Slumlords are a problem for Wisconsin tenants. Receivership could be the answer.
Mark Adams began his company, California Receivership Group, more than two decades ago. Since then, he said he has worked with community organizations to clean up roughly 300 properties all over California.
Through a process called receivership, the company worked with community organizations to identify and abate properties that had become nuisances in their neighborhoods, whether they were vacant or belonged to landlords who refused to address health hazards in their properties.
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Adams, now 72, sold the company to his employees in 2021. Why? He said he wants to rededicate his time to expand the role of receivership to cities all over the country.
"(We) have cities and tenant groups pleading for remedies like this," he said. "(Milwaukee) has housing problems that would warrant the health and safety receivership remedy."
What is receivership?
A receiver is a party, typically nominated by the city or judge, who is responsible for ensuring abatement to a property that has been identified as a nuisance or as containing hazardous to human health.
The process usually involves a tenant identifying a nuisance property and reaching out to the city or a community organization. Then representatives of that organization (or a city or county) petition a city clerk or judge to have the location legally declared a nuisance or health hazard. Usually, they will bring photos and other evidence demonstrating the property is uninhabitable or has building code violations.
If the judge or clerk makes that declaration, the property owner is ordered to address the violations. If the property owner does not comply, the organization can nominate someone to be a health and safety receiver who can address the violations.
Adams noted property owners and lenders usually object to receiverships out of self-interest. "The type of owner who runs a slum property doesn’t want to make capital investments in the property, and the lender is more concerned about the primacy of the trust deed over the poor people who are living there," he said.
How does receivership work in Wisconsin?
According to Adams, any property in violation of a municipal ordinance, building code violation, or a citation from code enforcement is by definition, a nuisance property.
Once that occurs, Adams said there are two Wisconsin laws he believes are underutilized laws that allow receivership to occur: Wisconsin Statute 254.595 and Wisconsin Statute 823.23.
Wisconsin Statute 254.595
This statute states tenants living in a residence can petition their municipality to declare the property a nuisance. If the city doesn’t do so in 20 days, the tenants can petition the court on their own.
If a violation is found, the property is declared a nuisance or human health hazard and the owner has 60 days to address the violation and provide evidence to the court. If the property owner fails to address the violation, the court can appoint a receiver to abate the issue. Attempting to sell or change ownership of the property does not remove the court's finding.
During the abatement, the receiver has a lien over the property, which means they essentially have possession over it until the costs of the abatement are paid for. The receiver is responsible for paying the mortgage of the property and/or the management of a rental property.
The receiver is also allowed to:
Collect all profits from the property
Borrow money using the property as collateral
Sell the property (at the request of the owner) to a price that is equal to its appraisal value plus the cost of repairs.
Wisconsin Statute 823.23
This statute establishes the procedure for appointing a receiver. It notes that a city, village or town may apply for the appointment of a receiver if no other interested party has done so.
Other parties eligible to be receivers include a housing authority, community development authority, housing-focused nonprofit or redevelopment company/corporation/authority. If none of those parties are able to be appointed, the court can appoint anyone it deems "competent."
The law also states that, during a receivership, neither the landlord nor the receiver can:
Increase rent
Decrease services for the tenant
Refuse to renew rental agreements
Retaliate against the tenants who reported violations
Finally, it notes that all court and abatement costs incurred by the receiver must be determined reasonable by the court. Once that occurs, the costs can be set as a "superior" lien against the property, which means it must be paid before any other judgments, mortgages or liens on the property, with the exception of property taxes. In California, this is referred to as "super priority," and Adams said it is one of the most powerful incentives for property owners to comply.
What is a public nuisance?
Wisconsin law defines a public nuisance as, "A nuisance is an unreasonable activity or use of property that interferes substantially with the comfortable enjoyment of life, health, or safety of others." The city of Milwaukee has a definition of what constitutes a chronic nuisance property under its code of ordinances (80-10-2) and has developed a handout describing how landlords, tenants and neighbors can address nuisance activity.
Health hazards are more broadly defined, and they usually require a tenant to (1) present evidence of the nuisance, (2) prove their behavior did not cause the nuisance conditions and (3) prove the nuisance is making them ill or has the potential to cause harm.
Health hazards typically include the following:
Pest/rodent infestations
Lack of heating
Lack of functioning plumbing
Roofing leaks
Gas leaks
Evidence of lead contamination, asbestos or other toxic chemicals
Vacant homes that are attracting rodents, criminal activity, etc.
The League of Wisconsin Municipalities also has more information regarding nuisance properties.
What are some limitations to receivership?
Receiverships tend to rely on building code violations, which are what are typically used to determine a nuisance or habitability issue. Cities with weak code enforcement departments or building codes typically make receivership less effective.
In addition, Adams said it is common for landlords to blame any building defects or issues affecting habitability on tenants.
"In my experience, especially with apartment building receiverships, the first thing that owners say (is), ‘Oh this is the problem of the filthy tenants who live in these units,’" he said. "My answer to them is, under California law, the owner has an obligation to provide habitable housing — it is not '(provide) habitable housing unless the tenant has poor dishwashing habits.'"
"It’s usually just a ruse by slumlords to claim it is the tenants’ fault," he added.
Finally, Adams noted that Milwaukee. and any other city interested in using receiverships, will likely need to start out with a test case.
"The first one I did in 1999 was for a slum apartment building in downtown Los Angeles," he recalled. "The case was taken on a pro-bono basis by Latham & Watkins on behalf of the tenants. I got involved because the (University of California-Los Angeles) law professor who had written our statute out here, I knew him, and they were looking for someone to take it on."
Winning that test case helped the city, and eventually, the state, realize the power of receiverships.
What's next in receivership?
Adams is currently working with partners in Memphis, Tennessee to develop a symposium for all interested municipalities across the country to come and learn about receiverships.
Adams said there are 21 states with receivership statutes as strong as those of Wisconsin and California.
And once it's used, Adams said it often becomes a regular tool for addressing nuisance properties.
"Once a city or county does one (case) and sees how powerful the receivership is, they become repeat business," he said. "They will call us."
Need more help with housing questions? The Milwaukee Resource Guide is here to help. Have something you want answered? Submit a question.
Talis Shelbourne is an investigative solutions reporter covering the issues of affordable housing and lead poisoning. Have a tip? You can reach Talis at (414) 403-6651 or tshelbourn@jrn.com. Follow her on Twitter at @talisseer and message her on Facebook at @talisseer.
This article originally appeared on Milwaukee Journal Sentinel: Receivership could force Wisconsin slumlords to clean up their properties
