Episode 45: The House of Horrors | bonniegalam.com

Podcast

Episode 45: The House of Horrors

March 11, 2022

How did a simple oversight end up in 6 figures of fines, multiple dead bodies, and nearly a 6 figure clean-up? Tune in to find out!

This week on the podcast, Bonnie Galam shares the story of the home that inspired the name of this podcast. How did a simple oversight end up in 6 figures of fines, multiple dead bodies, and nearly a 6 figure clean-up? Tune in to find out!

 

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Episode Transcript:

Bonnie Galam [0:11] Welcome to the House of Horrors Podcast where each week we dissect problems real estate investors have faced, how they navigated it. And of course, what you can do to avoid ending up in their shoes.

Bonnie Galam [0:24] Hey there, I’m your host, Bonnie Galam. And welcome to the first real meaty episode of The House of Horrors podcast. And we are kicking this bad boy off with the story that actually inspired this podcast rebrand, but also changed my entire life. I’ll get into it. So this client story, guys, it was so off the walls wild that I wondered how something truly awful I mean, awful, financially awful, legally awful emotionally, just a situation where this real estate investment was. So so far from being a blessing that it became a nightmare that took years to come out from hell, this was even possible to happen. And so we’re going to give you the backstory and of course, the lessons learned. So to take you way back about three years ago, I started my law firm. And I started it because I was investing with my husband for over five years at that point. And I was getting fed up frankly, with the lawyers who we were working with, I felt like they weren’t very transparent with us in their billing, I felt like they didn’t get the business of real estate investing, like they only could see the legal solutions. I don’t know whether that was because all that, you know, that was all the pillows for or if they like literally could not think outside the lawyer box, I don’t know. But it irritated me to no end. And so I set out to create a law firm that one wouldn’t nickel and dime real estate investors, but to wouldn’t be afraid to think outside the box to look at how things were done. From the operation standpoint of being a real estate investor, not only like, oh, let’s just go jump the bar. And you know, go sue someone. And so my goal really was to be, you know, honest, was probably a really terrible business goal as a lawyer, but I wanted to empower and educate real estate investors to figure this stuff out on their own. And that’s, you know, over time why I created the podcast, migrated landlord law school, but essentially, I was trying to run myself out of business. I wanted them to be so proactive and so empowered and so educated that these legal problems weren’t in existence. However, I’ve seen nearly every single day in my firm that investors just don’t always know how to handle the legal stuff. And it’s not a dig at them or at you.

Bonnie Galam [2:30] If you’re sometimes feeling befuddled by you know, the legal stuff. But then you probably made the excellent life decision not to lose three years of your life in a law library, and then another three full months studying for a three day exam that you know, make or break your entire their entire career. And that was because they’re investors, not lawyers. And so I couldn’t just will them to become empowered and educated. And through that experiences by you know, I created my signature course Landlord Law School, which is like this all you can eat buffet of legal education and resources. And this is just one of the stories of the investors who I had the — displeasure I mean, I loved working with her as a client. But I don’t like seeing investors struggle this way. And so it was a really tough legal lesson that she learned, frankly, in the early days of my firm that kind of set the trajectory for this podcast and Landlord Law School and whatnot. And so it fundamentally made me realize that what I had to do if I was going to be in service to other real estate investors was be more than just a lawyer. And I want to share with you the story today because well, parts of it as you’ll hear art, it’s extreme, it may even feel out of touch for you as a newer investor. And you may think there’s no way this could ever happen to me. The reality is is parts of this can really happen to anyone involved in real estate. And so this investor let’s call her Ashley will protect the innocent here. Ashley did not set out to be a real estate investor and this may be familiar I know a lot of people who have kind of just been like hey, they moved out of their first home and they kept it and turned it into a rental and that’s exactly what Ashley did. She was a young professional who bought a home she was living in it on her own living her life and it was a really cute house it looked like something that was probably like a flip at some point but it was really nicely done clean updated was an older home you know, probably at least 7080 years old. But it was it was freshly updated. It looked great. I looked up those listing pictures you better believe I did. And then she found this guy you know as the story goes, you got serious eventually they got married. And the guy was already pretty established and owned a home as well and they moved into his home. And I will say only because it’s pretty important to the trajectory of this story is that the the husband was pretty well off as well. And so he was successful professionally. And money was not tight by any means. They were not depending on the this original home which was now a rental property to get up to get by by any stretch of the imagination and so they move in together. The old house becomes a rental property and it was a few hours away from where they currently lived in the husband’s home. She had a realtor who she bought the property with. And she used him to put the property up rent that the tenant so on and so forth. And they found a nice family with two kids. And I think the wife’s brother moved in with them as well. And collectively, you know, they had an employment history that had a lot of switcher rooms in it, but they had pay stubs for, you know, a few months from their current job. And it seemed to be a solid application for what is otherwise like a pretty C class neighborhood, it was fine. And everything seemed to be going well for the first few months. And then eventually, the tenant stopped paying. And now like I mentioned before, because Ashley and her husband were pretty, you know, professionally successful, the ding of one month’s lost rent wasn’t that painful.

Bonnie Galam [5:40] But then another one a month went by, and another month went by and went by. And eventually, you know, Ashley would tell me later that she, she really knew that she should check on what was going on with the property, but it was hours away. And she just thought it was a matter of you know, getting around to doing the eviction. And she was busy with her job. She had a toddler and the money just wasn’t a big deal. So she just kept putting it off. She just never bothered with the eviction. And then about 18 months later, guys, yes, 18 months later, no, this is not pandemic time. So that was not the reason why the eviction did not take place. But 18 months later, she gets a notice in the mail from the court that she was getting fined something in the area of about $10,000 per day, and has been for about the last nine months. I’ll let you do that math. And plus, and here’s the real kicker, guys. She had a warrant out for her arrest. And good lord did that now get her attention. And that’s when she called my firm in less than a calm matter, we’ll put it away. And I am not one to get floored when investors screw things up. Guys, I hear these calls all the time in my firm, but I could not understand what on earth was happening here. How on earth did a non payment of rent turn out to be a warrant for the landlord’s arrest. And this is where the stories are so wild guys. And before we get into that, and I can’t believe I have to do this in a legal podcast about real estate. But I do want to put a little bit of a trigger warning here in for suicide and addiction. And if either of those things hit too close to home, just skip ahead about a minute or so in the podcast. And you’ll get the rest of the story.

Bonnie Galam [7:22] So after I get my you know retainer and I get hired, my first call was held to the local police department. Because I needed to have the discovery. I needed the ticket the warrant, I wanted all their police reports. And you know, just as a fun little tidbit about myself professionally is that before I was a real estate attorney, I was a criminal prosecutor. And so here I was a few months later, after I started my firm on the flip side of the table, criminally defending a landlord, but I felt well within my wheelhouse. And as terrible as this whole situation was for my client, it was actually quite fun professionally. And these are the kicks you get as a lawyer guys. But when I call the police, the conversation went something like this. Hi, I’m Bonnie Galam. Attorney on behalf of Ashley so on and so forth. And I am calling regarding the tickets associated with 123 Main Street Are you familiar with and then I got cut off. I just got completely cut off by the officer. And he personally kind of stated to me, yeah, no, it was your client turned herself in? Oh, that was not the response that I wanted. And so you know, I made arrangements for her court appearance, and for the discovery to be turned over and asked for his version. Like I really wanted to hear from, you know, boots on the ground. What was going on over there? And he says, Well, ma’am, which looking back now makes me laugh because I think I was like 29 years old. But anyway, he very formally told me that this place had turned into a heroin den. No less than two people had overdosed and died in the property. And one of the tenants hung himself in the front yard. Oh, and while we were in the front yard, the grass was a mode for about a year until the town did it. And there’s multiple broken down cars and appliances all over the property. Oh, I wanted to know about the building itself. Well, multiple windows were removed. And so it was the front door and the township also took it upon themselves to board them up for like 10 times the price of what it would talk it cost anyone else in the world to do this, mind you. But the boards kept getting removed. And so they kept having to go back there and re secure the property on their own because no one knew where the landlord was. And I you know, I asked him, I said, Is there something we can do today to stop this fines from accruing? And he just laughed and said, yeah, get her to turn herself in.

Bonnie Galam [9:28] Again, not a phone call phone phone call I had to have with my client there. And so you know, I advised her that, you know, the last thing she needed to be doing was to be driving around the state of New Jersey with a warrant out for her arrest. And if she you know, got picked up on a police license plate scanner, it was going to get far worse and be far more inconvenient than if she just drove herself down here ideally, like have someone else down here so just not in her own car and just go to court. Let’s get to court as quickly as possible. And when we did, I had the absolute displeasure of negotiating with probably the three The most miserable people on the planet. And this is not always the case of municipal courts, but they’re well underpaid government workers working at this level. And they were just not in the mood to hear my client sob story. And so I’m dealing with the prosecutor, the code inspector and the police chief mind you who love to tell me how the mayor calls him every single day about this property and how it’s a thorn in his side and by distort him that it’s now our thorn in our side that we will be taking care of.

Bonnie Galam [10:27] But frankly, they wanted to make an example of my client for the rest of the town. It’s a town that has a lot of investors in it. And they wanted to make it clear that you are going to be a hands on landlord if you’re going to do business in our town. And frankly, they told us, they wouldn’t even negotiate with us, they said they would not negotiate with us until we cleaned up this property. And so that would mean we had to get everyone out of this property is easier said than done. Right? So we go to the courtroom, I talked to the judge again, a two month adjournment, which I estimate, it would be enough time for me to file two actions in court, I would need to file an eviction for the and an adjustment. And because we just frankly, didn’t know who the eff was in this property, or who was even alive, we knew that there were more dead people, apparently than adult tenants in the property. And, you know, according to police, that was a revolving door of people who were living there. And so the eviction was going to be for the tenants. And the adjustment would be for the squatters, the friends that whoever was in this property, we just needed to clean shop. And so we send the notice to the court, we file for the eviction in the apartment, and we show up to court, which let me tell you was an experience in and of itself for me professionally, because it happened literally, within a week of me giving birth, my daughter was a little bit early. And I’m not proud of it.

Bonnie Galam [11:40] But I went to court that day. And I had hired a lawyer buddy to cover for me thinking that this would just be a default judgment and no one was going to show because you know, in my professional experience as a landlord, tenant mediator, as an attorney, as an investor, I thought there was no freaking way anyone was showing up. I even had someone drive by the property, I could see like the notices were still on the door. So imagine my complete absolute shock. And now fury when these tenants decided to show up to court with a baby, mind you, and were getting gearing up to make a habitability argument. And my standing who was a friend called me, he’s like, Oh, Bonnie, I really think I need you here. This is more than just showing up in court and, you know, getting a default judgment. And so I went, I went guys, I went, I brought my newborn baby, and I brought my husband Thank you AB. And I don’t think I regret anything as a mother, except what I did that day. But it was something I felt I professionally needed to do for my client to shut that nonsense down. And the judge wasn’t going to give us an A German because I had a newborn. And my client was still racking up five figures a day in fines. And so like I did what I needed to do, and I also silently made a promise to myself that I would never freaking do this to myself again. And I’m happy to say at least two years later, I’ve kept that promise to myself.

Bonnie Galam [12:58] But when I sat down in the courtroom conference room with those tenants, let me tell you how hath no fury, I lay down the law real quick that any habitability claim that they were planning on telling the judge based off of my understanding of the condition of the property was really just going to bring child protective services in their lives. And that wasn’t really in anyone’s best interest here, although maybe it was in the child’s best interest. But that was not what we needed to have happen here. This was not a habitable property, and it was due to their own doing and so we needed to get them on board with that. And thankfully they did. They could see that this was gonna be a lot messier for them if they had a formal eviction on their record and Child Protective Services dealing with them. And so that thankfully got resolved they consented but we still needed to eject John and Jane Doe like number one through 10 I think I did. He was like 20 John and Jane DOE’s and went on the record with the judge and I officially got that judgment because no imaginary John or Jane Doe actually showed up in court. So I guess I was 50% right there that no one would show up. And so about 10 days later, I the sheriff’s the property manager friend who I brought along as like a witness and to help because there was it was an unsafe property went to the house remove the boards and watched as the sheriff you know announced himself in clear the property through a sweep. Which let me tell you thank heavens was vacant. I was not looking to witness a confrontation that day. Although it did walk away with two nails on my tire so love. So anyway, after the sheriff’s cleared the place the newly hired actual property manager did a walkthrough of the property and confirm that anything of any remote value was gone.

Bonnie Galam [14:37] The kitchen was hanging off the walls the sewer pipes were cut the appliances were you know in the yard or long gone. And there was about two feet of sludge leaking into the basement due to that cuts sewer pipe. But good news guys actually know had possession and could get to work. And at last count, I think their renovation shaped out to be about $75,000 for what was 100 perfectly new renovated property when they got turned over to the tenants. But thankfully, I mean, all you can say is timing here. By the time that this renovation was done, it was like kind of in the heat of that pandemic market for easiness. And so she was able to recoup a lot of her renovation costs, but we still had to deal with the court system. And that was going to be a major financial hurdle as well. But you know, at least now we had possession of the property in the town was willing to pay it ball with us. And let me tell you, my client was a mess. This was not someone who was used to being a criminal defendant in a courtroom. And she was nonstop sobbing from the second we enter the courtroom because her job was literally on the line, if we didn’t get a good plea deal. She has certain licenses that she could lose if she had certain types of crimes on her record. And so I was gung ho, she was not losing her job over this nonsense. And we had, you know, now like 11 months of five figure daily fines, it was multiple, six figures with the fines if we were to pay the cash value out on it. And she just didn’t have that laying around like they were, you know, fairly well to do but like they didn’t have, you know, multiple six figures just go pay court costs. And I wasn’t sure how this was going to shake out because of the history with the town. But let me tell you, I came in strong negotiating. And the police chief and the prosecutor had like zero sympathy, none whatsoever. But I shared that it was in the town’s best interest not to financially tank, my client, so she could clean up the house and remove the blight. And that seemed to have struck a chord with the chief who again, would remind me that the mayor was on him about the property. And I showed him, we were now on the same team. And we could actually do something about it, because everyone was out, we had actual legal possession of the property again. And I was also able to negotiate that some of these fees were duplicative. And my client has shown that, you know, she is eager to resolve this issue when she knew about it. And she was just frankly, so ashamed and so embarrassed that it even reached that level. And I must say, if I do pat myself on the back of it, we I think we got a pretty good deal out of it, she was able to resolve the matter with a fine of under $3,000. to I think it was three of the more minor tickets, which did not affect her job at all. And she would also be forfeiting her right to ever be a landlord again, in that town, what she was more than happy to agree to and what that she was said.

Bonnie Galam [17:20] And you may be thinking, Now, Bonnie, that was a wild story. And there’s no freakin way I’d ever let something like that happen to me. But she’s not the only investor who took the ostrich sticking their head in the ground approach to things when the proverbial ish hit the fan. Plus some of her mistakes, frankly, were so innocent, and you know, led to like massive delays. And that stuff can happen to literally anyone. And it’s even happened to me. And so let’s dissect it a bit. So the first lesson I wanted to talk about here was the fact that she didn’t really vet her property manager, she just worked with her realtor who sold her the property, but really didn’t have any property management experience. He was there to kind of find a tenant and I guess funnel some of the rent. But a true property manager in a situation like this, probably would have done things like knock on the door, see what’s going on with the tenant do so much as I drive by as the property. And that didn’t happen here. Because the reality is, this guy was just acting as a builder. He was acting as a leasing agent. And I think there was a disconnect between what the expectations were for him to do as a property manager, versus just someone who would find her attendant and that was a definite breakdown. And so when you are looking for a property manager versus a leasing agent, just know that they’re all They’re kind of two different hats that people wear and not everyone wears both. Second up. And this is a big one because I’ve seen this happen, and frankly, it’s happened to me once before is local registrations and keeping your addresses up to date. The reason why Ashley here had such a delay in hearing about these fines to the point where it was until she had a warrant out for her arrest was that she never updated her driver’s license. When she moved in with her now husband, she just kept her old license. She still lived in the state of New Jersey figured she’d ride it out until her license was expired are because now when all these summonses and tickets were being issued, they were just looking up to see what was on record and they were being sent to the house and the tenants weren’t passing them along. And so that’s how it had to get to the point where it escalated so high that they basically you know, had to serve her find her and serve her with this. The legal complaints that were happening and so make sure if your town has a local landlord registration, you do that and update it. Same thing, LLC addresses your driver’s licenses, you want people to be able to find you I know there’s this whole thing around anonymity. I am not here for it. I have whole other podcast episodes on it. But the point being is you need to know when things are going wrong. Period. Okay. Number three is don’t stick your head in the ground.

Bonnie Galam [19:52] I streetstyle for more than like a month. Look, things go wrong. People Deserve Grace even deserve some Second and Third chances. But don’t let things go longer than a month, whether it’s from hearing from a tenant, whether it’s about non payment of rent, whatever the case may be. And it may even be faster than that, depending, you know, in your judgment, what the situation is going on. Give some grace, then take swift action, this is your property. And that really brings me to my fifth point here, which is that do not assume that anyone cares about your property as much as you do. No one ever will not your property manager, not your tenants, it comes down to you. And so you need to be prepared to jump on an airplane, or drive a few hours to check on a property. If you’re getting like a spidey sense that things are wrong. You got to take control of that ship and bring it in and run along those lines. I really wanted to bring this episode before next week’s episode because I have my property manager buddy, Mike bond it is who specializes in c&d class assets like this. And we’re going to be talking a lot about like how do you choose a good property manager? What types of questions should you be asking them? And we’ll be sharing a horror story about a turnkey property that was anything but turnkey. And so stick around for next week’s episode of House of Horrors. I hope you guys learned something, and maybe had the bejesus stared out of you to go run to the DMV now to update your driver’s license. And I hope you do because this stuff is really, really important to stay on top. Stay proactive in your real estate business. Until next week. That’s it here. Bye for now, and I’ll see you here same time, same place next week. Thanks so much for listening to the House of Horrors podcast. Make sure to follow us on Apple podcasts, Spotify, or wherever you like to listen to podcasts. You can also check out all of our podcasts episodes, show notes, links and more at Bonnie galam.com forward slash podcast. You can learn more about legally protecting your portfolio and take my free legal workshop the three legal myths preventing you from securing and scaling your portfolio and of course what to do instead at bonniegalam.com. And to stay connected and follow along follow me on Instagram at @bonniegalamesq and send me a DM to say hi.



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