife filed nine bankruptcies between the two of them and that the couple had put four homeowners into foreclosure within the past 10 years.

“I went into this total, unbelievable rage,” Harrow recalled. “I went to the police department, the bunco squad, the media, everyone said he wasn’t in violation of any penal code. Everyone sympathized but they couldn’t do anything.”

Last December, federal law enforcement authorities began cracking down on petition mill operators, filing 17 indictments in Los Angeles.

And in January, 1992, a new state law required the sealing of eviction records to the public for 30 days, cutting back on the ability of mill employees to sift through court records and then directly solicit tenants facing eviction.

But because it takes longer than 30 days for a typical eviction proceeding, the law has slowed, but not completely blocked that avenue for mill employees. Moreover, the mills have taken to new methods of solicitation--mainly leaving flyers on the windshields of cars and canvassing neighborhoods, dropping off flyers on the doorsteps and mailboxes of low-income apartment buildings.

Apartment owner Mike Daddah of Santa Ana fell victim to a mill operator he unknowingly hired as a manager of his apartment. “Last year was the disaster,” he said.

Daddah said he believes the former apartment manager began teaching tenants in his well-kept 18-unit Glendale apartment building how to avoid paying rent.

So far, three of them have done so, costing him more than $13,000 in lost rent, attorney fees and damage repair. He won two of the cases and the third case is entering its sixth month.

In the three years he and his partners have owned the building, they’ve lost money.

“We hear so much about slumlords,” he said, “But in our case, we are very fair people. We keep the place clean and fixed, we don’t let it go down hill. But the bad guys get away and the good guy has to prove himself over and over again. I think the system is failing.”

Dan Fowler agreed: “In California, they’ve legalized stealing. What we really need is some change in eviction laws.”

But until that happens the only thing landlords can do is learn as much about eviction procedures and landlord-tenant law as possible.

In a handbook, entitled “Legal Guide for the Residential Landlord,” Carlson gives advice on minimizing the hassles of eviction and on dealing swiftly with recalcitrant tenants.

First and foremost, he and other experts in the field warn against landlords taking action themselves, which can lead to stiff penalties and longer delays.

Carlson advises anyone caught in an eviction mess to “relax and endure the process” as best you can and expect an emotional “roller-coaster ride.”

But for many of the landlords who have experienced this particular kind of hell firsthand, nothing is worth such headache and hassle.

“Everyone asks me if I ever again want to be a landlord,” Harrow said recently. “And I tell them that in the next three lifetimes I never will again.”