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“Don’t Ask for Repairs”

A Land Installment Contract Scheme Goes Awry

By Gary A. Benjamin

Our legal aid clients often have trouble finding safe and affordable housing. Many of them rely on housing choice vouchers, which are also known as Section 8 subsidies. Local governments inspect these Section 8 properties, and those inspections are vital for our clients to make sure their housing is safe. Sometimes, however, landlords of Section 8 properties try to avoid these inspections. Here I tell about how some landlords successfully avoided inspections—but paid a high price in the process.

The Landlords

The owners of the homes our clients rented with housing choice vouchers were opposed to the new inspection and registration ordinance of the city of Warren, Ohio; the ordinance was enacted in 2008 (Warren, Ohio, Bldg. Code § 1367.10 (2015)). Under the ordinance, landlords must pay an annual registration fee of $84 and have an inspection completed for each property. This was a substantial increase in the fee that had been charged before 2008. If the property failed the inspection, then landlords had to make the necessary repairs. After the repairs, the property would be reinspected for an additional fee of $75. As owners of more than 100 properties, our clients’ landlords—a father and two of his sons—faced initial fees of $8,400. The cost of a second inspection and repairs could add up to several more thousands of dollars.

The landlords sued the city and claimed that the new ordinance was unconstitutional. They lost that suit in 2009.

The landlords next tried another approach to avoid the requirements of the new ordinance. Because the ordinance applies only to dwelling units “not occupied by at least one owner thereof,” the landlords decided to get all of their tenants to sign land installment contracts on the properties they rented (Warren, Ohio, Bldg. Code § 1367.10(a)). Under a land installment contract, the seller agrees to sell real property and the buyer agrees to pay the purchase price in installment payments; the seller retains title to the property as security for the buyer’s obligation. (These agreements are also known as land contracts or contracts for deed.) Under a land installment contract, the tenants would be considered owners of their units, and the new inspection and registration ordinance would no longer apply to the landlords.

The landlords approached each tenant with what they claimed was an application for insurance. They asked each tenant to sign a blank paper or a paper that looked like the last page of a form. Because of their trust in the landlords, the tenants signed without reading the document. The signature pages were then turned into individual land installment contracts that were signed by both parties and notarized. The landlords, rather than pay to record each of these documents of questionable origin, created three master land contracts, one for each of the three landlords. The landlords recorded the master land contracts with Trumbull County, Ohio, on August 23, 2010. A master land contract lists several properties that are subject to land installment agreements where title is held by one seller; the master land contract can be filed in lieu of all of the land installment contracts but must refer to and incorporate each underlying contract. The tenants were never given a copy of what they signed or a copy of the master land contract that was recorded with the county.

The Tenants

Jacqueline Dorsey, a tenant who had signed the “insurance application,” complained to the local health department in 2011 that rats and other vermin had invaded her house. She said that the landlords had not responded to her complaints to them.

When the health department contacted the landlords, the landlords said that all of their houses had been sold by land installment contracts to the tenants. The landlords’ attorney gave the health department copies of the master land contracts and said that now that the tenants were actually “owners” of the homes, the health department had no jurisdiction to inspect or regulate the quality of the housing. The master land contract indicated that Dorsey owned her house.

Dorsey met with the city attorney, the head of the health department, and an employee of the health department in May 2011. The city officials determined that she was an owner of her house and that she and her family were not entitled to a housing safety inspection.

Dorsey remembered one of the landlords coming to her about a year earlier, in August 2010, with a blank sheet of paper and asking her to sign it. He told her it was an application for insurance. She trusted him and signed. The master land contracts were recorded in August 2010, around the time Dorsey remembered signing the paper. In retrospect she believed that the landlord had taken her signature and attached it to a land installment contract.

Dorsey knew that she had not signed a land installment contract. She knew that if she had an ownership interest in her home, she could not receive her much-needed rent subsidy, and she would never knowingly sign away her right to that benefit. Her rent subsidy came in the form of a housing choice (Section 8) voucher from the Trumbull Metropolitan Housing Authority.

Dorsey called the housing authority and asked if it would inspect her house and make the landlords get rid of the rats. The housing authority contacted the health department, which showed the housing authority the documents from the landlords’ attorney. The housing authority concluded that Dorsey was no longer eligible for a rent subsidy because she was no longer a tenant. More than 30 of the tenants listed on the three master land installment contracts were receiving housing vouchers. Now they would all lose those vouchers.

The Housing Authority

The housing authority barred the landlords from the Section 8 program since all of their rental units were now “owner-occupied”; they had violated the terms of their contract with the housing authority by collecting rent subsidies for months for houses that were subject to land installment contracts. The housing authority likewise issued pretermination hearing notices to those Section 8 tenants whose names appeared on the master land contracts.

The tenants called the Warren office of Community Legal Aid Services. We scheduled meetings with the tenants, and those meetings were intense. The tenants were very angry that they might lose their Section 8 vouchers because they had been tricked by landlords whom most of them had trusted. Some had been tenants of these landlords for years. Most of the tenants received Supplemental Security Income disability benefits and could not afford to pay rent. Losing their housing choice vouchers could mean homelessness. As the case progressed, we held tense meetings of the group at the courthouse.

The housing authority held a pretermination hearing each for the tenants, and Community Legal Aid Services represented most of them. Because they had been tricked, the tenants received favorable decisions from the administrative law judge and did not lose their housing vouchers. But because the landlords had been barred from the Section 8 program, the tenants still had to move.

The tenants could not afford to pay rent to the landlords for their current homes without help from Section 8. Neither could they afford the land installment contract payments, which were the same monthly amount as their subsidized rents had been. The housing authority, Community Legal Aid Services, and even the landlords worked together to make sure the tenants could move and keep their subsidies. However, the landlords refused to return the tenants’ security deposits, and many of the tenants had to go to charities or borrow from family to raise the money to move and pay a security deposit.

While most of the tenants were able to move quickly, others had trouble finding housing. One tenant was recovering from major back surgery. Another had to trudge with her young children to a charity to receive a check to pay for a new rental deposit. A third lost her job because she moved off her children’s school bus route, and the school could not adjust the bus schedule to pick up her children at the new address until January. As a result, she had to drive her children to school for several weeks and had to give up her job. A fourth lost her job because she had to move too far from the coworker who had been giving her a ride. Many others had chronic illnesses or young children, and moving was a hardship. Nevertheless, all of the tenants kept their vouchers and moved.

The Terms of the Land Installment Contracts

The land installment contracts listed a sale price that the landlords had computed for the house being “sold.” Community Legal Aid Services had a volunteer compare the prices in the contracts to the values for these properties as listed in the county auditor’s records for property tax purposes. The value of the houses listed on the county website ranged from $8,800 to $41,500. The sale price on the land installment contracts ranged from $23,400 to $69,120. The home valued at $8,800 was “sold” via a land installment contract for $45,000.

The interest rate was 10 percent, and the contract payment was for interest only. The final payment on principal and interest was to be made within 36 to 56 months from the execution of the contract, or the contract would be void. Without winning the lottery or somehow gaining a large lump sum of money, our clients would never be able to fulfill the terms of such contracts.

Under Ohio law, if a vendee pays on a land installment contract for five years or more and then falls behind on payments, a foreclosure action is required for the vendor to regain possession and title. But if the default is within the five-year period, the vendor can bring an action for “forfeiture and restitution,” which is an eviction action under Ohio Revised Code § 1923. To evict or forfeit is much easier than to foreclose because foreclosure requires a sheriff’s sale, and Ohio is a “judicial foreclosure” state. The term of our clients’ contracts was less than five years so that when the proud new “owners” did not comply with the term of the contracts, they could be evicted as if they were still tenants, and the landlords would keep all of the payments that the “owners” had made to that point.

Under a land installment contract, the tenants would be considered owners of their units, and the new inspection and registration ordinance would no longer apply to the landlords.

The contracts were signed in the first two weeks of August 2010 and referenced the master land contract. The statute on land installment contracts requires certain clauses to be included in the contracts, but some of those clauses do not appear in either the document signed by our clients or the master land contracts filed with the county. For example, the seller must provide evidence of title, and the contract must have a clause requiring the provision of an adequate deed when the contract is completed (Ohio Revised Code § 5313.02(A)(11), (12)). Neither of these clauses is present in either contractual document.

Furthermore, the master land contract says in its first paragraph that “(2) a copy of the Master Land Installment Contract form is furnished to the parties prior to execution of the Land Installment Contract” (emphasis added). None of our clients or any of the other victims that we interviewed received a copy of the master land contract. In fact, the “masters” were not recorded until August 23, 2010—days after the individual documents were “signed.”

The Lawsuit

Because the Trumbull Metropolitan Housing Authority barred the landlords from the housing voucher program, the landlords sued the housing authority and claimed that their rights were violated. The landlords argued that (1) they did not understand that the land installment contracts violated their housing assistance payments contracts; (2) the housing authority allows Section 8 tenants to purchase their units; and (3) they were following the bad legal advice of counsel. The trial court did not agree with any of these claims and in March 2012 found the termination to have been legal because the landlords had violated their contract with the housing authority. On behalf of 12 tenants who claimed various forms of damage, Community Legal Aid Services intervened as third-party plaintiffs against the landlords. The court granted the tenants’ motion to intervene, but the landlords filed no answer because the underlying case between them and the housing authority was decided soon after the motion to intervene was granted.

The case went up on appeal on the issues between the landlords and the housing authority. The court of appeals affirmed the trial court’s decision in favor of the housing authority:

[Trumbull Metropolitan Housing Authority], as the local [public housing authority], and appellants entered into [Housing Assistance Payments] contracts. The [Housing Assistance Payments] contracts state, in part:

. . .

8. Owner Certification

During the term of this contract, the owner certifies that:

  1. The family [i.e., the tenant] does not own or have any interest in the contract unit.

The housing assistance payments contract also states that, in the event of a breach, the housing authority may terminate the agreement with the landlord. The court of appeals found that the landlords violated the agreement and that the housing authority was within its rights to terminate the landlords’ participation in the Section 8 program. Whether the land installment contracts were valid or not, the landlords intended to change the ownership of the home but did not report the change in status as they were required to do under their Section 8 contract with the housing authority.

The Delay

The court of appeals issued its decision in late 2012, and we moved to intervene on behalf of 10 more former tenants. From December 12, 2012, when we moved to intervene, until March 2014, when we moved for default judgment and for partial summary judgment, the trial court did not reopen the case. Our clients became restive, and we lost track of several of them. Those we found we interviewed for their damages. We took that time to get to know our clients better and to hear how they had suffered because of the landlords’ acts.

We cooperated with the U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General during the hiatus. The housing authority had complained of fraud to the inspector general because for several months the landlords had collected rental subsidies on the 30-plus houses that were the subject of the land installment contracts. At the request of the inspector general’s office, Community Legal Aid Services gave the inspector general the 12 affidavits from our clients that had been filed with the court in 2011; our clients said in the affidavits that they had been tricked into signing a document to which they never agreed.

The Office of the Inspector General charged the landlords with multiple violations of the Program Fraud Civil Remedies Act. In a letter to the landlords, HUD wrote, “The relevant evidence that we’ve gathered convince [sic] us that your clients are liable under the [Program Fraud Civil Remedies Act]. Moreover, that same evidence demonstrates that your clients’ actions harmed the Section 8 program, the Trumbull Metropolitan Housing Authority, and the affected low-income tenants” (Letter from Joseph Kim, HUD Office of General Counsel, to Sheldon Schreiberg, Pepper Hamilton LLP 1 (Oct. 28, 2013) (in my files)). The Office of the Inspector General went on to state that “neither HUD nor [the Trumbull Metropolitan Housing Authority] permit[ted] the transactions at issue. 24 C.F.R. § 982.317 does not allow for the execution of land installment contracts within the Section 8 program” (id. at 2). The landlords settled with HUD for $75,000 and have not been allowed back into the Section 8 program.

Active Litigation and Motions

The trial court reactivated the case in March 2014 when we moved for a default judgment and for partial summary judgment based on the court of appeals decision that the landlords had violated their contract with the housing authority. At that point the court allowed 10 more of our clients to intervene, bringing the total to 22 intervening plaintiffs.

Counterclaims. The court denied our motions for default judgment or summary judgment and allowed the defendants to file their answer. The landlords made counterclaims against every one of our clients. The counterclaims ranged from $1,300 to $10,966. They claimed that our clients damaged their houses and that some of the damage was very serious. Our clients denied doing any damage to the homes. Two had pictures showing no damage after they left. A third had a cousin who rented her old house after she moved, and she had visited there; the landlords had done no repairs but were claiming that they had. Two clients were accused of extensive damage to internal systems such as plumbing and heating. Both said that when they left their homes the buildings sat unoccupied for weeks. They believed that during that time home “strippers” took pipes, furnaces, and other items. While the landlords had pictures of the damage for some, but not all, of the properties, they had no receipts that matched what they had paid for their alleged repairs. The receipts they produced during discovery as receipts for repairs of our clients’ rental units in fact had little to do with those rental units.

Most of the “damage” involved carpeting, painting, cleaning, garbage, and other routine maintenance. But under Ohio law landlords are not allowed to use the security deposit to recover for repairing normal wear and tear. By claiming damage, however, the landlords could keep the $5,810 in security deposits paid by our clients.

The Notary. Ohio law requires land installment contracts to be notarized. During discovery we got copies of all of the land installment contracts that the tenants had allegedly signed. All of the contracts had been notarized by the same person, Paul Thomas, in August 2010; his notary seal said that his certification expired on February 8, 2015. But the notary’s signature was dramatically different on some of the documents. In fact, three separate and distinct signatures used the same name and the same seal.

The Ohio secretary of state’s website listed a notary named Paul Thomas, but his certification expired on February 8, 2010. The secretary of state confirmed that Paul Thomas’s certification expired on February 8, 2010, and had not been renewed, meaning it was invalid in August 2010 when he allegedly notarized each land installment contract. The secretary of state issued a certified statement that no notary named Paul Thomas had a notary certificate that expired on February 8, 2015.

We interviewed more than 30 former tenants about what they signed with these landlords. None of them signed a land installment contract. None of them signed anything in the presence of a notary. All of them signed a document that was represented to be an insurance application. That representation was made to them by one of the landlords; the landlord was alone when he asked them to sign.

Community Legal Aid Services subpoenaed Paul Thomas, the notary, to give a deposition. Before the deposition the landlords’ attorney informed us that it would be a short deposition because his clients told him that a different Paul Thomas had notarized the documents. Indeed, the subpoenaed Paul Thomas came to his deposition looking frail on the coldest day of the year. He testified that none of the signatures on the contracts was his. He denied notarizing anything since 2008 or 2009 when he had a heart attack. He confirmed that he had not renewed his notary certification past February 8, 2010.

Thomas also testified that, in 2006 or so, he notarized something for one of the landlords, who were neighbors of his. That led us to ask for the document he had notarized. We also asked for the originals of the land installment contracts. Neither the document that Thomas notarized for the landlords nor the originals of the contracts were ever produced.

Summary Judgment. After Paul Thomas’s deposition we attempted to schedule the defendants’ depositions and filed a motion for partial summary disposition. The motion had two points. First, we argued that the land installment contracts were invalid since they were not notarized. The response brief said that the landlords had been tricked into believing that the second man named Paul Thomas was a notary and that they had relied on his word. They did not explain how his “seal” bore the same date as the retired Paul Thomas’s with a mere change in the year on the seal. The landlords did agree that the contracts were not enforceable.

Second, we argued that the prior court decisions holding that the landlords had violated their contract with the housing authority were the “law of the case” and could not be relitigated. Those decisions were not about the validity of the land installment contracts but instead confirmed that the landlords had violated the terms of their Section 8 contracts with the housing authority by not reporting the change in status of the ownership of the homes that they had initiated with the land installment contracts. The landlords did not dispute this point either.

The court found for the tenants on both issues.

Mediation

The depositions of the landlords never happened. Had they occurred, we had so much evidence on the landlords’ lack of credibility (e.g., the fake notarizations on each land installment contract and the receipts for repairs that did not match any actual repairs) that we would have spent days going through it during depositions. Instead we went to mediation. By this time five of our clients had dropped out. Their cases were dismissed, and the landlords dropped their counterclaims against them with prejudice.

The remarkable thing about the mediation is that this group of angry clients came together and worked out a settlement. The clients did not know one another before the case was filed, but they worked together to get the case resolved.

Two key events during the process triggered the settlement. First, one of our attorneys made a short speech to the landlords about how she knew they did not mean to cause all this harm, but their actions had caused the harm so they needed to try and fix the problems. Her speech played into the landlords’ narrative that they had not understood what they were doing and had simply followed bad legal advice. The landlords responded to this appeal, and we were able to settle 16 of the 17 cases on the first day of mediation. One of the rules of negotiation is to negotiate from strength but leave the other side a way to believe it is winning. The speech from our attorney did just that; it left the landlords an out to agree to a good settlement for our clients.

Second, on the following day the remaining client spoke eloquently to the mediator about her damage. She believed, because her neighbor told her this, that the landlords had come into the house and taken her collectibles (autographed baseballs, sports cards, and the like), her shoes, her daughter’s school uniforms, and her furniture. Her speech was wonderful and expressed how she felt and how it affected her and her daughter. The mediator took up our client’s position right after this speech and got the settlement offer more than doubled. Our client accepted it.


The landlords avoided the inspection process, the most basic protection we have to ensure that our clients have adequate housing. But they did so at a cost so high that to attempt this scheme again would be foolish. Community Legal Aid Services protected the clients’ rights under Section 8, including their right to have their housing inspected. Our due diligence in examining and comparing each notarized document was key. This case and the actions of HUD’s Office of the Inspector General should serve as a message to landlords: it is better to follow the law and not play games.

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