The Impact of COVID-19 on Real Estate Legislation

The Myndful Investor Podcast

The Impact of COVID-19 on Real Estate Legislation

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Episode Description

Real estate is a business, and it has laws, rules, processes and procedures. Not knowing them is not an excuse, even if they are changing all the time as they are in 2020. Our special guest today, Daniel Bornstein, is an attorney based in California, who specializes in advocating for the rights of owners in landlord-tenant disputes and complex real estate litigation.

We talk about the impact of COVID-19 on real estate legislation in the Bay Area and nationally, and why his role is so vital for us investors. We also discuss how we as owners and investors can find legitimate resources and sound advice to help us to navigate the legal challenges we are facing during the pandemic.

What We Cover

1:53 - Daniel Bornstein’s background and how he specialized in real estate legislation.
4:12 - Why owners are attempting to do things by themselves and avoid hiring an attorney.
10:03 - The biggest challenges for the investors during the pandemic, and how things are developing.
15:28 - The problems that arise with the moratorium on evictions, delayed rent payments and the temporary halt in evictions.
19:24 - How the demographics of the cities are going to change with people moving out and working remotely.
22:38 - How many investors are facing foreclosure in January 2021.
24:41 - The potential opportunities to invest in rural housing with home offices, or private study rooms in the cities.
29:09 - The legal obligations of owners towards the tenants in the context of COVID-19.
33:55 - How to juggle between protecting the tenants, protecting the assets and staying within the confines of the law.
37:12 - Where investors can find resources to stay current with the COVID-19 related legislation.
40:54 - How to decide whom to ask for advice and take into account differences between various local legislations.
46:13 - How to get in touch with Daniel Bornstein.

Watch the Podcast

Read the Transcript

Steve Rozenberg  0:06  
Ladies and gentlemen, welcome to another episode of The Myndful Investor podcast show. I'm the host, Steve Rozenberg, and I'm the head of Investor Education for Mynd Property Management, and what we like to do on this show, if you've watched or if this is your first time watching, we like to bring on experts, people that are in the heat of battle, if you will, involved in all the facets that go along with being a real estate investor, whether it's property management, CPA, laws, regulations or just the investor themselves in the trials and tribulations that go along with that, we like to bring them out, have conversations with them and really understand what they do, what their perspective is. One of the things I always say about real estate is, the great thing is there's no rules, you can do whatever you want, you can structure a deal, you can do all these things. The bad thing about real estate is there's no rules, and you don't know that you've messed up until maybe you're standing in front of a judge or in some kind of litigation, and you realize that there are rules that you maybe didn't follow, and not knowing them is not an excuse. And one of the things I'm a huge believer in, when it comes to real estate is that you are running a business. And that business has laws, it has rules, processes and procedures, and more importantly, there are laws that you have to follow. If you don't follow the laws, somebody will be sure to let you know that you are not following them. In some way, shape or form, you will find out that very quickly, there are protection rights for both landlords as well as residents, and they both have to be abode by. So today, we have a very special guest. Daniel Bornstein is a attorney based in California, Daniel, thank you for being on the show today. I appreciate it.

Daniel Bornstein  1:46  
It's my pleasure. It's a privilege to be able to educate people and speak to people as part of this program.

Steve Rozenberg  1:53  
So Daniel, tell everyone maybe a little bit about your background, what you do and why your role is very vital if you're an investor and things that you need to understand when it comes to law.

Daniel Bornstein  2:05  
Absolutely. So interestingly, I grew up in Cleveland, Ohio, ventured out after I undergraduated at University of Michigan to California in 1988. I went to law school and graduated and as a entrepreneur, opened up my own law practice focusing on real estate, and in particular, the confluence between landlord tenant relations. And over time, I developed a core expertise in landlord tenant law, and especially rent control, just cause eviction rules throughout the Bay Area in California. And then, as I started to counsel people with the rules and regulations of laws, I started to become a real estate investor, myself. I started investing in real estate, opened up a property management company. And so I have this wonderful window of being able to see how people evolved within the real estate community successfully, and where the minefields are, as you sort of noted at the start, which is a little bit of knowledge can be very dangerous, and you sometimes don't see past your own conduct. And that requires a little bit of guidance from professionals, whether it's a mortgage broker, a property management company, or landlord attorney, you really do need to understand what you're getting into before you proceed.

Steve Rozenberg  3:31  
You know, it's interesting, Daniel, because I always think about what we try to do ourselves. And I don't know if it's ego, I don't know if it's pride, or the fact that, when you're dealing with your money, you don't want people to realize what you don't know. I feel like a lot of investors, I'm sure you probably see this as well. They feel that there's certain tasks, roles and duties that they should do themselves. They've never been educated in this, they don't know what they're doing, but yet they feel that these are the tasks that they should figure out to do, like, whether it's screen a resident, knowing what you can say, and more importantly, what you can't say, running the operation of the rental property, making sure that the house is safe and habitable. I just wonder, I'm curious, your perspective, why do you think people choose to to do this? Because we all know that there are stories of people that don't end very well, because they don't know what they're doing, they do break the law, and they find out that there are rules. You've been doing this a long time, why do you think people choose... let me put it another way. If I was going to the doctor, and I had to get my appendix taken out, I wouldn't think 'you know what, I think I'm gonna give it a shot on my own, and if that doesn't work, then I'm going to go to the doctor. Which is what a lot of landlords think when they own property, they go, I'll do it myself, and if that doesn't work, then I'll hire a management company. Why do you think they do that?

Daniel Bornstein  4:51  
That's a great, great question. What I would call it is mission drift. People take on a property they do a little bit of research, and they realized that hey, I can pull a document off the internet called Determination Notice, and I'll serve a termination notice myself, not knowing that the document they pulled off the internet is perfectly fine for an Albuquerque, New Mexico termination notice. But in San Francisco, you've got threshold legal document requirements that are much different than what you can pull off generic from the internet. So what happens is, oftentimes real estate investors who are cost conscious, they're red cap rate driven, and they want to reduce expenses. The things that they feel like they can handle, they handle, and what happens is, they may have been successful in one interaction, so they get a false sense of confidence and start behaving in that area again, and again and again. And they don't realize that all they're done is sent the wrong documents repeatedly, and because of a lack of knowledge of maybe their tenants, they've accomplished a goal, but they've done so very much like Mr. Magoo, where they have blinders on, and not knowing what type of damage they're creating or risk they're creating, because no one's tapped them on the shoulders. So one thing is that there's mission drift, you want to take care of everything, you're going to be the handyman, you're going to be leasing the units, you're going to be terminating tenancies, you're going to be dealing with city regulatory issues, you're going to deal with notice of violations, and you felt confident, because you've already had a good track record, you've bought some property and made some money. And there's nothing that I find more dangerous, is that type A personality in real estate, who's had a little bit of success, and they think that that success bleeds into all different facets, and they need to, in some respects, be very humble. Oftentimes, in real estate, you get a false sense of security, because you've had some success, and you think it's your charisma that's occurring. You may be very good at social engineering, and you're accomplishing goals, but in the end, you don't know what mistakes you made until a very good attorney, or a housing authority, or department, a building inspection, or a discrimination organization taps you on the shoulders and say 'look, you just denied someone, for example, the right to have a service animal when you said there's no pets allowed in the unit. Well, a service animal isn't a pet, and the person thought, well, it looks like a pet, it's a dog, they walked with it. And they didn't understand that there's two different categories. So that's what I'm faced with quite a bit, which is people not being able to see past the conduct they engage in, and because they were never policed themselves about where they're comfortable, where their comfort level is, they end up getting themselves in trouble. Now, admittedly, I'm an attorney, people walk in with problems. So I'm sort of acculturated to that quite a bit. I will tell you, there are in my mind, some very clear issues that you should avoid getting yourself involved in. It's primarily legal, and I often have people who handle their own terminations or unlawful detainer actions. There's a lot of documentary hoops to complete before you have completed the process. You may end up elongating the process because of your ignorance, and it would have been much cheaper and more effective and more cost effective to hire the expert right out the gate, than try to educate yourself about that process.

Steve Rozenberg  8:38  
I completely agree. I used to tell owners all the time, just doing an eviction something as simple eviction, that they want to handle themselves, and I would explain to them in my opinion is, let's say you own 10 houses and it's q million dollar business, you own the properties. And I would tell them why would you risk your entire life savings, and everything that you have on doing something that you've never done for a couple hundred dollars, and maybe a couple weeks longer, by going through the whole eviction process, get the writ of possession, at least here in Texas. Why wouldn't you just go through that process? Yes, does it suck? Absolutely. Is that the sandbox that we play in as investors? Absolutely. You can't work around the system, because eventually, it's a pendulum, it's gonna swing back. And when it comes back the other way, you're going to realize why there are attorneys, and why they exist and why you should use them for things that are not in your op specs. It's like flying a plane, right? Yeah, you could figure out how to fly yourself and take your family and go to Hawaii, and learn how to fuel it and fly planet and all those things. Or you could just buy an airline ticket and say I'll pay the money and I'll take the ticket and and I'll go. So I'm curious, I'd like to move into what we're dealing with now, which is obviously the pandemic, and we're working through all the processes. California, obviously, has got some stuff on their plate right now. What do you think is the biggest legal challenge right now going on, regarding this whole pandemic?

Daniel Bornstein  10:09  
The biggest legal problem is the regulatory environment that has been in some respects imposed on real estate owners, in that, in many states throughout the country, especially in California, tenants are given the right to remain in a unit and have rent deferred, delayed, and there hasn't been that same sort of delay imbedded in statutes allowing owners to delay payment of utility bills, mortgage payments, and what have you. Fundamentally, from a public policy perspective, the pandemic, certainly, there's a need to ensure that people have stable housing. So the response was, instead of creating a pool of wealth for tenants to tap into to pay their rent, maybe interest free loans, instead of doing that, is that owners, you're going to have to allow tenants to not pay the rent for a period of time and remain in possession of the unit, and we still expect you to pay all of your obligations. Tenants, rent is not going to be waived, but it's going to be deferred, delayed, and that poses a very, very difficult situation, where the courts are closed because of shock shelter in place. Tenants don't have to pay their rent on a regular basis, but landlords are tasked with still having to pay their costs. And what I'm doing right now as a attorney, is a lot of commiserating, a lot of being empathetic, but not having the tool that I usually have, which is the pursuit of a termination for someone failing to pay the rent, to recover possession of the premises, because at the core of multi unit housing is cash flow. And when that cash flow stops, you've got yourself a real problem. And the pandemic, and the response that's been issued in response to the pandemic, in my mind has been a serious obstacle to maintaining that cash flow, which is a death knell to help the investor.

Steve Rozenberg  12:18  
So let me ask you this, I feel that, if I were to put this into a visual perspective, I feel like it is a tidal wave that is just building behind us, and it's coming ashore, in my perspective, of challenges for investors and owners. Maybe it's foreclosures on the brink, I don't know, but where do you see this going? You're kind of in the heat of battle, you're in the trenches, where do you see this leading?

Daniel Bornstein  12:42  
So very good question. What I see happening is an abundance of rent debt arising, the promise that you can pursue that rent debt through civil court, but not the ability to remove a tenant and get that vacancy to actually continue with a new tenant who is going to be able to timely pay the rent. So what we have is an abundance of rent debt that is unlikely to be paid. And what in California has arisen is, you're not able to use a three day notice to recover possession of the unit, you're able to use that rent debt to proceed in court for a judgment. But a judgment, as you know, is a piece of paper, it doesn't mean you're going to collect it. What we're seeing is that, the historic approach to recovering rent debt through the use of the potential of an eviction is no longer available. So we have an abundance of rent debt, and I think in the end, what it's going to mean is that, for every thousand dollars of rent debt, especially in California, you're likely to maybe see 10%, 20% of that debt over time, which is going to be very, very difficult for owners. And then, the confluence of that is you have people leaving units that they can't pay, you have a larger vacancy in San Francisco, and you have downward pressure on rents, so that in San Francisco, for instance, rents have decreased within the last six months back to six years ago, 2014. So there's been an enormous resetting of those rents. And what I would say, from my perspective, is bad public policy. Instead of focusing on allowing the deferment of rent, or the delay of rent, I would have been much more in favor of just like the federal government came in and allowed employees to tap into federal funds to cover employee costs, to help reduce unemployment, there should have been a process by which a pool of wealth was there to allow tenants to tap into to pay rent on an interest free loan basis to keep the system moving, to allow it owners to pay their bills, to keep this sort of relationship occurring, and that didn't happen. And so as you say, there's a deluge, or there's a cascading of problems. It's like eating too much. The system is not going to be able to digest all of the landlord tenant disputes, and in the end, I think that the group of people are likely to hold the bag, are going to be landlords with debt accruing that they're never going to be able to recoup.

Steve Rozenberg  15:28  
So we talk about the Bay Area. If you cannot evict them, why would they move out?

Daniel Bornstein  15:36  
Good question. They will only move out, for instance, if they recognize that the debt is not being waived, it's a potential judgment, and in the end the economy of their life, because they don't potentially want to have the vulnerability of a judgment against them, they just retract and move back to their parents in the East Coast, right? Or they find another place to go, because for these people in this situation, it just doesn't make sense, at their time in their life, that they're going to want to embrace a debt. But that's a group of people who may be articulate, educated, upwardly mobile, and they understand that credit is something that they want to preserve. But for those other group of people who are struggling, and they don't have options, living in a unit not paying rent, not moving out, not being asked to pay the rent, because it's something that they can delay, well, that's not necessarily a motivation. And what we typically have in our society is, you're motivated to pay your debts, because there are consequences when you don't. In housing, you're motivated to pay your rent, because if you don't, you can lose your house. When you eliminate that core component of the relationship, you've got a lot of inertia, and with the inertia comes administrative bureaucracy, out of pocket costs, and likely the inability to actually collect. That's what I'm facing, which is lots of clients saying, hey, Daniel, I've got a group of people in my units, they haven't paid rent since the middle of July, and I see no end in sight. As of September, Sacramento, the Governor signed a law that allows this to actually continue to occur through the end of January of next year. The only thing I can tell you is that it's terribly problematic. I like to give an analogy. So housing is an important human need, we need safe housing. What they have done in this country, at least on the west coast, is they've allowed people to give IO used for housing. I'll pay you later for the rent that I'm supposed to pay now, into the future. That's analogous to going to a supermarket buying milk, eggs, bread, meat, cheese, and going to the clerk and signing a letter saying I owe you 130 bucks for this food, I'll pay it to you in January. If you do that at a Safeway, you'll be arrested, right? They'll look at you. But that's what they've done in housing. And just like food is essential, housing is essential, but in the process of this pandemic, they've asked a small group of the community to take on the responsibility of debt delay. That's something that I think is at the core of this problem. As you rightfully mentioned, it is a cascade of consequences, that leave me at some point at night sleepless, knowing how many people are going to be tapping into my services in January. While I welcome business, I have my family to feed, really, I have no pleasure in having a group of people who I serve be in such a state of ambiguity and stress because they simply can't pay their bills.

Steve Rozenberg  19:03  
Do

I've got a bigger picture question. While you were talking, I was thinking, people moving out, moving back to their parents, shifting cities, it's like you had a certain demographic makeup of certain groups of people in let's say, the Bay Area, we'll just use the Bay Area. Do you see the whole demographics of maybe even San Francisco changing, the price points? When the dust settles, let's say it's in two or three years from now, does it look different? Is everyone disseminated out in different places, or do you think they come back? How does the city look, and the rental market look in two or three years from now?

Daniel Bornstein  19:45  
It's a very good question. I would say that San Francisco and the Bay Area may be a bit different, because it's in some respects an international city. We have the attraction globally of this city, you have great educational institutions, you have phenomenal tech companies. But I will tell you that I think that COVID pandemic is going to create a whole shift in how we see housing, how we see employment, how we see commuting, and how that is going to impact city living. It may not be as viable to be in close proximity to work, because it's unnecessary anymore. So for a real estate investor, looking at secondary markets that provide a better price point for rental housing, you may be smart and find those locations that are going to address the needs of employees who used to live in very expensive cities, who now want to come to secondary cities where they get more bang for their buck. Because now, remote work is something that we've already become acculturated to. Just like we're doing this wonderful video chat, I think that fundamentally, as everybody gets comfortable with the technology, may have a whole shift in how our society interacts in employment and in the need to be in close proximity to work.

Steve Rozenberg  21:11  
Yeah, it's very interesting. I hate to use the word unprecedented, because in my opinion, and tell me if you agree or disagree, I think that this is, even though no one saw this coming, ut wasn't systemic, it's a market correction, which is cyclical every 7 years, in my understanding. Nobody thought this would be the correction that happened, but it is a correction, and reset. But this is, because of all the variables now of the economy, the life itself, changing for people, I just wonder how that's going to change the dynamics of where people live. They live in San Francisco in the Bay Area, because of everything around them. Well, now, it's been basically tested, measured and proven out that you don't need to live there, and these companies don't need structure. So I wonder, if people, maybe they move back to Omaha, maybe they move back to where they grew up, and they're in Cleveland, but they're still have their job in Tech City in Silicon Valley. So I just wonder what that does to everything, and I'm curious, have you heard any numbers as to how many investors will actually be facing foreclosure, could they hang on till January? And if they do, that's not even guaranteeing that they're going to get their rent. That's assuming January comes and they start enforcing rent collection. We don't really know that that's the case. But if they guesstimated how many people will lose their properties investor wise?

Daniel Bornstein  22:42  
I don't have that data. I do know that the number of defaults on mortgage processing on multi-unit properties and mixed use properties have increased over time during this pandemic. So the expectation is that we are going to face a crisis. Here's the issue. It's terribly painful for people who are experiencing the crisis. As one of your questions that you asked me to consider is, is this an opportunity? And the easy answer for me is, if you've got cash, and you're following what's happening, there may be very significant opportunities available, but it's based upon the crisis that people find themselves in. Tere's going to be a downward pressure on pricing, and those people who are in distress may want to transition out of distress by selling their property at what would be less than what they bought it 18 months ago, 24 months ago, and that's going to be terribly painful for the seller. It may be a very nice opportunity for someone to pick up something that realistically, 24 months ago, they couldn't even touch because of the price point. There's always going to be people who will see opportunities during a crisis.

Steve Rozenberg  24:04  
Sure, contrarian mindset. I had heard that many people, tenant wise, are leaving apartments, because now they've been with people that normally are working 12, 13 hour days, now they're home every day crammed in, so they're leaving the apartment lifestyle, and they're actually going to houses because they want that room, they want that extra room with the office model, so that they can do the Zoom meetings and other things. Houses are actually increasing, apartments, tenancy, occupancy is decreasing as what I've hear. I don't know if that's the case in the Bay Area, but that's national.

Daniel Bornstein  24:41  
That was the trend as well, that suburban life becomes more attractive because you've got more space, with shelter in place and risk of contagion. People want to migrate away from close proximity to people, and more space in house that you're spending more time in is a value add. So as we go through a shifting in maybe how we interact with people, as we go through a shifting in how employees and employers are going to interact with more distance, I think we're going to have a different, maybe architectural structure, as we start to contemplate this. I think it depends upon how long this is going to go on for, but in the end, I think, as people get comfortable with remote work, remote learning, you're going to find fundamental changes in how interactions occur, whether it's employees or education. I just had a wonderful investor from Cleveland that I grew up with, who inhabits the student housing talk about an investment debt. They got 40% vacancy in a property that they bought, because they thought it was going to be great next to a school, but the schools are remote, and the parents aren't going to send their kids to sit in an apartment building, to pay tuition, when there's remote learning. Doesn't make sense to pay rent and all of that. But what I said to him is, look, there may be educational institutions that look at education and say, wait a second, I can pay for the infrastructure of the physical space to conduct lectures, or I can have smaller spaces where professors are on video and they're broadcasting to a larger population. It's much cheaper, I get a greater student profile, and what we have to consider is we can have students all over the country not having in close engagement with the school, but what they need is a safe office space aside from their bedroom, where they can do remote learning. The core of a home office may start getting embedded in multi unit housing, and that would be something intriguing, where a walk-in closet gets reconfigured as a home office or a remote office, so that you do have a little bit more integrity and delineation between bedroom, living room, office. I would see a keen investor may start to look at repositioning assets, and starting to market in that capacity. And that may be an attractive hook to outcompete other people in the industry, to start offering what is obviously interesting. So where you have the sauna, or the workout room on the ground floor of an apartment building, it may be more interesting to have remote learning stations or remote workstations available, because that I think is going to be value add for people. In a small 800 square foot apartment, you may find yourself claustrophobic in the space, so if you have something in an apartment complex where you can actually go to a remote learning cube or something, or a remote workstation, that may be very intriguing. So those are, I think the consequences of what we're facing. And if you think strategically, you may be in a position to seize an opportunity that others don't. But fundamentally, that's down the road. Right now we're in the eye of the storm. And what I'm experiencing, fundamentally among the clients is general misery. That's the sort of key theme here, which is the misery of not being able to engage in the status quo relationships they've had with tenants, where I don't get to expect rent. A COVID related hardship is a justification for not paying rent. And while I'm empathetic toward it, does create a crisis in my actual operations.

Steve Rozenberg  28:33  
Sure. Also, I'm curious, I'm thinking of all the legal implications that investors have to think about. I'll give you an example. I have heard instances where you may have a property management company, or maybe you self manage, and you send a vendor contractor, maybe the air conditioning goes out, something you've got to send someone into the property. And now, the resident claims that maybe they got COVID, because of the contractor that was in the property. I'm just thinking like, what kind of legal obligation do you as the owner, have to have, to ensure the safety because maybe you require the resident to be in the property, or someone to be on premises when they're there. How do you protect yourself from that, if I was a self managing landlord?

Daniel Bornstein  29:27  
A very, very difficult situation, and it's a situation that is continuing to arise. And remember, some people are more sensitive to risk than others. And what we have out here is a general rule that discretionary repairs, aesthetic repairs, not done right now. So we're not going into tenants units, unless there is a repair that may cause harm to the tenant, or may cause significant harm to the property. But if something can be delayed, we're waiting until after the pandemic is over, because of the risk you articulated, which is we don't want to be in a situation where we're accused of spreading the contagion. Two, people are very, very reticent to allow third parties in close proximity to themselves. When it is a requirement, the absolute goal is tenant not in the unit, vendor is wearing protective mask, vendors wearing gloves and taking all the necessary protocol to be quick, efficient. And we certainly want that vendor to self regulate, whether there have a temperature or not. And that;s something that two years ago was nonsensical. But now, that's the nature of the relationships. And here's the thing, it doesn't just impact a repair job, it impacts selling property that's unoccupied, renting property, having inspections for showing, and how you coordinate prospective tenants looking at a unit. And what we have is a strong recommendation of virtual showings. And you know that virtual showings may be very interesting for people who have a comfort level of interacting with physical space through two dimensional computer screen. But for most people, they want to see, touch and feel it. And the problem is this see, touch and feel exposes everybody to the risk of potential contagion, or just elevates the feeling that, hey, this is not appropriate. Now, the different trade organizations or industry groups have different protocols to follow, and generally, the general guidance is less is more. The less you have to engage with that physical space, the better. The one thing that you know, in some respects, Mynd has done a good job of, is starting to think concretely about how we develop a property management protocol that anticipates all of these potential consequences that we're now facing. That's sort of cutting edge.

Steve Rozenberg  32:15  
Yeah, it's interesting because you'd said something earlier about being discretionary on maintenance. And I just think that a lot of people may make decisions on emotions, not thinking about what the property code says. I'm guessing, anything going on unless it's written, because if you're standing in front of a judge a year from now, and you find out that you violated a law or maybe caused harm to a resident without knowing, because you were going off of what you thought was the right thing to do, but the law states, this is what you do, and there's nothing written or supersedes that, I'm assuming you still have to go off of property code and what it states right? Or is there anything that negates that right now during this window?

Daniel Bornstein  32:57  
No. I mean, for instance, in California, there's a requirement that landlords provide a habitable dwelling. It's called warranty of habitability. And there's certain seven things that must be part of a habitable space. Well, if you have a situation where the plumbing is not working because there's a leak, but you have a tenant who is compromised because they feel like they will be vulnerable as result of anybody coming in close proximity, and they won't let you in the unit because shelter in place and they don't want to be around, you're sitting and having a leak in the property, you're not in compliance with your state legal obligations, you have a tenant you have to be respectful for because they're sensitive to the potential of being exposed to the pandemic, and they're not letting you in. And it becomes a very significant discussion, dialogue, negotiation, just to get into the unit. ,

Steve Rozenberg  33:55  
And you keep yourself out of trouble, essentially, what you're trying to do is you're trying to do the right thing both ways, right? You're trying to protect the resident and protect the asset, and stay within the confines of the law.

Daniel Bornstein  34:05  
And if you do nothing because you don't have a solution, you're creating liability for yourself because you breach the warranty of habitability, between a rock and a hard place. The legislator did not suspend warranty of habitability as a result of COVID-19. And what happens is, when you start to think about a pandemic, you don't think about all the cascading issues that may arise when we do the shelter in place. It may be very, very legitimate, well grounded, public health protocol, but we don't think about what happens when there's a physical problem inside a unit, maybe a lingering leak, or maybe last year, the owner knew that the roof needed to be replaced, because during rainy season last year, there was a small leak in the unit and they could see because the ceiling was stained. Tenants not letting you in. Owner knows that roof is going to leak come November through March. How do you feel if you know that you can't fix it because someone's not letting you in? Now you got to go to an attorney. The attorney says look, I can beg, I can serve a notice, but the courts are closed. I'm not going to be able to use the courts to require a tenant to grant access, and now you're in a situation where you can't accomplish your goal, and all you're doing is allowing your physical structure to potentially deteriorate. Now, I use the roof as an example, or a ceiling, as an example, maybe there's something compromised. But those are the type of things that I'm addressing on a day to day basis. And it's not like you go to the law books and they give you a solution. This is practical social engineering, a little bit of law, and a lot of how we're going to deal with this situation. What do you think would be the best approach? You can pay an hour for my time, or maybe we pay for this person to stay at a hotel, and even though it's not fair for you to have to pay for a person at a hotel, it's cheaper than paying me an hour not to accomplish the goal. I'm always being smart about the use of resources and the path of least resistance. And you know that there is a whole array of different type of people who are inhabiting housing, and some are receptive to the hotel, some are receptive to hey, I understand I'm happy to let you in, I understand you need to patch a leak, and I need it. I know it's coming from my unit. And some are saying sorry, not gonna happen. My health trumps your ceiling, change the locks. If you come in, I've got an attorney who's gonna claim that you trespassed in violation the Shelter in Place Order. So I'm dealing with all of those considerations, and trying to do so effectively, but recognizing that there isn't a handbook on how to address landlord tenant issues during a pandemic.

Steve Rozenberg  37:04  
Wow. So let me ask you this. Let's talk about resources. If I'm an investor, whether I'm in the Bays, California or anywhere, where do I go to find out this information? What resources are available to investors to learn this?

Your question. So trade groups have typically been driving information, the National Apartment Association, the local real estate organizations, the local landlord property organizations, they've done a decent job of putting out information. But it's reactive,bBecause we're responding to something, it's not proactive. It's not a law that's going to come in January. It's a law that on midnight, September 1 was signed into law, and it's 20,000 words and everybody's digesting it. And so we're all in a state of trying to do our homework as quickly as possible, and all that I can tell you is that there's inherent risk in evaluating property and evaluating fair market rents, and evaluating a tenant situation, where you have the overlay of the pandemic, and you don't know whether we're on the tail end of it, and there's a light at the end of the tunnel, or the risk is going to enlarge come winter, where maybe rates increase. So all I can tell you is strap in your seat belt, get ready, and try to make good decisions as the information is available to you, and try to be a sponge. And when I mean try to be a sponge, get yourself at the websites, if it's the Houston Realtors Association, if it's the Houston's Property Managers Association, if it's a trade organization, get yourself there and learn what they're talking about. Generally I google search, then I learn some information, then I immediately put an asterisk on that information to say, is it stale, is it warranted, is it legitimate? And then I may, with that information, tap into the knowledge of an expert lawyer who is doing this work every day. And what I will tell you is this. You don't go to your brother who has a friend he went to law school with who's in Houston, who practices probate, to ask a question about COVID related landlord tenant law. You go to the law firm that does that every single day. Law is becoming so niche specific, that if I see I'm a real estate attorney, that tells you nothing. Am I doing boundary disputes? Am I doing mortgage fraud? Am I doing neighborhood tree disputes? Or am I doing everyday landlord tenant evictions? What you need to do is ask those questions to ensure that who you are reaching and asking, has that core information, because you don't want to hire an attorney, who's got to do research on your dime, to provide you the information that should be readily available to them.

Yeah, that's great advice, and I think for people watching and listening to the show, there are resources. Sometimes it's gonna take effort on your part to not be lazy, and actually go out and find the right resources, as Daniel eloquently put it, that match your industry, specifically, your situation. Even making sure that you;re city specific because I'm sure the Bay Area and San Fran is much different than Los Angeles and San Diego. Based on certain idiosyncrasies of the law in that area, you almost have to be microscopic pinpointing what you're doing and talking to the right help, I guess is best way to put it.

Daniel Bornstein  40:54  
It's as it's as easy as this. In a city next to San Francisco, Daly City, if I want to do an owner move in where I want to move into a unit, and the tenant is a month to month tenant, it's a three paragraph notice, right? It's a standard notice. In San Francisco it's 16 pages. Yes, 16 pages, and you have to pay relocation payments, and if you miss a page, or if you miss a sentence, you lose the case. So not only do you have to say attorney, do you do landlord tenant law. Then you have to say, attorney, do you do landlord tenant law in San Francisco on San Francisco properties? That landlord attorney says yes, then you say, landlord, when was the last time you did a code compliant owner move in eviction termination notice? And if they say haven't done one in years, run, because the law keeps changing. So you really have to ask the appropriate questions, and a professional should be forthright, honorable and honest about no, that isn't what I'm doing all the time. And what I want to always do is get to the person who does it all the time, because that's the method by which you get the best advice, because they can see over the horizon of the dispute. And the problem with COVID-19 is none of us have five years experience in this, we got five months experience in it, and the laws keep changingo none of the attorneys have a good sense of it. And I'm an attorney listserve, a new law comes out and got 15 different opinions of the application of that law, because it hasn't had enough history for judges and people to digest it. And that's why we're in this unstable state of ambiguity. And all I can tell people is, I wish you the best of luck, triangulate judgment, and what I mean by triangulate judgment, I myself am confident of my own evaluation of things. But in order for me to be further confident of my evaluation, I ask trusted advisors as to what they think. And when we all have a similar assessment, we have triangulated the judgment correctly, if we have different assessments, then we may have to moderate or modulate our strategy in light of the different opinions. So I would always get a second opinion, a third opinion, especially on new information. And I think when evaluating real estate during COVID-19, it serves you well to ask multiple people, what they think about the property, what they think is likely to occur. And then you have to take that leap of faith, which is always at the core of a real estate transaction, that decision to self select in or self select out.

Steve Rozenberg  43:48  
Wow, that is some very, very sound advice. I'm still digesting everything you said, and it's interesting and scary how dynamically fast this is changing, and how fluid this situation is. Like you said, there is no expert, we all started at the starting line at the same day, not knowing it. And now it's a race for information that unfortunately keeps changing. So it's definitely the quintessential moving target scenario of trying to figure it out. And you may have been right a month ago, and then you find out that does not doesn't apply anymore. Now it's this, now it's a new arena that we're playing in.

Daniel Bornstein  44:26  
A simple example is, a client's excited that they've just rented a place that was vacant, and they're going to offer the place for rent. Well, in California, the tenant can move in on a year lease at $5,000 a month, and come October, they can assert a COVID related hardship and you're done. They're going to stop paying the rent, and there's nothing you can do about it. So even in your confidence of hey, I've placed a new tenant in a vacant unit, well, by the way, the law still applies to that tenant, they can stop paying the rent and assert COVID related hardship. So you've got to really drill down on stable income, is this a person who demonstrates a level of character quality that they're going to be honorable in this time of crisis. That's something that, because I only see problems coming through my office, I'm acculturated to the people who have failed in their evaluation. My hope is that through this podcast, people are thinking strategically about the day after you enter into a contract, the day after you provide a leasing opportunity, and really think long and hard before you make a decision, because I think right now you really want to meditate and resonate on decisions, because you may not be able to see as far down that path as you did before. You really want to be conservative in how you evaluate things because of the risk we're all facing.

Steve Rozenberg  45:52  
That's great advice. Well, Daniel, I appreciate it. It's already been an hour we've been talking, and I'm just soaking this up like a sponge, because it's very interesting to me. I just want to personally thank you for all your time and your knowledge, because you're obviously an expert in this arena, qnd I thank you for your time and for your knowledge and contributing. If somebody wants to get ahold of you, talk to you, follow you online, how do they do that?

Daniel Bornstein  46:20  
I have a really robust social media presence. The easiest way to get involved in my information is just email me and I'll put you on the social media list, and you'll be given all sorts of interesting information as the law changes. My email is Daniel[at]Bornstein.law. Let me say this, it's my pleasure to be your guest, it's my privilege to be your guest. And I want to thank you and the Mynd team for inviting me and sharing this information. It's a strange situation we're all experiencing, and I myself am humbled by virtue of simply recognizing that I'm not in a position to be able to give the type of advice I was able to give 18 months ago. I can't see the light at the end of the tunnel, so a lot of the advice I'm giving is with a big caveat, it depends. And that's something that is unusual for an attorney, and for me, it's something that we all have to just accept, and we're all still responsible for ensuring that we make good decisions based upon the variables that are presented to us. That's all I'm about, which is what's in front of us, what decisions we're making and why we're making this healthy decision in light of the risk. So that's the core of my professional guidance, which is make good decisions based upon what you have.

Steve Rozenberg  47:50  
Very well said. And for those of you that didn't get it, we will have it in the show notes for Daniel Bornstein so that you can follow him. on behalf of Mynd Property Management, if you are looking for a team to help you, whether it's here, in the Bay Area, or any of the 19 investable markets nationwide, Mynd Property Management, we are here to help you, be your team. As you can see, there are a lot of pitfalls, there's a lot of challenges. You want to make sure that you have a company like Mynd on your team to help you make smart decisions, make sure you're aligned with your strategy to achieve your ultimate goal, whatever that goal may be, you want to make sure that it is a team concept because doing it alone, there are some challenges and there some risks that you may not want to take on. If you like know more information, go to our website at mynd.co, that's mynd.co. There you can find this show, along with all the other podcast shows. And if you'd like please like comment, and subscribe to our podcast show on Apple, Spotify, iTunes, everywhere else, and you can get this information along with much other as you go, along with video content, free documents, downloads, all of that is on our website mynd.co. Everyone, thank you for watching, listening, tweeting, whatever it is you do, on behalf of Daniel, myself and Mynd Property Management. Thank you very much and we will see you next week on The Myndful Investor.

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Meet Daniel Bornstein

As the founding attorney of Bornstein Law, Daniel Bornstein is a well-respected authority in landlord-tenant disputes and property management issues. With over 23 years of experience in handling real estate and civil litigation throughout the Bay Area, he also manages rental properties, is instrumental in completing real estate transactions and is renowned for his educational seminars.

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