‘Wall Street Landlords’: Invitation Homes Hit with Class Action Over Allegedly Illegal Late Rent Fees, Other Penalties [UPDATE]

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Invitation Homes, Inc.’s uniform late rent penalties are illegal under the laws of every state in which the so-called “Wall Street landlord” operates, a proposed class action lawsuit alleges. 

Filed in Maryland federal court, the 48-page complaint alleges Invitation Homes, described as “the largest player” in a housing rental market that transformed substantially in the wake of the stock market crash roughly 12 years ago, unlawfully engages in the practice of stacking penalties against tenants “where possible” while “systematically” threatening eviction. 

As a result, renters hit with so much as one late rent penalty end up being subject to “multiple added fees,” even if rent is “as little as one hour late” past the grace period and even though Invitation Homes, who owns, controls, leases or manages more than 80,000 homes across 12 states, incurs “no actual damage as a result,” the suit says. 

“The penalty is illegal, and thus void, because it is excessive, and bears no relation to any actual damages incurred by Defendant when rent or other fees are paid late,” the case contends.

In the wake of the stock market crash more than a decade ago, national and global private equity firms have come to possess, at “hugely discounted prices,” “tens of thousands” of single-family homes that were in turn transformed into rental properties, the lawsuit begins. What’s happened is the transformation of the residential rental industry from a business primarily in the domain of small and family landlords to one held by the large arms of private equity, hedge fund and Wall Street players with allegiances first and foremost to their investors, the complaint reads. 

Hurt by this seismic shift in the rental landscape are consumers in that renters have faced evictions at an “astonishingly higher rate” in contrast to the time when so-called “Wall Street landlords” did not hold ownership over large swathes of residential properties, the lawsuit says. In addition to wielding the seemingly ever-present threat of eviction, Wall Street landlords “often systematically refused to do necessary and even routine maintenance” on homes because doing so would “eat into their crucial bottom line,” the case states. Coupled with this is the crux of the lawsuit, what the plaintiffs allege is the defendant’s allegedly illegal fee-gouging, which includes, according to the case, grossly inflated “late” rent penalties and the stacking of penalties. 

“Tenants are forced to pay illegal fees because if they do not, the landlords, like Defendant here, will evict them,” the case says. 

The plaintiffs, tenants who rent homes from the defendant in Arizona, Colorado, Florida, Georgia, Illinois, Nevada, North Carolina, Tennessee, Texas and Washington, allege Invitation Homes’ policy and practice is to assess late fees immediately after the applicable grace period. While threatening eviction as a matter of course, the defendant often serves a “pay rent or quit” notice the moment rent is considered late, and very soon after charges a “legal” fee of $75 or more, the complaint says. 

According to the case, tenants who do not pay these automatic fees are evicted promptly.

Per the lawsuit, the late fees charged by Invitation Homes are exorbitant when considered in relation to the cost of living in a particular state. For instance, the suit says, a typical rent payment in Colorado could be $2,699 per month. If a tenant were to pay their rent to the defendant just two days late, the company could charge the individual a minimum $95 penalty, which amounts to “a 642% annual interest rate on that $2,699 original balance,” the case states.   

Although landlords are allowed to institute appropriate “liquidated damages” in certain states under certain circumstances, they generally may only do so if it would be “extremely difficult or infeasible” to tally actual damages from a late rent payment and the landlord undertakes a “sufficient endeavor to set a reasonable amount in light of the actual harm,” the lawsuit goes on. The plaintiffs argue Invitation Homes’ late penalty “utterly fails on both points.” From the complaint:

“First, it is not difficult or infeasible to calculate damages from late rent. In the vast majority of cases, rent is only a few days (perhaps only hours) late, causing no actual damage to Defendant. In its 2018 Annual SEC 10-K Report, Defendant admitted that since 2017 it’s [sic] imposition of late fees has been ‘automat[ed] and consistent,’ suggesting no human intervention is required resulting in no opportunity cost. Loss of use of having rent money sitting in a bank account by a certain hour or day, furthermore, can be compensated by a marginal interest payment that is definite and easily ascertainable, as courts have long held. Moreover, in more advanced cases when Defendant seeks to collect late rent payments by actually filing an unlawful detainer action, they charge attorney’s fees and costs separately to those tenants, demonstrating that Defendant views those legal costs as separate from the damages that allegedly flow automatically from rent being paid late (even assuming that such costs could lawfully be recouped via late fees). Second, on information and belief, Defendant has never made a reasonable endeavor to estimate a fair average or actual compensation for the losses sustained when a tenant pays rent late, as required when setting a lawful ‘liquidated damage.’” 

The lawsuit looks to cover 10 state-specific classes comprised of Invitation Homes tenants in Arizona, Colorado, Florida, Georgia, Illinois, Nevada, North Carolina, Tennessee, Texas and Washington who were charged penalties or fees for paying rent deemed by the defendant as late or deficient. 

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