Archive for April, 2011

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.

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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.”

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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 : )

 

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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.

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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.

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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.