The threat of eviction hangs constantly over Dean Zoller, a crisis counselor and single father of three teenagers.
At the onset of COVID-19 last spring, he moved into a remodeled rental house in north Minneapolis, he said, when his relationship ended and he had to scramble to find a new place after more than a decade of homeownership.
But then the hidden fees began to heap. There was a $10 "property administration fee." Zoller said the online portal would crash when he tried to pay rent and he racked up 8% late fees. And even though he had set up the utilities in his own name according to the move-in instructions, the landlord continued to charge him $25 service fees per utility.
Zoller had moved into a HavenBrook Homes property, one of hundreds in north Minneapolis owned by a New York investment firm with more than 55,000 single-family rentals across the United States. It has a local office in Roseville, but tenants complain that its staff is unresponsive.
"The thing about these corporate landlords is that they're much more like a nameless, faceless entity that folks can't get ahold of, they can't understand what's going on, they pay all these fees and it's not clear what the fees are even covering, and in some cases may be illegal," said Mid-Minnesota Legal Aid lawyer Luke Grundman.
Nationwide, millions of families rent from real estate investment trusts or private equity firms. Critics accuse the institutional investors-turned-landlords of trying to maximize profits through relentless rent hikes while neglecting the costly upkeep of old homes.
A company spokesman pushed back. "HavenBrook-managed affiliates purchased rundown homes in North Minneapolis during a period of time when others were neglecting the community," Mike Geller of public relations firm Prosek Partners said in an e-mail. He said HavenBrook spent an average of more than $39,000 on initial renovations after purchasing each home, as well as an additional $17,000 per home on repairs from 2015-2020.
The single-family home rental industry emerged out of the mortgage and housing crisis of 2007, when institutional investors bought up multitudes of foreclosed homes for conversion into rentals. Other major players include Apollo Global Management's Inspire Communities and Cerberus-owned FirstKey Homes.
HavenBrook Homes is the management company owned by Front Yard Residential, which was, until recently, a real estate investment trust with executive offices in the U.S. Virgin Islands. In 2014, Front Yard Residential purchased hundreds of homes concentrated in north Minneapolis. It now runs 214 as rentals.
In a 2020 SEC filing, Front Yard Residential informed shareholders it will generate more revenue — and dividends — from future rent increases. But job growth, strengthening of the U.S. economy and government-sponsored programs promoting homeownership are all factors that could hurt the single-family rental market, the company warned investors.
Gearing up for eviction cases
As pandemic restrictions loosen and the eviction cliff looms, housing lawyers like Grundman are gearing up to face a deluge of cases involving HavenBrook tenants, who are more likely to be low-income, to have lost work and have fallen behind on their bills amid the economic downturn.
Zoller, who began storing his payments in a rent escrow account after HavenBrook wouldn't accept them until he paid the disputed fees, received an e-mail from HavenBrook in October: "We would like to see everyone get caught up as soon as possible. When courts open back up, we will begin filing evictions on anyone with a past due balance."
In January, Front Yard Residential was purchased and taken private by Pretium, a private equity firm focused on real estate. Its CEO is Don Mullen, former global head of credit at Goldman Sachs, who helped the investment bank short mortgage bonds and profit from foreclosures when the housing bubble burst.
Front Yard Residential's more than 600 homes in Minnesota are 79 years old on average, the oldest assets in the company's portfolio, according to SEC filings.
Many of those homes are concentrated in north Minneapolis neighborhoods that were devastated by the subprime housing crisis, and where median property value increases in recent years are among the city's most dramatic. For lower-income families there, affordable housing is increasingly hard to find.
"These companies are not only buying housing stock in historically Black neighborhoods and evicting more frequently than they should and not keeping up with maintenance," said Kevin Ehrman-Solberg, with the University of Minnesota's Mapping Prejudice Project. "All that is true, but what's different about the business model is they're also selling securitized bonds."
Geller, Pretium's spokesman, said the company has focused on service and "an enhanced renter experience" during "extraordinary times for many people in North Minneapolis and the surrounding communities." He noted the company has worked with local housing organizations to secure $400,000 in rental assistance and other services for Minneapolis residents in need but declined to identify the organizations.
"We are committed to engaging with residents on matters related to their leases, as appropriate, and will continue to provide support to those that require it as best we can," he said.
Meanwhile, the tenant advocacy group Inquilinxs Unidxs por Justicia, or Renters United, represents HavenBrook tenants with a bevy of complaints about unmet repairs: mold, pests, structural deficiencies and electrical problems, burdensome lease provisions and phantom managers. They've connected residents with researchers and attorneys.
Last August, Vivian Johnson noticed that turning on a fan in her "smothering" north Minneapolis HavenBrook Home would cause the lights to short circuit, according to court documents. Then her television set "blew up." Johnson and her Legal Aid attorney made repeated requests for electrical repairs. Months went by before the landlord sent a licensed electrician to perform a safety check of the wiring, despite a city order.
In January, Johnson took Front Yard Residential and HavenBrook Homes to court, winning nearly $3,000 in rent, utility service fees and personal property damages for her busted TV.
The judge found that in addition to renting a house with faulty electrical wiring, the landlord had improperly charged Johnson $25 utility service fees. Despite Johnson's many attempts to set up the utilities in her own name, "the delay in getting the Xcel account into Tenant's name was the result of delays by the Landlord," wrote referee Tiffany Sedillos.
Pretium declined to respond to Johnson's case because "it predates our ownership of Front Yard Residential," Geller said.
Altisource Asset Management Corp., which managed Front Yard Residential until January 2021, did not respond to a request for comment.
Rachel Jones, a single mother of two, yearns to move out of the HavenBrook home she has rented since 2019 but lacks the means. The rent rises each year even though the house feels like it's in constant disrepair, Jones said.
"I don't know who to talk to, who to get in touch with. When I call their number, it just goes to a voice mail that's full," Jones said.
Tenant advocates also take issue with a provision in HavenBrook leases that shifts the burden of addressing bedbug infestations to renters unless they notify the landlord in writing within five days of move-in.
That is illegal in Minnesota, where damages are the responsibility of the landlord unless they were caused by the "willful, malicious or irresponsible conduct" of the tenant, said Grundman, the Legal Aid lawyer. The law specifically bars landlords from using hidden lease provisions to trick tenants into signing away that protection.
"The complicated leases, the transferring of repair obligation, the utility payments structure, all those things are things we see with HavenBrook that we don't see with other landlords," he said.
City Council Member Jeremiah Ellison, whose ward includes many of the HavenBrook properties, said the city wields the power of inspections to crack down on housing code violations, but preventing large companies from buying up neighborhoods will require more creative thinking.
"Part of the reason that there's a lack of supply on the buyer side is because you have these conglomerate buyers monopolizing the market," Ellison said. He said he has begun to consult the city attorney on possible solutions.
Fees in dispute
Zoller, the tenant who disputes the utility billbacks and vacant service charges attached to his monthly rent, now owes HavenBrook Homes thousands of dollars.
Pretium blames the charges on Zoller: "The resident needs to change it so the utilities are in his name in order for the $25 fee to be waived," Geller said in an e-mail.
Zoller furnished gas, electricity and water bills in his name.
Geller, upon seeing them, acknowledged the tenant had a gas account. But he maintained that Zoller failed to "activate" his electricity and water accounts.
Xcel, which could not comment on specific accounts, confirmed renters need only report their address and service start date to begin billing. The city verified that Zoller had assumed responsibility for his rental's water account. But last September, the city said, a representative of the landlord called and requested the account be returned to its name.
"That is their scheme," said Grundman. "They took it away from the tenant, put it back into their name, because they want control and they want the fees."
Zoller said he will go to housing court if necessary.
"The whole reason I'm fighting this is because they use this fear tactic and strong-arm people who can't afford [it]," he said.
Susan Du • 612-673-4028
Jeff Hargarten • 612-673-4642