Huge Vested Interests in Free Rent Trick

The views and opinions of this article do not reflect those of MassLandlords, particularly the racist description of Housing Court. This article remains here are as record of what SPOA said May 31, 2015.

Judges, lawyers, court personnel & inspectors face major cuts if rent escrow passes

Free rent trick: a fraud and a scam

The state’s rent withholding law is highly abused, which delays evictions, produces vicious landlord-tenant disputes, and clogs the courts with “free rent trick” cases. A rent escrow law would end the free rent trick and save millions of taxpayer dollars as judges, inspectors, and legal services lawyers get laid off.

What would be the impact? A rent escrow law, by stopping the free rent trick, would in most cases lead to settlements long before cases ever reach court. Judges adjudicating free-rent-trick cases would lose their jobs. Inspectors finding code violations for tenants wanting to not pay rent would lose their jobs. A good number of legal services lawyers defending tenants against eviction by using the free rent trick would lose their jobs. Court personnel, besides judges, would be cut. Just how many jobs are at stake?

Staggering figures for the free rent trick

SPOA asked a top administrator in the Boston Housing Court: How many evictions are nonpayment cases? The answer: About 95%. That startled us. We further asked: How many of these nonpayment cases involve tenants claiming rent withholding for code violations? The answer: About 90%. That was another unexpectedly high figure.

These numbers are staggering. Eliminating the free rent trick by enacting a rent escrow law would have a very serious impact on caseloads at all Housing Courts in the state – which would lead to job losses for about half of all Housing Court judges, for about 90% of all housing/health inspectors, and for many legal services lawyers who defend scamming tenants and who draw their salaries from the public trough. All these jobs, in fact, are taxpayer-funded.

No wonder it’s been tough to get a rent escrow law passed in this state. There are strong vested interests to keeping the status quo.

Impact of free rent trick on the judiciary

To calculate the impact of rent escrowing, we used a conservative estimate that 80% of all Housing Court cases involve the free rent trick. Based on statistics from the judiciary’s state website, roughly $29 million would become available when rent escrowing ends 80% of Housing Court salaries and associated government services.

Perhaps that 80% is too high. If we assume that only 50% of nonpayment cases would not go to court, that would leave a shrunken caseload of approximately $18 million unused in the Housing Court budget. The judiciary has already allocated $1.2 million for Housing Court expansion to the rest of the state. The math is simple: almost $17 million would be left over to be used anywhere in the judiciary.

Top judges of the state’s court system are presently begging the State Legislature for more funding in the 2016 budget. Given the serious budget shortfall for the whole state, however, more funding is unlikely. With a potential $18 to $29 million windfall coming to the judiciary if a rent escrow law is enacted, that windfall would easily fund Housing Court expansion to the rest of the state, a coveted project of the judiciary’s Access to Justice Commission – and leave millions left over.

Impact of free rent trick on housing inspectors

Eliminating the free rent trick would have a far broader impact, however, than just the landlord’s pocket and Housing Court personnel. Eliminating it would affect local housing inspectors and local and state tax revenues.

All of the 351 Massachusetts municipalities are covered by one or more housing/health inspectors. As we have been told by some inspectors, about 90% of calls to local inspectors are calls to initiate the free rent trick. If so, then 90% of inspectors would be out of jobs if a rent escrow law is enacted. No wonder inspectors and their professional associations have not called for reform of this clearly fraudulent system.

Impact on lower-income neighborhoods especially

Lower-income neighborhoods are where the free rent trick gets played out most often. Boston Housing Court on Thursdays – eviction day – is a sea of some 300 brown and black faces. Households in these neighborhoods have lower incomes, of which more than 30% of their income is being spent on rent. Any sudden change in income – job loss, medical bills, divorce, etc. – puts the household in a difficult position, and playing the free rent trick is a known, legal way to get quite a bit of extra money every month to the detriment of the landlord.

SPOA some years ago asked a good handful of renter households in one of the poorest sections of Dorchester if they knew that tenants could stop paying rent, call the inspector, and live rent-free. Every household knew. Word of mouth easily spreads on the free rent trick.

Broadly speaking, the free rent trick steals money that would otherwise be invested in the housing, especially housing in lower-income neighborhoods. When a tenant plays the trick, owners have less rental income combined with extra unnecessary and costly repairs, and sometimes attorney’s fees to pay for. These substantial losses require the owner to ignore other needs of the property. Exteriors in particular get ignored, for all to see, affecting a whole neighborhood.

When properties suffer in these ways, their valuation goes down, cutting into the municipality’s property tax revenue. The effect is especially vicious in lower-income neighborhoods. The entire neighborhood gets devalued, and property tax revenue gets a significant hit. Multiply this impact by the 351 municipalities in Massachusetts and the lost revenue is nothing to be sneezed at.

Moreover, owners will be reporting less income on their state income tax forms, another hit on government revenues.

In some cases, the burden of these extra costs tips the balance, and bankruptcies and foreclosures are the final outcome. Some years ago, SPOA documented two such cases of bankruptcy caused solely by the free rent trick. The devastating impact of foreclosures on neighborhoods during the recent recession is further testimony to the impact of the free rent trick