Must A Landlord Actually Repair Tenant-Caused Damage Before The Landlord Can Deduct The Cost From A Tenant's Security Deposit?

This issue keeps raising its head over and over and over . . . so I feel compelled to address it. The question: Must a landlord have completed the repair of tenant-caused damages to a rental unit before being legally able to deduct the repair costs from the tenant's security deposit?

I personally believe the answer to that question is "No" -- the repair work does not need to be completed prior to a landlord being able to deduct the repair cost from the tenant's security deposit.

Wisconsin law does not provide landlords with a direct answer to this question.

The Wisconsin Administrative Code, ATCP 134, does not address this issue. This is what ATCP 134 does say:

ATCP 134.06(2)(a), entitled Returning Security Deposit, states that within 21 days after a tenant surrenders the rental premises, the landlord shall deliver or mail to the tenant the full amount of the security deposit held by the landlord, less any amounts properly withheld by the landlord under sub (3).

ATCP 134.06(3), entitled Security Deposit Withholding; Restrictions, lists what items can be deducted from a tenant’s security deposit. I wrote a blog post on this topic previously.

ATCP 134.06(4), entitled Security Deposit Withholding; Statement of Claims, states that if any portion of a security deposit is withheld by a landlord, the landlord shall, within the time period and manner specified under sub (2) deliver or mail to the tenant a written statement accounting for all amounts withheld. The statement shall describe each item of physical damages or other claim made against the security deposit, and the amount withheld as a reasonable compensation for each item or claim.

Chapter 704 of the Wisconsin Statutes which deals with Landlord Tenant issues does address the issue.

I am also not aware of any Wisconsin case law that answers the question.

Here are my reasons for believing that it is legal for a landlord to deduct the costs to repair tenant-caused damage from the tenant's security deposit prior to the repair work being completed.

1. Nowhere in ATCP 134 does it state that the repair work must be completed prior to the landlord being able to deduct the costs of repair from the tenant's security deposit. If the drafters of ATCP 134 meant for repair work to have been completed prior to any deduction being made from a tenant's security deposit then they had the opportunity to require that in the regulation. For whatever reason, the drafters chose not to write that into the regulation. As such, such a requirement should not be read into the regulation if it is not there.

2. The repair of tenant-caused damage to a rental unit cannot always be completed within 21 days of a tenant surrendering the rental unit. There are a multitude of legitimate reasons why repair work may not be able to be completed within 21 days, such as: contractor time constraints, financial constraints, or the simple fact that the sheer amount of repair work that needs to be completed is too large to allow it to be completed in 21 days. Just because a contractor can't complete the work within the 21 days, or the landlord does not have the money to make the repairs within 21 days, or the work cannot be completed within 21 days -- such as in the case of fire and smoke damage, or water damage -- does not absolve the tenant from responsibility for the cost of repairs.

3. DATCP, in its own analysis of ATCP 134, has stated that the repair work need not be completed prior to the drafting of the security deposit transmittal letter to the tenant. In 1999, after a major overhaul was completed to ATCP 134, DATCP published a document entitled a Summary of ATCP Chapter 134 Revisions. In its summary, DATCP states on page 3:

(Note: if repair costs are not known within 21 days, a written accounting must still be provided. In this case, a "good faith estimate" may be made.

So those are my three reasons for believing that a landlord is legally able to deduct the cost to repair tenant-caused damages from a tenant's security deposit even if the repair work was not completed within 21 days.

What are your thoughts on this question? Do you have any additional reasons why you would answer the question as I did?

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I would like to thank Atty. Heiner Giese for providing me with a copy of the Summary of ATCP Chapter 134 Revisions published by the DATCP and for suggesting that I write a blog post on this issue many, many months ago. I would also like to thank Atty. Evan Knupp for being the most recent person to ask me this question -- within the last hour as a matter of fact -- which finally caused me to write the post that you just read.

Milwaukee County Eviction Court "Odds & Ends"

I wanted to update everyone about some recent news in Milwaukee County Eviction Court. Each of the items are too small for there own blog post, so I thought I would combine them as "Odds & Ends." This might be a regular blog post column in the future : )

1. Out with the old and in with the new -- commissioners, that is.

Most of the court commissioners that had been serving in small claims/eviction court have rotated out onto other assignments. Thh only commissioner that remains from the last group is Court Commissioner Rosa Barillas. Commissioners Julia Vosper, Barry Phillips, and Dennis Cook have all rotated out. The new commissoners include: Grace Flynn, Cedric Cornwall, and Kevin Costello, all of which have served a small claims/eviction court rotation before. Chief Court Commissioner Laura Grambling-Perez will also assist in small claims/eviction court. Since the rotation I have also seen Commissioner Barry Phillips stopping by to help out when needed. However, the court commisioners that are now officially assigned to Eviction court currently are Rosa Barillas, Grace Flynn, Cedric Cornwall and Kevin Costello.

2. New Judge takes over Small Claims calandar as of August 1st

Most judicial rotations last 3 years, but due to the high volume and stress level of small claims court, the rotation for a small claims duty judge is only for one year. As of Agust 1, 2011, Judge Jane Carroll will be rotating into another division and Judge Paul Van Grunsven (currently filling a Felony Drug rotation) will be the new small claims duty judge.

3. Eviction Court closure dates

Eviction court will be closed tomorrow, Thursday, May 5th, and Friday, May 6th. I don't believe that the clerks in the Clerks of Courts office have allowed any cases to be filed for those days -- so expect a higher case load next week.

Eviction Court will also be closed on Thursday, May 12, 2011. Many cases have already been scheduled for that day but since no court commissioners will be available to hear/review/decide any cases, any cases that are currently scheduled for May 12th will need to be rescheduled. As such, if you have any cases scheduled for May 12th (as I do) you still must come to court and the clerks (Henrietta and Dyan) will give you a new court date.

Eviction Court will also be closed on Monday, May 30th, for Memorial Day.

The Consequences of A Landlord Violating Wisconsin's Residential Rental Practices (ATCP 134)

The Residential Landlord Tenant relationship is controlled by two main areas of law: (1) Chapter 704 of the Wisconsin Statutes, and (2) the Wisconsin Administrative Code, Chapter ATCP 134 entitled "Residential Rental Practices."

ATCP 134 sets forth 21 regulations that a landlord must follow in a residential landlord tenant context. ATCP 134, under its orginal name "Agriculture 134," was first introduced in May of 1980. "Ag 134" was then renamed ATCP (Agriculture, Trade and Consumer Protection) 134 in 1993. In 1999 there was a complete overhaul of ATCP 134 which resulted in the 21 regulations that we have today.

If you are a landlord and are not familiar with ATCP 134 please take the time to read the chapter -- it is only 5 pages long and is relatively easy to understand -- it must have been drafted by someone other than a lawyer or government employee : )

The main remedy available to a tenant that is damaged by a landlord violating ATCP is what is referred to as the "private attorney general" provision. Essentially, the Wisconsin Statutes allow a party who is injured by a violation of ATCP 134 to "step into the shoes" of the State Attorney General to privately prosecute such violations.

This private attorney general provision, specifically sec. 100.20(5), allows an injured tenant to recover double damages and reimbursement of their actual attorney's fees against a landlord that has violated ATCP 134.

The State has enumerated several public policy reasons for allowing the private attorney general provision in the residential landlord tenant context, such as:

1. It encourages an injured tenant to enforce his/her rights even if the amount of damage is small and the aggrieved tenant does not have the "means" to pay for their own attorney.

2. A tenant who sues for a violation of ATCP, while clearly enforcing his/her rights, will also be enforcing the public's rights.

3. By allowing a tenant the ability to more easily pursue such claims against his/her landlord, it will deter impermissable conduct by landlords and thus strengthen the bargaining power of tenants.

4. It provides a necessary backup to the State, as the State does not have the time or resources to pursue lawsuits against all landlords who violate the regulations of ATCP 134.

Whatever your thoughts are about the above-reasoning, it is imperative that you become knowledgable about the 21 regulations contained in ATCP 134. During the course of consulting with landlords and property managers in my job as an attorney, I am always surprised by the number of landlords that have never heard of ATCP 134.

A Legal Explanation To Landlords About Who Can Appear In Eviction Court on Behalf of a LLC and Why

In the last few months I have been asked by many landlords why Milwaukee County will not allow members of an LLC to represent the LLC in eviction court. I would like to address this issue with the hope that I can shed some light on this subject.

First, let’s deal with the elephant in the room which happens to be wearing a suit and carrying a briefcase (and writing this blog post that you are reading). Yes, I am a lawyer. Yes, I am hired by landlords to handle their evictions (among many other landlord-tenant law matters). And, yes, I stand to gain more clients and generate more income, if courts do not allow a landlord to represent an LLC in legal matters. All of this is very much true.

Despite this, I hope that those of you that have gotten to know me, also know that I take my role as the President of the AASEW very seriously. Even if a specific policy hurts my wallet, if it will benefit members of the AASEW, then I will support it and advocate for it.

The AASEW’s Board of Directors has discussed this issue at length since September of 2009, when Milwaukee County began its enforcement on non-lawyer’s representing LLC’s in eviction court. After a thorough analysis, the Board determined that if this issue were to be pursued legally it would result in a loss. The Board also realized, quite pragmatically, that such a loss would hurt landlords in counties outside of Milwaukee where LLC members are currently still being allowed to represent a LLC in court.

A good place to start discussion of this issue is with a review of basic business entity law. The primary trait of any business entity, whether a corporation or a limited liability company (LLC), is its existence completely separate from its owners. An owner, member, director, or officer of a business entity is distinct from the entity itself. A business entity – and going forward I will refer only to the LLC – has its own separate legal existence. It is this principle that protects a member of a LLC from liability for the actions, negligence, or debts of the LLC. While a sole proprietor or general partner is liable for the debts and liabilities of the business to the full extent of the individual’s personal assets, that is not the case with a LLC. It is this liability protection that makes a LLC a good vehicle for holding rental property. It is this “separateness” that is pivotal to the analysis of this issue.

The liability protection that a member of an LLC receives from his/her personal assets is a huge benefit to the member. It is because of this benefit, that there has been such a huge increase in the number of LLC’s being created lately. However, as with everything in life, there is both a good and a bad side -- a benefit and an inconvenience.

In the case of Jadair v. U.S. Fire Insurance Co., 209 Wis. 2d 187, 562 N.W.2d 401 (1977), the Wisconsin Supreme Court held that “only lawyers can appear on behalf of, or perform legal services for corporations in legal proceedings before Wisconsin Courts.” The Jadair Court’s reasoning, when boiled down to the basics, is that an individual cannot embrace the limited liability aspects of a business entity when it is beneficial to them and then at the same time avoid the consequences of that limited liability when it becomes inconvenient.

On one hand, the benefit of a LLC is the limited liability to the individual member based on the underlying concept that the business entity is separate from the individual person. On the other hand, the inconvenience of a LLC is that since it is a separate legal entity from its individual member/s, said individual/s cannot speak on behalf of the LLC in court because they are separate and distinct from the entity itself.

The Jadair case dealt specifically with corporations – not LLC’s. Nonetheless, the similarities between a corporation and a LLC when it comes to the issue of limited liability are many. It is important to note that the Jadair case also dealt with a large claims lawsuit – not a small claims matter such as an eviction.

There is a big difference between small claims civil procedure and large claims civil procedure.

One major difference is that small claims court is much more relaxed when it comes to rules. For instance, in small claims cases the rules of evidence are not applicable for the most part. Additionally, small claims cases are usually completed in months instead of years like with large claims. They are separate animals.

As such, sec. 799.06(2) of the Wisconsin Statutes, governing small claims court procedure, allows a full-time authorized employee of a business entity to appear in court on behalf of that entity. This option is not available in large claims court. In all large claims cases a business entity must be represented by an attorney.

In the past, Milwaukee County would ask a non-attorney that appeared in small claims court representing a LLC if they were a full-time employee. If the individual answered "yes," then that individual was allowed to represent the LLC in Milwaukee County small claims court. This is still the normal operating procedure for many small claims courts outside of Milwaukee County. Some counties require the full-time employee to complete an Affidavit of Full-Time Employee where the employee swears under oath (and penalty of perjury) that they are a full-time employee of the business entity. Other counties are more lax and don't require the affidavit.

The Jadair case has been around since 1977 and sec. 799.06(2) has been around even longer. So there has been no change in the law. Rather Milwaukee County began more aggressively enforcing the law that was already on the books regarding this issue in September of 2009

I am unsure why Milwaukee County decided to begin enforcing sec 799.06(2) in the fall of 2009. For those conspiracy theorists out there, I can assure you that the lawyers did not lobby for this change. Nonetheless, after posting notice of this enforcement change for several months, on September 1, 2009, Milwaukee County began to actively enforce sec. 799.06(2). If an individual wanting to represent a LLC in small claims court cannot provide proof of full-time employee status, such as a W2 or paycheck, they are told that they needed to hire a lawyer going forward.

As many of you know, most LLC’s that hold rental property do not have any full-time employees. Most LLC’s holding rental property are single member LLC’s. Most members of an LLC do not receive a salary from the LLC thus they have no paycheck or W2 that they can provide to the court to prove that they are a full-time employee.

Additionally, many landlords – to limit liability exposure even more – have opted to hold only one rental property in a single LLC. Thus, an individual who has many rental properties and chooses to put them into separate LLC’s may be the sole member of many, many LLC’s. So even if that person was a full-time employee of one LLC, s/he could not be a full-time employee of all of them.

Currently there is no Wisconsin appellate court decision that requires a lawyer to represent a LLC in court. However, as alluded to earlier, the reasoning in Jadair, which held that a corporation must be represented by an attorney, would very likely be applicable to a LLC as well. So any landlord that would decide to appeal a Milwaukee County decision on this issue would more than likely lose his/her appeal based on sec. 799.06(2) and the reasoning of the Jadair case.

Additionally, as I mentioned before, many counties are currently not enforcing sec. 799.06(2) with as much vigor as Milwaukee County has been doing. As a result, many landlords outside of Milwaukee County are able to represent a LLC in court despite not being a lawyer. While this is not legally correct, it is happening.

It should be noted that Washington County has recently begun to enforce this statute as well and now requirs a LLC to hire an attorney if they do not have a full-time authorized employee of the LLC to appear on its behalf. Eventually I assume that this trend will spread to other counties, as what happens in Milwaukee often ends up being followed elsewhere.

So to pursue this matter legally – since it would more than likely result in a loss -- would also harm landlords outside of Milwaukee County because if the issue were to be appealed, and if the appellate decision were to be published, then all counties would be required to abide by the holding of the appellate court.

While I am well aware that the enforcement of sec. 799.06(2), Wis. Stats., causes a financial hardship for landlords that hold rental property in a LLC, I hope that the above explanation – at the very least – helps those affected to better understand the issues involved.

The end result is that if an individual landlord wants to be able to pursue his/her own evictions without hiring a lawyer, than s/he should hold his/her rental property in his/her individual name rather than in a LLC. However, by doing so, a landlord will lose the liability protection afforded by holding rental property in a LLC or other business entity. As the old saying goes, landlords will need to “pick their poison.”

Repeal of Expanded 1099 Requirements Signed Into Law

President Obama has officially signed H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011” into law. This new law retroactively repeals prior 1099 reporting rules for landlords that were added by 2010 legislation (i.e. the Small Business Jobs Act of 2010 and the Patient Protection and Affordable Care Act -- better known as Obamacare).

Prior to the 2010 legislation, it was generally required that if you were a landlord that was engaged in the trade or business of landlording, that you were then required to report to the IRS via a 1099 form any payments totalling at least $600 to a single person. Typically, this involved paymetns for services. It should be noted that there were a number of exemptions from the law's reporting requirements notably including payments to corporations.

This essentailly meant that unless you were a full-time landlord, you did not need to comply with the reporting requirements as you were not in the trade or business of landlording.

Then in 201, two pieces of legislation were passed.

Under Obamacare, as of 2012, it was added that payments for goods more than $600 in a 12 month period needed to be reported as well as services. Obamacare further provided that, beginning in 2012, payments to non-tax-exempt corporations—which had previously been exempt from the reporting requirement—would be subject to information reporting.

Additionally, the Small Business Jobs Act of 2010 provided that, subject to limited exceptions, a person receiving rental income from real estate would be treated as engaged in the trade or business of renting property for information reporting purposes. In particular, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income would have to provide an information return to the service provider and the IRS. This would included all landlords, even if they worked full-time doing something other than landlording, and just rented out a duplex on the side.

After much backlash, the House introduced, H.R. 4, which repeals the provisions of Obamacare and the Small Business Jobs Act referenced above.

Essentially, with President Obama, signing into law H.R. 4, the reporting rules now revert back to what they were before the 2010 legislation (Obamacare and Small Business Jobs Act) was passed. We are now back to where we were before the government started monkeying around with things in the first place.

I guess if nothing else it gave me some topics to blog about : )

Pursuing a Money Judgement Against An Ex-Tenant . . . Should You Even Bother?

Once you have evicted a tenant and have your property returned to you, you are confronted with the decision of whether to invest the time and money to pursue the ex-tenant for money damages or not.

Some of my landlord clients always pursue the ex-tenant for money judgments. Of that segment of landlords, some will obtain their judgment, docket the judgment, and then sit on it hoping that the tenant will eventually pay it off (plus 12% interest) when they need to obtain a loan to purchase a home. Other landlords that I work with will not only obtain the judgment against the tenant but they will also proactively attempt to collect on that judgment via garnishment actions.

On the opposite end of the spectrum, are landlords that never seek a money judgment against a tenant as they consider it to be a waste of time and would merely result in "throwing good money after bad" because the tenant is not collectible. Still other landlords opt to try and collect from past tenants via alternative means such as using the service of Rent Recovery Services --- which allows you to report the ex-tenant's debt to the 3 credit bureaus without the need to obtain a judgment.

There are many options for a landlord to choose from when it comes to collecting against an ex-tenant. There is not one correct option for all situations and for all landlords. The correct option depends on many factors. I will sift through all of the information (or the lack thereof) that my client has about the tenant that could assist in the collection process. Sometimes a discussion regarding the client's financial situation is needed. Determining my client's ultimate goal is a must.

It is my personal opinion that time should be taken up front to discuss these matters with a client so that there are no false illusions going forward. Many landlords are astonished to learn that once they obtain a judgment that they must spend more time and money to collect on that judgment. It is important to remember that a judgment is merely a piece of paper saying that your ex-tenant owes you money, it does not mean that you will get paid. Collecting on a judgment is a whole different ballgame . . . . and a different blog post.

City of Waukesha's Free Landlord Training Program Tomorrow

For those of you who own and/or manage rental properties in the city of Waukesha or the surrounding areas, the City of Waukesha Police Department will be holding its Landlord Training Program tomorrow, April 13, 2011.

The program will be held at the Rotary Building which is located at 1150 Baxter Street (behind the Frame Park baseball diamond).

I will presenting a free seminar as part of the program starting at 12:30 pm. Specifically I will be speaking on two topics:

1. Causes for Eviction

2. Notices To Pay Rent or Teminate Tenancy

I hope to see you there.

T

CCAP Might Be Affected by Governor's Proposed Budget

Just when we thought CCAP would be left alone for awhile (after the dismantling of the CCAP Comittee) word comes of another potential attack on CCAP --- this time it is financial. The Wisconsin Law Journal recently published a post by Jason Smathers of the Associated Press indicating that court officials are concerned that CCAP may be affected if the governor's proposed budget breaks up its funding.

The Governor's proposed budget apparently would end a dedicated funding source for CCAP along with other state data management systems. Currently CCAP receives $6 out of every $21.50 charged as part of the Justice Information Systems Surcharge included in most court filing fees, says the recent article. Under the Governeor's proposed budget, all fee revenue would go to the Department of Administration, which could decide how to allocate the money, thus ending any dedicated monies to CCAP.

The article explains that if the budget as written is passed, that CCAP may not be updated as frequently as it currently is. Others, including the Chief Justice of the Wisconsin Supreme Court, worry that the changes could result in CCAP being jeopardized.

The article indicates that the spokesperson for CCAP, feels that CCAP would have to consolidate or cut back on non-essential services and that CCAP would be on a short-list of cuts, if the budget goes through as written. A spokesperson for the Governor says that a 10% cut is all that CCAP will face and that such a cut is the same type that all departments will face in order to balance the budget. According to the article, the CCAP spokeperson indicated that no decision has been made with regard to making cuts to CCAP but that as a result of the proposed budget, there are no new plans for any expansion to CCAP.

CCAP averages 2- 3 million hits per day according to the article -- with that type of popularity -- this is one user that hopes CCAP is left alone.

Make sure and read the full article here.

U.S. Senate Votes to Repeal New 1099 Reporting Requirements for Businesses and Landlords

The U.S. Senate has passed H.R. 4 which repeals the new 1099 reporting laws for businesses and rental property owners. The vote was 87-12. Since the House had already passed this bill -- and no modifications were made by the Senate -- the bill will now go to the President for his signature. While the President has indicated that he did not care for the "pay for" (offset) provisions that were included in H.R. 4, he has supported the repeal of the 1099 reporting requirements, so it is believed that he will sign the bill into law.

If you would like to read more about the new 1099 reporting requirements and see prior updates on this law please see my earlier and more exhaustive blog post on the topic.

CCAP Committee Disbands Without Any Major Changes Negatively Affecting Landlords

On March 9, 2011, State Rep. Ed Brooks, the newly appointed Chair of the State of Wisconsin's, Joint Legislative Council's Special Committee on Review of Records Access of Circuit Court Documents (CCAP Committee) sent a memo to all members of the committee indicating that he had decided not to reconvene the committee for any additional meetings.

For the most part, landlords came out unscathed by the reccomendations of the CCAP committee. While the committee considered many issues --- the most troublesome being limiting access to CCAP and removing records of evictions that resulted in a dismissal --- the only issue that the committee is pursuing has to do with the ability of person to seek expungement of certain criminal records under certain situations.

It should be noted that while the committee voted to require that all persons whose CCAP records were accessed during a rental application check or or credit check be notified of this, the chairman of the CCAP committee rejected that suggestion and chose not to include it in the draft bill that was produced as a result of the committee's work.

The proposed bill that was drafted as a result of the CCAP committee's reccomendation, proposed or clarifies the following:

1. Defines what is means for a court to expunge a court record (i.e. yes, this does include removing any reference to the crime from CCAP)

2. Clarifies that an expunged record may not be considered for employment or housing matters.

3. States that a person may petition the circuit court at any time to expunge the following:

- any court record of a person who was under the age of 25 at the time the crime was committeed and who was found guilty of a forfeiture, misdemeanor, and certain (lessor) felonies, that are punishable by up to 6 years in prison.

- any court record of a person charged with an offense punishable by a forfeiture, misdemeanor, or felony in which all charges were dismissed or for which the defendant was acquitted AND the court determines that the person will benefit by the expungement and that society will not be harmed by the expungement.

So if this proposed bill is eventually passed, an individual who was convicted of a crime, and who meets the criteria for expungement, could have his/her criminal record expunged including its removal from CCAP. What does this mean for a landlord conducting a background check on that specific rental applicant? It means several things:

1. It means that the landlord would find no record of the applicant having ever been charged and convicted of crime x, y or z (or charged and acquitted or charged and the later dismissal of the case).

2. It means that even if the landlord somehow learned of the conviction (or acquitall or dismissal) and th elater expungement, the landlord could not use that information when making a decision on whether or not to rent to that individual.

3. It means that a landlord is precluded from inquiring as to the existence of any expunged record from a rental applicant whether tht be on the rental application itself or verbally when talking to the applicant.

So while the proposed bill, if passed as written, will make screening certain rental applicants more problematic, considering all of the items/issues that were up for discussion by the CCAP committee, landlords remained relatively unscathed. Now let's hope that the Wisconsin Supreme Court stays out of the fray . . .

Free Landlord-Tenant Law Seminar In West Allis on March 31, 2011

I will be presenting a seminar for the West Allis Landlord Training Program on Thursday, March 31, 2011 from 6:30 pm - 8:30 pm. This seminar is sponsored by the West Allis Police Department and is open to the public at no cost.

I will be speaking on two specific areas:

1. Rental Documents -- specifically what rental documents you should be using with your tenants to protect yourself such as: Rental Agreement, Nonstandard Rental Provisions, Rules and Regulations, Rental Application, Pet Agreement, Lead-Based Paint Disclosure Forms, Carbon Monoxide Detector Forms, Check-In & Check-Out forms and more.

2. Screening Prospective Tenants -- this topic will include discussion of the federal and state Fair Housing laws, written screening criteria, credit checks, CCAP, and how to reject an applicant.

The Seminar will be held in the West Allis Municipal court room which is located at 11301 W. Lincoln Avenue in West Allis. Seating is limited so I would encourage anyone that is interested in attending to arrive early to insure a seat.

A detailed outline on the above topics will be given to each attendee and Wisconsin Legal Blank Co. will be on hand with their landlord tenant law forms available for purchase.

Hope to see everyone there.

Has WE Energies Ever Tried To Hold You Responsible for An Ex-Tenant's Utility Bill?

Fellow blogger and AASEW Board member, Tim Ballering, runs a very informative blog for landlords entitled "Just A Landlord." Tim has graciously allowed me to reproduce one of his most popular posts on the topic of what a landlord can do when WE Energies attempts to hold the landlord responsible for an ex-tenant's utility bill.

Please be sure and check out Tim's blog - there is some great stuff there.

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What the law is and how to deal with WE Energies.

A couple of years ago a bunch of owners came to me all with a similar problems. They had properties with separate utilities, yet WE Energies was attempting to collect utility bills from them that should not have been the owners' responsibility.

If only they knew the rules they would have less headaches. So I wrote a lengthy email on the subject and posted it on the ApartmentAssoc at YahooGroups.com email list. Out of my frustration with email formating this became the first post on this site back in February 2008.

This problem seemed to have diminished for a while, but judging from owners I have spoken to recently it is back... with vengeance. But if you know the rules and follow them you will never have to pay for a utility bill that is not yours.

The updated version of the original post on WE Energies billing practices:

Some days there seems to be no limit to attempts to cheat rental property owners out of their hard earned money. Tenants, City Hall and WE Energies all seem to stay awake nights figuring how to get your last few bucks.

In the past month, October 2009, many owners have again asked ‘What is my responsibility to pay for separately metered utilities when the tenant moves or doesn’t place the account in their name?’ and then go on to tell their tale of woe, describing how WE Energies is attempting to extract money from them for utilities they do not believe they owe.

One tells of having the electric at his own home disconnected over what should have been a tenant's bill. Another talks of how WE Energies has placed thousands of dollars in bills from a separately metered four family into her name. She feels that this will cause her to lose the building. Another talks of how these improper WE Energies bills has cost him 160 points on his credit report, going from excellent to very poor.

So where do we begin? This is a fairly complex area. Here is my attempt at a simplified overview. Remembering you should hire an attorney when you need one, and even when you think you don’t need one if there is a lot of money involved.

Let’s start with the applicable law, Wisconsin Statute §196.643 Owner responsibility for service to rental dwelling unit.

(1) Responsible party. When a customer terminates service to the customer's rental dwelling unit, a public utility shall make reasonable attempt to identify the party responsible for service to the rental dwelling unit after the customer's termination. If a responsible party cannot be identified, the public utility may give the owner written notice by regular or other mail of the public utility's intent to hold the owner responsible for service to the rental dwelling unit. The owner shall not be responsible for service if the public utility does not give the notice under this subsection or if, within 15 days after the date the notice is mailed, the owner notifies the public utility of the name of the party responsible for service to the rental dwelling unit or notifies the public utility that service to the rental dwelling unit should be terminated and affirms that service termination will not endanger human health or life or cause damage to property.

Seems pretty simple. In order to place a utility bill in your name the public utility, WE Energies in this case, MUST attempt to find out who is responsible for the service. If they can’t determine who is responsible and they want to place the account in your name they MUST send the property owner a letter AFTER the tenant’s termination of service date. That letter MUST give you 15 days to respond. Your response can be 1) you want the account in your name; 2) you can provide the public utility with the name of the party responsible for the bill; or 3) you can ask the utility to simply turn off the service. Do nothing within the 15 days and the bill is placed in your name.

Here’s some areas where WE Energies cuts corners and attempts to put bills in your name improperly:

• The 15-day letter is the trigger for billing an owner. Prior to sending the letter, however, “public utility shall make reasonable attempt to identify the party responsible for service to the rental dwelling unit after the customer's termination.” and only after the public utility can’t determine who is responsible may they send the letter.
• WE Energies typically sends the letter without first making any independent attempt to identify the responsible party. Therefor the letter is invalid for putting the bill in your name.
• WE Energies often sends the letter prior to the termination date of the tenant. The statute requires the process to begin "after the customer's termination." Here again this makes the letter invalid for putting the bill in your name. How can an owner determine if the power should be turned off or provide the name of the responsible party prior to the the current tenant leaving? You can’t. Many times the vacating tenant doesn’t leave on the date they should. Some holdover for a day, a week, a month or they simply change their mind about moving. Maybe the roomate who has the power in their name is moving and the other roommate is staying. Other times the letter comes more than 15 days prior to the current tenant’s termination date but by the time they do move you have a new tenant.
• WE Energies often calls you, rather than sending the letter, expecting an instant answer when you haven’t had ample time to assess the situation. You may not even know the tenant is vacating. A call is not a letter.Think about it in terms of our responsibility to send a deposit transmittal letter.. ‘but your Honor, I called them and told them I was keeping the deposit so I didn’t need to send the required letter.’ The same standard applies here.Remember no proper 15-day letter- no legitimate bill, even if they called.
• WE Energies sends you a bill a month, a year or more after the fact without ever sending the letter, expecting you to pay for utilities used prior to you receiving any notice from WE Energies. There can be no proper owner billing prior to the date the letter was sent to you.
• Another area WE Energies attempts to trick property owners into paying bills that are not theirs is by placing the bill in your personal name and attaching that bill to your home account while the property is owned by an LLC or other entity.The law only permits the bill to be placed in the name of the property owner.
• The WE reps will often tell you that they can’t place the bill to your new tenant unless you provide personal information on the tenant including their Social Security number. While you must provide their name and there is probably no problem providing their prior address, third party disclosure of credit information such as the tenant’s Social Security number is a violation of the federal Fair Credit and Collections Act. Penalties for FCRA violations are severe. WE Energies’ attorneys will admit they cannot require you to provide this information.
• Additionally WE Energies attempts to make it difficult for you to turn off the service by demanding that you meet the WE Energies service person who will arrive at the property between ‘8AM and noon’ on a Tuesday. While the Public Service Commission does require the public utility to assure that the unit is empty prior to disconnect, there is no requirement that you have to waste half a day to meet them.

However there are a couple of instances where you have to get the checkbook out and pay, even if it should not have been your bill.

• If WE Energies first attempted to identify the responsible party AFTER the termination date and then WE Energies sent the letter to the property owner, but you ignored it there is no defense to the bill.
• If your property does not have separate utilities. Let's say you have a single meter in a duplex and you want both tenants to pay half. You can do that if it is written into your rental agreement, but the bill MUST be in your name per Wisconsin Statute §196.643(2)

An area of disagreement is the definition of responsible party when the tenant vacates before the last day they are legally responsible for the unit.

• Many rental agreements hold the tenant contractually obligated to provide heat to the property until the last day they are liable for rent. That would appear to make the vacating tenant the responsible party until the last day they are legally liable for the unit. WE Energies take the position that the occupant’s responsibility ends the day they said they moved out, even if that date is weeks before their month to month tenancy would terminate or months before their yearly lease terminates.

The Ever Important Security Deposit Transmittal Letter (or "21 Day Letter")

Aside from evictions, issues regarding the failure to properly return a tenant's security deposit are, in my opinion, the single most litigated area in landlord-tenant law.

In Wisconsin, if a tenant has deposited a security deposit to his/her landlord as part of a residential tenancy, the landlord must comply with one of two options within 21 days after the tenant "surrenders" the landlord's rental unit:

1. Return the tenant's security deposit, or

2. Send the tenant a security deposit transmittal letter (which I refer to as a "21 day letter") explaining how the tenant's security deposit was applied.

Unfortunately too many landlords have gotten themselves into trouble when it comes to the issue of returning a tenant's security deposit. While there are many ways to screw up, most of the mistakes that landlords make regarding this topic fall into one of three categories.

• First, a landlord makes improper deductions from the tenant's security deposit.

• Second, the 21 day letter is sent late.

• Third, the 21 day letter is not sent at all.

Failure to abide by ATCP 134.06 of the Wisconsin Administrative Code — which deals with security deposits in residential tenancies — can result in the tenant being awarded double damages and attorneys fees.

A little over a year ago I wrote a post on the topic of how to draft a legal 21 day letter to your tenant. Due to the continued popularity of that post I thought it would be helpful to include a video clip from a seminar that I presentedawhile back on this important topic.

D.N.S.' Update on Milwaukee's R.R.I. Program In U.W.-Milwaukee Area

The City of Milwaukee Department of Neighborhood Services (DNS) recently spoke at a meeting on the east side of Milwaukee and provided an update of the Residential Rental Inspection (RRI) program which was instituted around UW-Milwaukee area and in the Lindsey Heights neighborhood. If you would like a refresher of what the RRI program is all about you should read my earlier blog posts on the issue.

Much of the information set forth below was taken from the notes of Pam Frautschi, President of the Eastside Milwaukee Community Council -- Thank You Pam.

David Krey, Enforcement Manager of DNS explained that the the RRI program applies to single-family, duplexes, triplexes and other rental unit properties in the UWM area between Hackett and the river and from Edgewood to Locust. Applicable rental properties were inspected inside and out in order to qualify for a rental certificate. If a rental proerty does not pass muster and obtain a rental certificate then the owner would not be allowed to rent the property to a tenant.

Inspections commenced on March 2010. A total of 622 properties have been inspected to date in the UWM area. Nearly 60% of the inspected properties received the 4 year rental certificate. The properties that were disqualified intially, but which later made the necessary repairs, received a 1 year rental certificate which commences this month.

Per DNS, the inspection fees covered the project program's espense. Since the majority of the inspections have been completed, DNS has reduced its RRI inspectors from 4 people down to 2 people.

Comparative numbers provided by Mr. Krey were as follows:

- 72 Orders to Correct were issued for 376 violations in the UWM RRI area in 2009

- 748 Orders to Correct were issued for 4654 code violation for the same area in 2010

So far in 2011, there are 95 "open" Orders to Correct, 56 of which are in litigation. 653 have been abated.

Since the RRI project started exterior complaints dropped 50% from 98 down to 41. Interior complaints dropped by 1/3 from 27 down to 19.

The primary zoning issue in the RRI area is "overcrowding" - which DNS feels is from too many occupants living in illegal rental units. Vacant properties in the area increased significantly. Graffitti complaints decreased. Garbage complaints increased from 129 to 193. Anonymous complaints or other complaints made through the alderman's office decreased by 50%.

DNS says that the RRI program increased property values and increased the quality of units rented.

During the Question and Answer portion of the meeting, Alderman Kovac, who represents the east side, stated that representatives from the Apartment Association that initially held strong opposition to RRI (that would be the Apartment Association of Southeastern Wisconsin or AASEW) gave it many compliments at last week's meeting of UWM landlords.

Blogger's comment: I am not going to comment on any of the above statements or data presented by Mr. Grey as I do not have access to any statistics to either agree or disagree with the alleged success of the RRI program in the UWM area.

However, with regard to Alderman Kovac's comments that representatives of the AASEW complimented the RRI program, I do have some thoughts. Being a member of the Board of Directors for the AASEW for the last 3 years and its current President, no board member of the AASEW has spoken to Alderman Kovac about the RRI program since before it was instituted. I received numerous telephone calls from Members of the AASEW that own property in the UWM RRI area and not one of the comments were in favor of the RRI program. In fact, most of the property owners that I spoke to indicated that -- just as was suspected from the outset -- DNS wrote up Orders to Correct for minor "ticky tack" violations rather then the major safety issues which DNS argued was the impetus for starting up the program.

I would be curious to know how many of the Orders to Correct that were issued pertained to major safety issues such as illegal attic bedrooms, faulty electrical wiring, dilapidated second-story porches etc etc.

I am also curious to learn which "representative of the Apartment Association" Alderman Kovac spoke to?

A De Novo Hearing Is A "Second Kick at the Cat"

Under Wisconsin law, a Court Commissioner cannot decide a contested eviction action -- that must be decided by a judge. However a court commissioner can preside over and decide a hearing on a landlord's 2nd and 3rd causes for action for money damages. Typically this includes claims for past due rent, physical damages to the rental property or holdover damages.

In Milwaukee County, due to the large number of cases, if a tenant diputes the landlord's claims for damages, the matter must first be heard by a Court Commissioner. The Court Commissioner will issue a determination based on the evidence presented. If either the landlord or the tenant does not agree with the decision of the Court Commissioner, either party has the aoutomatic right to request a de novo hearing before the circuit court judge.

De novo literally translates to "anew;" "afresh;" or "a second time."

A de novo hearing is essentially a "do over" -- the parties have the opportunity to present their evidence over again to the judge. They are not restricted to the evidence that they presented in the prior hearing before the court commissioner. New evidence can be presented or old evidence can be removed.

De novo hearings are often referred to incorrectly as "appeals." A de novo hearing is an opportunity to redo your case. An appeal is a review of a lower court's decision for error.

A de novo hearing is a "second kick at the cat," if you will.

NOTE: I currently own a cat. I have had cats as pets in the past. I love cats. By using the above phrase "a second kick at the cat" I am not suggesting or condoning the hurting of a cat. No cat's were harmed in the writing of this blog post.

Above is a video clip from a seminar that I presented last year about de novo hearings.

AASEW Cancels "Meet Your Legislators" Day Due To Protests In Madison

The Apartment Association of Southeastern Wisconsin (AASEW) Board of Directors decided today to cancel its very popular "Meet Your Legislators" Day in Madison which was planned for Wednesday, March 16, 2011.

The goal of "Meet Your Legislators" Day was to meet with several state politicians to voice the concerns of rental property owners with regard to our industry. Many of the politicians that we have spoken with recently indicated that they would not have time to meet with us due to the constant meetings and the protests at the State Capitol.

The AASEW was also concerned that even if meetings could be scheduled, it would be difficult to have the politicians full attention. Obviously those legislators that are actually appearing for work have their hands full with other important matters.

As such, the AASEW has regretfully, canceled the trip to Madison. It is our hope that we can reschedule the trip in the future once things settle down in Mad-Town.

Check back here or at www.apartmentassoc.org for any updates.

I apologize for the inconvenience that this may have caused those members that had already registered for the event.

New Rule In Milwaukee County Eviction Court Will Limit The Number of New Evictions to 80 Per Day

In an effort to eliminate the congestion in eviction court, Milwaukee County has imposed a limit of 80 new eviction cases per day. In the past there have been days in which over 300 new eviction cases were scheduled to be heard in the same afternoon, which often became unmanageble.

This new limit only applies to new case filings for eviction cases (the 1st cause of action) for return of the property. This new limit does not include evidentiary hearings, adjourned matters, or return dates for 2nd and 3rd causes of actions (for money damages).

I was informed that the Clerk of Courts will be keeping a running tally of eviction cases scheduled for each return date/initial appearance. Once that tally reaches 80, no more cases will be allowed to be filed for that same return date.

While I understand the reasoning for this new policy, I do have some concerns. I agree that eviction court can become unmanageable due to the high volume of cases. Us "regulars" to eviction court have had to spend much of our lives sitting and waiting in good ol' room 400 of the Milwaukee County Courthouse due to the high volume. Despite that I have always had my cases completed before 5 pm.

I work for several clients that have a high volume of evictions each month. One client in particular easily has 40 evictions per month and has topped out at 66 evictions on more than one occassion. In order to keep costs down for such clients I schedule all of that client's evictions to be heard on the same day. This limits the amount of fees that they client has to pay me and allows them to only spend one day per month in court.

This new policy may prevent that client, and other landlords similarily situated, from having all of their cases heard on the same day --- thus increasing their costs and encroaching on their valuable time. Let's face it evicting a tenant is a a money-loser to a landlord. It is a necessary evil that they would like to keep to a minimum if at all possible.

Another foreseeable issue would be the landlord that has a smaller number of evictions each month -- say 10 -- who wants to have them all heard on one day in eviction court. What will happen when s/he goes to file the evictions and is told that there are only 3 spots left for evictions on the day s/he wanted to appear in court? That landlord weill either have to scheduled his/her 7 remaining evictions on a different day or choose to postpone all 10 evictions to another day in order to have them all heard at once. The former option wil require the landlord to spend 2 days in eviction court. the latter option will result in a non-paying tenant having additional time to live rent free. Either option causes the landlord money.

So while I understand the motivation for this new rule I am not sure that it will benefit Milwaukee County landlords. We will have to wait and see.

5 Day Notice Terminating Tenancy for Drug or Gang Nuisance In Wisconsin

I thought I would try something new with this blog post. I've embedded a video clip from a seminar that I have given in the past. Let me know what you think.

This clip focuses on a very specific -- and often misunderstood -- type of 5 day notice in Wisconsin called a 5 Day Notice for gang and/or drug nuisance.

There are only very specific instances in which a landlord is legally allowed to serve a tenant with a 5 Day Notice for Drug/Gang Nuisance --- the video clip above explains when this special type of notice can be used.

A 5 Day Notices for Drug /Gang nuisance does not allow the tenant the ability to cure the breach. Gang/Drug nuisance notices are the only 5 day notice in Wisconsin that does not allow the tenant the opportunity to cure the breach.

Click here for a printable table that summarizes the various types of notices that a residential landlord in Wisconsin can serve on his tenant.

If you need more information on how to serve a notice on your tenant, including the 5 Day Notice for Drug/Gang Nuisance, you should refer to my earlier post on that topic.

If you would like to learn more about landlord-tenant law please consider attending Landlord Boot Camp which is sponsored by the Apartment Association of Southeastern Wisconsin, Inc. I will presenting this all-day seminar on Saturday, February 26, 2011 from 8:30 am - 5:30 pm. Contact Paulette at 414-276-7378 or paulette@apartmentassoc.org to register.

U.S. Senate Repeals A Second New 1099 Reporting Law That Would Have Greatly Affected Landlords

About a week ago I blogged about a new federal law that will require landlords to issue 1099's to any individual or business that provides the landlord with more than $600 in services in any 12 month period. While this new law isn't going away anytime soon, another new federal 1099 reporting law has fortunately been repealed.

Included in the new health care reform law known as the Patient Protection and Affordable Care Act (more commonly referred to as "Obamacare"), was a provision that would have required landlords (and other small businesses) to report to the IRS any purchases of goods over $600 per year from any other business or individual.

Under this law, which would have commenced in 2012, a landlord would have been required to issue 1099's to Home Depot and Menard's if the landlord purchased more than $600 in goods from either of these stores. A landlord would have also been required to issue 1099's to the municipal water department and WE Energies --- since water and electricity are considered to be "goods." The additional paperwork required of landlords under this new law would have cleared several rain forests.

Fortunately, the U.S. Senate -- with broad bipartisan support -- approved an amendment on February 2nd, 2011 to repeal the expanded 1099 information reporting requirements contained in the health care reform law.

So while a landlord will still be required to 1099 business and individuals that supply more than $600 in services within a 12 month period, landlords will no longer be required to 1099 a business or individual that supplied more than $600 in goods in that same 12 month period.

New 1099 Law Will Greatly Affect Landlords In 2011

A new federal will greatly affect how landlords do business in 2011.

In September 2010, a small provision affecting landlord was tucked into the Small Business Jobs Act of 2010, which has now become a subject of concern to many of us. Not only will this new law create a lot of additional paperwork for landlords, but it may open up Pandora’s Box should you be audited.

The new law requires all people who own rental property to issue a form 1099 to any service provider that is paid more than $600 per year starting as of January 1, 2011. The 1099 would have to be issued to the service provider and to the IRS.

Prior to this new law being passed, only landlords whose real estate activities were considered to be a "trade or business" had to issue 1099's to service providers. Now, even if you own only one duplex or a single-family rental property, and continue to maintain a full-time job doing something other than landlording, you will need to comply with this new law.

Landlords will now be required to obtain certain information from their vendors/contractor, such as their name, address, and social security number or tax identification number. You will also need to keep track of the amount of money that you pay the vendor/contractor over the course of the year. If you pay them more than $600 within the tax year then you must reflect that income on a 1099.

Under this law, landlords will need to issue a 1099 to most all contractors/vendors regardless of whether they are a corporate entity or an individual. This will include handymen, plumbers, carpet cleaners, electricians, painters, gardeners, landscapers, accountants, lawyers etc. etc.

If you give one of your current tenants a discount on rent for looking after your rental property, shoveling snow in the winter, and mowing the lawn in the summer, and that discount adds up to $600 or more over the course of the year, you will need to 1099 them as well. Basically you will need to issue a 1099 to all service providers who you pay $600 or more within a year and who are not employed by you and already receiving a W2.

The proposed penalty will be $100 per instance and possibly higher if the Feds believe that you intentionally failed to comply with the law. You could also lose the ability to deduct the payments to the service provider from your taxes, if you do not have a matching 1099.

As my friend and fellow AASEW board member Tim Ballering, so accurately pointed out, this new law has much deeper consequences than a $100 fine for failing to issue a 1099 to your handyman.

If you submit a deduction on your taxes without a matching 1099 you have just tipped off the IRS or your state taxing authority, and increased the possibility of being audited. Additionally, once you file a 1099 for each service provider that did work on your rental properties — just think how many 1099 this could potentially be — the Feds may very well look at all of that new paperwork and wonder if some of those so called independent contractors shouldn’t more properly be classified as a statutory employees instead.

Essentially, all of the 1099's that you will be required to file may now alert the IRS and the Wisconsin Department of Revenue to investigate whether or not these contractors should be reclassified as "employees." If such a reclassification would happen, a landlord could be placed in a very painful and expensive predicament. Fines can be as large as $5,000 per employee. You would also be required to pay both the employer and employee’s taxes (that should have been withheld had the contractor been properly classified as an employee), penalties, and interest. The IRS has indicated that they expect to collect an additional $7 billion per year as a result of this provision.

Not only can improperly classifying an employee as a contractor involve the IRS or Wisconsin Department of Revenue, but it could also provoke other government entities to investigate the independent contractor vs. employee issue – think unemployment compensation and worker’s compensation insurance.

While the tests for whether or not someone is an employee for purposes of UC, WC and tax purposes are slightly different, there are commonalities. If you are paying the service provider by the hour, if you provide them with supplies, if you provide them with tools, if you control how and when they do the work – there is a strong likelihood that they are statutory employees and you should have been doing withholding, and paying both unemployment insurance and workers compensation insurance.

So not only will this new law result in a lot of additional paperwork for landlords, it could put many of you in a position to lose everything that you have worked so hard to build. I would strongly recommend that all landlords take the time and effort to determine if they are improperly classifying an employee as an independent contractor. Any money that you think you are saving up front by avoiding the proper withholdings will be greatly overshadowed by the back taxes, fines, interest, and potential loss of your business, if the government later determines that your classification was wrong.

2/22/11 - UPDATE: On February 17, 2011, the House Ways and Means Committee, by a vote of 21-15, approved H.R. 705, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Act of 2011. Among other things, H.R.705 seeks to repeal IRS Code section 6041(h), which was added by the Small Business Jobs Act of 2010, and which treats recipients of rental income from real estate (i.e. landlords) as engaged in the trade or business of renting property for information reporting purposes starting in 2011.

So this new 1099 law may still be repealed. Stay tuned . . .

3/8/11 -- UPDATE

On March 3, 2011, the House approved a repeal of the expanded 1099 information reporting requirements by a vote of 314-112. The bill, called the Small Business Paperwork Mandate Elimination Acot of 2011 (H.R. 4) would repeal the 1099 provisions of both the Affordable Care Act ("Obamacare") and the Small Business Job Act which required business -- including rental property owners -- to file a 1099 with the IRS reporting any purchases of services or goods over $600 per year.

The rub is that the new bill attempts to pay for the alleged costs of the repeal by requiring people who had received tax credits to pay for health insurance under the health care reform bill to repay the subsidies if they end up earning too much during the year to qualify. Seventy-six Democrats in the House opposed H.R. 4 because of this offset provision.

Apparently everyone -- Republicans and Democrats alike -- favor the repeal of the new 1099 laws, now it is just a matter of finding a way to pay for the repeal that everyone can live with.

4/7/11 -- UPDATE

The U.S. Senate has passed H.R. 4 which repeals the new 1099 reporting laws for businesses and rental property owners. The vote was 87-12. Since the House had already passed this bill -- and no modifications were made by the Senate -- the bill will now go to the President for his signature. While the President has indicated that he did not care for the "pay for" (offset) provisions that were included in H.R. 4, he has supported the repeal of the 1099 reporting requirements, so it is believed that he will sign the bill into law.

4/18/11 - UPDATE

President Obama signed H.R. 4 into law today. So all new 1099 reporting requirements for landlords are gone. The law now goes back to what it was prior to the 2010 legislation (Small Business Jobs Act and Obamacare). For more detail refer to my 4/18 post on the topic.