April – 2015

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Money Orders – Convenient But Problematic: What You Need To Know
Renters Renewing Leases At Historically High Levels

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Volume 16 • Issue 4 April 2015 Landlord News 3600 South Yosemite Street Suite 828, Denver, Colorado 80237 thsnews@thslawfirm.com www.thslawfirm.com Denver Phone 303.766.8004 FAX Completed Eviction Forms To: 303.766.1181 or 303.766.1819 Colorado Springs Phone 719.550.8004 FAX Completed Eviction Forms To: 719.227.1181 MONEY ORDERS – CONVENIENT BUT PROBLEMATIC WHAT YOU NEED TO KNOW We wrote about money orders four yours ago. Since then, clients have continually had situations involving money orders, most involving stolen money orders. When money orders are stolen, thieves wash them in an acid bath to erase the payee (the name of the apartment community), and turn them into blank bearer instruments. Thieves can cash or convert a stack of blank money orders into cash in a variety of ways. Given that blank money orders are almost as good as cash, a large cache of money orders presents an irresistible target for thieves. If you have a payment drop box and you accept money orders, you’re going to get hit. It’s not a matter of if. It’s a matter of when. If hackers can breach Target’s payment system, thieves will eventually figure out how to steal the money orders from your drop box. For these reasons, we recommend not having a drop box. However, even if you eliminate an outside drop box, you are still vulnerable to theft if you accept money orders. Clients have reported money order thefts from offices. Fortunately, no client has reported an armed robbery of money orders. On the one hand, you don’t accept cash for reasons, especially for security reasons. Even on a smaller community, large amounts of cash would encourage armed robbery. On the other hand, you accept money orders because money orders are a cash equivalent, i.e. nearly guaranteed or certified funds. You also accept money orders for the convenience of tenants who don’t have bank accounts. Only you can decide whether the benefits of accepting money orders outweighs the losses you are likely to incur from theft. continued on page 2 Renters Renewing Leases At Historically High Levels Vacancy rates in the Denver Metro continue to drop, as the Denver area has become one of the top places to live in the US. This low vacancy trend is somewhat surprising because of the number of new apartments being built (9,145 in 2013—8,700 in 2014– and over 10,000 expected in 2015). Even with all of this new construction, it is still difficult to keep up with the demand for apartments, which is growing almost as quickly as new apartments become available. Statistics show that more people are moving to Colorado than are leaving, with net in-migration growing steadily. Industry insiders point to the expected robust growth in Colorado’s economy coupled with the diversity of new product locations and price points as an attractive magnet for young professionals who are indentifying Colorado as the place to be. All of these factors indicate that Denver’s near-term apartment absorption capacity is very good. High retention rates at existing properties suggest that there is limited immediate risk of overbuilding, even with apartment construction at a 25-year peak nationally. Apartment renters are increasingly choosing to stay put rather than move up to a new apartment or down to a cheaper unit or to move out to buy a home. Apartment resident retention rates hit a decade-high in February of 2015. continued on page 2 MONEY ORDERS – CONVENIENT BUT PROBLEMATIC WHAT YOU NEED TO KNOW continued from page 1 If you accept money orders, you should be prepared to deal with a host of issues that arise when money orders are stolen. The tenant’s rent was stolen out of a drop box, has the tenant paid their rent? If the tenant does not replace a stolen money order, can the community serve a rent demand? Does the tenant have to cooperate in tracing the stolen money order? Who bears the risk of loss for money orders stolen from the community’s drop box? Should I address this issue in my lease? If I can’t post the tenant for non-payment of rent, do I have any other legal rights to recover the stolen rent? When rent is stolen from a drop box, landlords argue that the tenant hasn’t paid the rent because it was never received. A tenant delivers the rent (money order) when they voluntarily transfer possession to you by placing it in your drop box. Simultaneously, you receive delivery of the money order when it comes into your possession, i.e. when it is placed in your drop box. Almost every judge will hold that a tenant has delivered and paid the rent when they place the payment in a drop box. Thus, the community bears the risk for any losses sustained due to theft of payments from an onsite rental drop box. The community also bears the risk of loss resulting when money orders are stolen from the community’s business office. You cannot successfully shift the risk of loss to the tenant if the money orders are stolen from your office. However, with a drop box, you can attempt to contractually shift the risk of loss back onto the tenant with appropriate lease language. At least one court has held that lease language governed when a tenant’s rent payment was delivered. Based on this case, your lease could contain language that contractually “shifts the risk of loss” to the tenant. For example, your lease might say “for tenant’s convenience only, a rent drop box is available at the leasing office. continued on page 3 Renters Renewing Leases At Historically High Levels continued from page 1 Since 2010 renewal conversion rates have been increasing, which is notable since new apartment supply is growing and rents have continued to rise. Demonstrating the fact that demand for apartments continues to remain high. Even though affordability is always a hot topic in the apartment rental industry, current statistics indicate that most renters have not yet reached a budget ceiling. Because of this, going forward, you may find that renters will definitely have to pay a little bit more to get the same apartment. Rapidly rising home prices continue to push potential homebuyers out of the market and into rentals. Thus assuring that demand for apartment rentals will remain high in Colorado. JJJJJJJJJJJ IMPORTANT THS APRIL DATES April 3rd-11th PASSOVER April 5th EASTER April 9th Basic Fair Housing Workshop THS Lower Conference Center 3600 S. Yosemite Street Denver, CO 8:30 a.m. – 11:30 a.m. April 9th BARHA Vendor Trade Show & Luncheon 11:00 a.m.- 2:30 p.m. April 17th North Client Lunch Dave & Busters Westminster 11:00 a.m. – 1:00 p.m. April 23rd AASC Expo – Tradeshow Hotel Elegante Conference Ctr 2886 S. Circle Drive, Colo Spgs 8:00 a.m. – 5:00 p.m. Landlord News April 2015 Page 2 MONEY ORDERS – CONVENIENT BUT PROBLEMATIC WHAT YOU NEED TO KNOW continued from page 2 Tenant acknowledges that placement of payments into the drop box does not constitute payment delivery to landlord unless tenant’s payment is in the drop box when opened by landlord. Until delivery, tenant bears the risk of loss or theft of any payments put in the drop box.” However, with no Colorado legal precedent, there is no guarantee that a court will enforce a risk-shifting clause, and outcomes are determined by individual judges on a case-by-case basis. Ultimately, even if a court does not uphold a riskshifting clause, you may want to add it for several reasons. First, it may discourage tenants from fabricating that they paid and that their money order was stolen from the drop box. Second, it will discourage use of the drop box, and encourage payments at the office where money orders are much less likely to be stolen. Third, after a theft, tenants might repay their rent when you point out that risk of theft was on them. Fourth, tenants should be much more likely to cooperate in tracing stolen money orders. It’s important to remember that without riskshifting language, you cannot evict a tenant for nonpayment of rent if their money order was stolen from the drop box. This doesn’t mean you are without rights or options. Some tenants will falsely claim they put their rent in the drop box. Payment is a defense to an eviction action. The tenant has the burden to prove this. You don’t have to simply take their word. You still can evict, or would win an eviction case if the tenant cannot prove payment. If the tenant claims to have paid with a money order, the tenant would have to produce the money order receipt. The receipt can then be traced with the company issuing the money order. While you can’t evict the tenant for non-payment of rent, you still have considerable leverage to get the tenant’s cooperation to replace the money order, or to get the tenant to pay the rent. Specifically, delivery of a money order (placing in the drop box) discharges the underlying aaa obligation (the tenant’s rent payment); it does not discharge the tenant’s contractual obligations on the negotiable instrument (the check or money order used to pay the rent). Most issuers of money orders will replace stolen money orders. Western Union issues a large number of money orders. Contrary to popular belief, Western Union does not have a thirty-day deadline for reissuing a stolen money order. However, whether it’s Western Union or any other money order issuer, replacement claims for stolen money orders should be made as soon as possible. Most drop box theft cases follow the same pattern. The great majority of tenants cooperate with the affected community, and stolen money orders are promptly re-issued. However, there are always some tenants who will not cooperate. This reemphasizes the need for appropriate lease language. With appropriate drop box language, the tenant wouldn’t be able to take the position that it was the property’s problem. You should also consider adding lease language that the tenant agrees to promptly cooperate with you in tracing or replacing stolen funds. If your lease contains specific cooperation language, and the tenant fails to cooperate, you could evict the tenant for breach of a non-monetary covenant, i.e. failure to cooperate. If you evict for failure to cooperate, the issue of whether the rent was paid, and who bore the risk of the money order being stolen are non-issues. The only issue is whether the tenant cooperated with your investigation, which is much easier to prove. Theft of money orders is common and widespread. We recommend eliminating all drop boxes. If you’re going to have a drop box, the drop box should be as secure as possible. A thief should not be able put a coat hanger into the box to fish out payments. You can request proof of delivery (that the tenant put the money order in the drop box), and request that the tenant cooperate in replacing the stolen money order by filing a claim with the issuing company or bank. Risk-shifting language (rent put into a drop box isn’t paid unless received) puts you in a much stronger position and has other advantages. However, risk-shifting language is not a guarantee that you will be successful in court. Risk-shifting language along with lease language requiring cooperation puts you in the strongest position to minimize losses from stolen money orders. continued on page 4 Landlord News April 2015 Page 3 MONEY ORDERS – CONVENIENT BUT PROBLEMATIC WHAT YOU NEED TO KNOW continued from page 3 Even though the tenant’s underlying obligation to pay rent may be discharged when a money order is submitted to you, you can still make demand on the tenant to make good on the money order, and sue if the tenant does not. In some cases, you can legally seek payment (reimbursement) from banks involved in processing stolen money orders. However, in almost every stolen money order scenario we have been involved in, and we have been involved in dozens, it doesn’t make economic sense to sue the banks. Finally, if you accept money orders, you should understand that some losses are highly likely. JJJJJJJJJJJ OBSERVATIONS ON TAXES America is the land of opportunity. Everyone can become a taxpayer. Why does a slight tax increase cost you two hundred dollars and a substantial tax cut save you thirty cents? What’s the definition of an accountant? Someone who solves a financial problem you didn’t know you had in a way you don’t understand. A lot of people still have the first dollar they ever made. Uncle Sam has all the others. If Congress can pay farmers not to raise crops, why can’t we pay Congress not to raise taxes? Drive carefully. Uncle Sam needs every taxpayer he can get. The IRS employs 114,000 people-twice as many as the CIA and five times more than the FBI. The Gettysburg address is 269 words, the Declaration of Independence is 1,337 words, and the Bible is only 773,000 words. However, the tax law has grown from 11,400 words in 1913 to 7 million words today. Q: Ever wonder why the IRS calls it Form1040? A: Because for every $50 that you earn, you get $10 and they get $40. Landlord News April 2015 Page 4