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Receivership: a new tool for the maintenance of low-income housing


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The last straw came early last winter, when a small fire swept through the basement of a large courtyard building in Rogers Park.

There had been another, even larger fire there a few weeks before. The tenants had no heat, because the landlord hadn't paid the gas bills, and drug dealers were operating in several apartments. It was time, tenants decided, to get serious and hire a lawyer.

So they took their landlord to court, charging he'd failed to properly maintain the building and had created a potentially life-threatening situation. The judge put the building into receivership--a new remedy to the old problem of lousy landlords.

"What happens with receivership is that the judge takes the building out of the hands of the original landlord and puts it under the control of a receiver, who is sort of a new landlord," says Audrey Lyon, executive director of the Lawyers' Committee for Better Housing, the not-for-profit group that handled the Rogers Park case. Using the rent he or she collects, "The receiver makes sure that the heat gets turned back on and that basic repairs get done. It's not a perfect solution, it's a Band-Aid approach. The only other alternative is for the judge to vacate the building, which results in homeless people and more abandoned property."

"I'm the guy who comes in just when things are coming apart," says Larry Schwartz, a receiver for several north-side buildings. "I preserve and restore housing under the jurisdiction of a local court. That's all I can do. A lot of times it's frustrating, because people expect so much more."

The need for this stopgap measure has been heightened by a housing crisis now several decades old. Since the 1960s, the city has lost more than 100,000 units of housing. With rents rising in many neighborhoods it's tougher for the poor to find a decent, affordable place to live.

There are several reasons why property--including stately, once-sturdy courtyard buildings--falls apart in poor neighborhoods. Many landlords, who themselves complain about abusive, uncooperative tenants, insist that they can't afford to maintain housing for the poor--that the rents that low-income tenants can afford won't cover maintenance.

In addition, recent tax laws have encouraged quick transactions by giving tax breaks on the purchase of buildings. In many cases, it's not in a landlord's interest to sink his money into a piece of property.

"One of our biggest problems is the absentee landlord who buys a building for the tax benefits," says Ralph Scott, a community organizer for the Rogers Park Tenants Committee. "In some of these deals, he can make more money buying and selling the building than he can operating it. There's not much incentive to hold onto the building and make improvements."

Beyond that are a host of scams fast-buck landlords might perpetrate. "We have seen situations where one landlord sells his building to another guy on a private contract, which means no bank is involved," says Scott. "The new landlord collects rent, but he doesn't make any repairs and he doesn't even pay the utility bills. The building winds up in court because the new owner didn't pay the property taxes. Everybody profits except the tenants, and of course the city, which has lost all of that money in property taxes."

Many neglected buildings are eventually abandoned--by their owners, then the tenants. In 1984, Mayor Harold Washington named a task force to study the problem of abandoned properties. It recommended, among other things, that the city take advantage of a new state law that allowed judges to put neglected buildings into receivership.

"Until then, receivers were not commonly used for abandoned or run-down properties," says Lyon. "They were mainly used in chancery court for mortgage foreclosures. But state law allows for receivership. It's not a well-known fact, but tenants, or residents who live within 1,200 feet of property, can file their own case to ask for a receiver."

Other recommendations by housing activists to crack down on abusive landlords have been blocked by the city's well-organized real estate lobby. The City Council did adopt a law that enables tenants to deduct a portion of their rent for repairs they make to the building. But that measure was passed only after a protracted struggle highlighted by charges that Washington and his backers were endorsing rent control and socialism.

Many local judges have also been reluctant to punish landlords--no matter how grievous the charges.

"There's very little consistency in prosecuting housing-court cases," says Lyon. "You have a turnover with the prosecutors or judges, and a smart lawyer can manipulate the system for dozens of continuances. Also, the principle of housing court is compliance, not punishment. Most judges there don't believe in fines. They'd rather see landlords put their money into their building."

But in many cases judges will buy time by appointing a receiver, particularly after the heat has been cut off for nonpayment of bills.

"Shut-down utilities are usually the first indication that we're having major problems with a building," says Scott. "We just had a building put into receivership after its gas was shut off. It had been bouncing around from owner to owner, and the last owner ran up a bill of $15,000."

In that case, the Lawyers' Committee for Better Housing went to court and got the judge to appoint a utility receiver, who sees that future gas bills are paid from rent receipts. As for the $15,000 that is owed, the gas company will have to go to court to collect that. For their efforts, receivers make anywhere between $250 and $1,000 a month--deducted from the rent receipts--depending on the size of the building.

"People often misunderstand our role and the extent of what we can do," says Schwartz. "We're not supposed to sink our own money into a building. We're supposed to collect rents and use that money to take care of basic problems. Ideally, I'd fix things up to the point where someone else would think it was worth it to buy the building and make more substantial repairs."

Usually the building has gone so far downhill that a sale is highly improbable, however. When Schwartz and Scott got involved with the drug-infested courtyard building in Rogers Park, they found a situation that was too far-gone.

"That was bad, real bad," says Scott. "The heat had been turned off because the owner had not paid his bills. We needed to get into the basement because the boiler was broken. Larry and I went there, but the manager wouldn't let us in. In fact, he drove off in his car when he saw us coming. So Larry got an electric drill and spent about an hour drilling through the lock.

"Meanwhile, the manager called the police and told them that we were breaking into his building. Sure enough, the police came, and Larry had to show them a court order to prove that he wasn't a burglar. When we got into the basement, we found the boiler was in pieces. It took a few more days to get the heat on. And this was in November, when it was pretty cold."

The worst-maintained place Schwartz has encountered may have been the apartment building with the backed-up sewer.

"The sewer had been backed up for over a year," says Schwartz. "The smell was so intolerable it reached the third floor, and you had to walk around the basement in flood boots. I had to convince the tenants to pay the rent, and that I'm not just another rip-off landlord. I had to get the gas company to turn on the heat. And I had to come up with a contractor who would go into that muck in the basement so that you can at least get this one item--and I emphasize that it was just one item of many--fixed.

"Worst of all, that building had druggies in it. Druggies are real bad. You're trying to take money from them that they need to buy drugs. With druggies you have to have patience. If they won't pay the rent, you've got to go to court and hope the judge will start the process to have them evicted. It takes a long time."

There are also delinquent receivers--like the fellow appointed to take over a large apartment building not far from Scott's office. In that case, after collecting rents for a time but making no repairs, the receiver asked for and got court permission to evict the tenants and board up the building. Usually receivership is intended to prevent the more drastic step of a vacate order.

"We didn't think that the building was a life-threatening situation for its tenants," says Scott. "But the judge disagreed. It was a nightmare. We heard from tenants that the old manager was collecting rents even after a receiver was appointed. Once the judge ordered the building vacated, the tenants had to move. They scattered all around the neighborhood. In fact, one tenant from that building wound up living in another building that we had to take to court."

It would be best, of course, if receivership itself could be eliminated--if a way could be devised for landlords to make money on housing that is both decent and affordable. In the past, the federal government attempted this by subsidizing rents. But the Reagan administration slashed most rent-subsidy programs during the 1980s.

One current program--advocated by federal and local housing officials--is meant to encourage the construction of new houses on vacant lots by diluting requirements of the building code and providing subsidies. The irony is that many older, architecturally significant apartment buildings are allowed to fall apart, while a handful of new homes--most of them shoddy and cheap--are being built.

Without additional permanent solutions to the crisis in low-income housing, the city will have no choice but to turn to the receiver.

"The trouble is that so many low-income housing landlords see their business as a bunch of deals," says Scott. "They shuffle paper around, duck in and out of court, and try to make money on the margins. They don't see their role as providing decent, affordable housing. At least with the receivers, we can get the heat turned on and prevent more buildings from falling apart. It's not everything, but it's a start."

Art accompanying story in printed newspaper (not available in this archive): photo/Loren Santow.


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