[00:00:00] Speaker A: It's time for California Law updates Simplified the show for California property managers, owners and HOA board members, bringing clarity to California ordinances and compliance requirements.
[00:00:14] Speaker B: Welcome to the deep dive. If you are navigating the, let's say, treacherous waters of income property ownership in California, this is for you.
[00:00:24] Speaker A: It really is. We're diving into tenant debt collection today and this action, avalanche of new rental regulations that are just completely reshaping the economics of the industry.
[00:00:35] Speaker B: Feel the tension there.
[00:00:36] Speaker A: You can. The core argument against rent control is, well, it's pretty forceful. The sources are basically arguing that it actively destroys housing stock.
[00:00:45] Speaker B: It discourages investment.
[00:00:46] Speaker A: It discourages investment. And here's the irony. It forces new tenants to pay more.
They have to subsidize the artificially low rates for everyone else.
[00:00:54] Speaker B: That definitely sets the stage. But, you know, regardless of that political fight, the regulations are here and they hit the bottom line all hard. And this is where it gets really interesting. Especially for RSO properties in LA City.
[00:01:04] Speaker A: We are seeing a significant pending restriction, and it's going to fundamentally alter how landlords can even approach annual increases. The new cap is tied to 90% of the consumer price index, right?
[00:01:18] Speaker B: 90% of CPI, which, that sounds like a small change on paper, but if you actually do the math, the pressure is immense, immense. I mean, if CPI is at 3%, your maximum increase is just 2.7%. But your costs, your taxes, your insurance, they're all climbing at, what, 5, 6% easily.
[00:01:35] Speaker A: So you're operating at a loss from day one. And that's not even the whole picture. The operational hit gets worse for older buildings, you know, the ones that aren't individually metered, which is a lot of.
[00:01:44] Speaker B: The RSO stock, a lot of it.
[00:01:45] Speaker A: The new ordinance just completely eliminates the old 1% utility adder you could charge for gas or electricity.
[00:01:52] Speaker B: So you lose 1% for gas, 1% for electricity. That's a 2% revenue stream just gone on top of being capped at 2.7%.
[00:02:00] Speaker A: And this is after, what, four years of not being able to raise rent at all post Covid?
[00:02:06] Speaker B: Yeah, the source material was very clear. They called this, and I'm quoting, literally, a death blow for these older properties.
[00:02:13] Speaker A: It just removes any incentive to invest in them. And it's not just la. There's a statewide law coming that affects.
[00:02:19] Speaker B: All residential units, effective January 1, 2026. Right?
[00:02:22] Speaker A: That's the one. And it changes the very definition of habitability.
[00:02:26] Speaker B: So. So what does that actually mean for landlords across the state?
[00:02:29] Speaker A: It means that for any new lease or Even a renews lease, starting in 2026, the landlord must supply a refrigerator and a stove.
[00:02:37] Speaker B: Okay. And the kicker is.
[00:02:38] Speaker A: The kicker is, without them, the unit is legally considered uninhabitable. That means the liability for repair, for replacement, it's all on the owner now. You can't just have tenants bring their own anymore.
[00:02:52] Speaker B: Wow, that is a massive logistical and financial shift.
[00:02:56] Speaker A: It is. So with all this pressure, you know, this margin squeeze, proactive risk, prevention becomes everything.
[00:03:02] Speaker B: Because bringing in a bad tenant, the costs just compound so quickly.
[00:03:06] Speaker A: Exactly. The sources kept coming back to rigorous tenant screening, specifically based on something called the duty of care doctrine.
[00:03:14] Speaker B: Can you break that down? What does duty of care mean in practice?
[00:03:17] Speaker A: In practice, it. It's your legal obligation to keep all your tenants safe. So if you bring in a high risk applicant and they cause harm to another tenant, financial or physical, you can be sued for it.
[00:03:28] Speaker B: And that's why a standard background check isn't enough anymore.
[00:03:31] Speaker A: It's not a standard criminal report. I mean, it's often state limited. It might redact things, but more importantly, it leaves out all the civil stuff.
[00:03:38] Speaker B: Like what?
[00:03:38] Speaker A: Like litigation history, prior evictions that didn't get fully recorded, even things like domestic violence, violence. Convictions that are absolutely crucial for assessing risk.
[00:03:48] Speaker B: So the recommendation is to spring for a full civil and criminal investigative search?
[00:03:53] Speaker A: Absolutely. The cost of that search is nothing compared to one eviction or, God forbid, a liability lawsuit. Prevention is always the cheapest strategy.
[00:04:02] Speaker B: Okay, let's shift gears. We've covered prevention, but sometimes it fails.
[00:04:07] Speaker A: It does.
[00:04:07] Speaker B: The tenant skips out, they owe you six months of back rent before you can touch a bank account, before you can garnish a wage, what is the absolute first step?
[00:04:16] Speaker A: You must have a formal enforceable judgment against them. It's a court document. Without that piece of paper, you legally can't do anything.
[00:04:24] Speaker B: Okay, and the sources lay out two main paths to get that judgment.
[00:04:28] Speaker A: That's right. Path one is the unlawful detainer action. That's the eviction process itself. You know, if they're still in the unit, you get possession back and a monetary judgment.
[00:04:35] Speaker B: And path? Two paths.
[00:04:36] Speaker A: Path two is for when they've already skipped out. And that's small claims Court.
[00:04:39] Speaker B: Right. Small claims. It's known for being cheaper, no lawyers needed.
But what are the limitations we need to know about?
[00:04:47] Speaker A: The cost is low. Maybe $75 to file, but the jurisdictional limits are critical. If you're an individual owner, the max you can claim is $12,500.
[00:04:56] Speaker B: But if the property is owned by an LLC or a corporation, it drops a lot.
[00:05:01] Speaker A: Down to just $6,500.
[00:05:03] Speaker B: Wow. And you can only file for that maximum amount twice a year.
[00:05:07] Speaker A: Exactly. The third case in a year, you're capped at $2,500.
[00:05:10] Speaker B: So let's play this out. I own a place through my LLC. Tenant Skips owes me $10,000. That $6,500 limit is.
That's a problem?
[00:05:19] Speaker A: It is, but this is where strategy comes in. Your other option is a full civil lawsuit, which means hiring an attorney, which.
[00:05:25] Speaker B: Means a retainer of what, $4,500 and billing of $500 an hour.
[00:05:28] Speaker A: You got it. For a $10,000 debt, it's economically nonsensical. Your legal fees would just eat up any recovery.
[00:05:34] Speaker B: So the smart play is to just waive the extra $3,500, sue for the $6,500 limit in small claims, get a cheap, fast judgment, and then start the collection process.
[00:05:43] Speaker A: Precisely. You sacrifice a piece of the debt to guarantee you get an enforceable judgment you can act on.
[00:05:48] Speaker B: Okay, but with small claims, if the tenant's already gone, you have the huge challenge of serving them. How do you find someone who doesn't want to be found?
[00:05:56] Speaker A: You need professional skip tracing. And here's a strategy tip that sounds really counterintuitive.
[00:06:02] Speaker B: I'm listening.
[00:06:03] Speaker A: Do not file the lawsuit right away. Wait. Wait about six months.
[00:06:06] Speaker B: Six months? Why would you wait? Don't you want to move as fast as you can?
[00:06:10] Speaker A: You'd think so, but patience is key here. In six months, that tenant will have had to create a new footprint somewhere. A new job, a utility bill, maybe another lease.
[00:06:20] Speaker B: Ah, so you give them time to create a trail.
[00:06:22] Speaker A: Exactly. A trail that a skip tracer can follow to find their new address or their workplace for service.
If you file right away, there's still a ghost.
[00:06:30] Speaker B: That makes perfect sense. Okay, so once you have that judgment, what's its power? How long does it last?
[00:06:35] Speaker A: This is the fascinating part. It's not a race, it's a marathon. A California judgment is good for 10 years. 10 years and you can renew it for another five. So you have a 15 year window to pursue that debt.
[00:06:47] Speaker B: Does it collect interest during that time?
[00:06:49] Speaker A: Oh, absolutely. Older Judgments accrue at 10% per year. The newer ones from 2023 on are down to 5%. But that interest adds up, which is why you have to be dilig.
Sometimes assets don't even appear until year four or five.
[00:07:03] Speaker B: So let's talk about the actual collection. Where do you look for the money? The tenant's new apartment is irrelevant, Totally irrelevant.
[00:07:10] Speaker A: You're focused on three Employment for wage garnishment, bank accounts for a levy, and real estate for liens.
[00:07:19] Speaker B: And how do you find those?
[00:07:20] Speaker A: Collection agencies use skip tracing and asset searches. But the one thing they absolutely need is the tenant's Social Security number, which.
[00:07:28] Speaker B: You should have from the original application.
[00:07:30] Speaker A: You should. And it's surprising what they can find with just that. And maybe an old cell number or email.
[00:07:35] Speaker B: So once an asset is located, how do you seize it?
[00:07:38] Speaker A: You get a writ of execution for money from the court. That's the document that tells the sheriff to go get it. The most common method is wage garnishment.
[00:07:45] Speaker B: Okay, but what are the actual limits on that In California? It's not like you can take their whole paycheck.
[00:07:50] Speaker A: Not even close. It's very strictly limited. If they're paid monthly, they have to earn over $3,328 for. For you to garnish anything at all.
[00:07:58] Speaker B: And even then.
[00:07:59] Speaker A: Even then, the most you can usually take is 20% of their disposable income. Above that line, it's a slow trickle. And tenants have gotten smart. They'll hold two part time jobs just to stay under the garnishment threshold at each one.
[00:08:12] Speaker B: So what's a faster, better option?
[00:08:14] Speaker A: A bank levy. Much better.
This tells the sheriff to seize everything in a specific bank account on one specific day.
[00:08:21] Speaker B: You don't know how much is in there beforehand, though.
[00:08:23] Speaker A: Never. It's a gamble. But if you get lucky and hit it on payday, you can collect a huge chunk of the debt all at once.
[00:08:30] Speaker B: And what if the tenant owns property? Or you think they might someday?
[00:08:33] Speaker A: That's where you use the abstract of judgment. You take your judgment, you file it with the county recorder's office. That creates a lien, an automatic lien on any property they own now or buy in the future.
[00:08:44] Speaker C: California property owners and managers. New property laws are here. AB628 By 2026, rentals need working stoves and fridges to be habitable. AB246 no evictions for late rent due to Social Security delays. AB414, return security deposits electronically if tenants agree. AB863 by 2027, eviction summons must be multilingual. AB325 pricing algorithms face antitrust scrutiny. Balcony laws, SB326 and SB721 inspections are due by January 1, 2026 or face fines, liability and lower property value. Act now boost revenue. Stay compliant. Join our free informational California Law Updates
[email protected] Sign up now. Space is limited.
[00:09:38] Speaker A: Okay, let's shift gears completely from financial compliance to.
To life, safety and huge liability exterior elevated elements. We're talking Senate bills 721 and 326, and we can't even start this without acknowledging the tragedy that spurred these laws.
The 2015 Berkeley balcony collapse. Six young people died, and the building was only nine years old.
[00:10:02] Speaker B: That tragedy just exposed this massive hidden liability problem. The fact that we were relying on visual inspections for structures that depend on wood, especially where moisture can get in. These laws are meant to force systemic change.
[00:10:15] Speaker A: Let's define the term. What exactly is an exterior elevated element?
[00:10:19] Speaker B: An E, An EE is anything that's six feet or more off the ground has a surface meant to be walked on. And this is the key. It relies wholly or partly on wood for its structural support.
[00:10:30] Speaker A: And our sources said something like 90% of failures are from wood rot.
[00:10:33] Speaker B: Over 90% usually hidden from view until it's too late.
[00:10:36] Speaker A: So we're talking balconies, outside, stairways, walkways. What's exempt?
[00:10:40] Speaker B: The things that are purely decorative, like a Juliet balcony with no walking surface, a roof overhang you're not meant to walk on. And importantly, if the structure is 100% metal or 100% concrete, these bills don't apply. The concern is wood.
[00:10:54] Speaker A: Let's break down the rules for apartment owners first. SB721. Three or more units, right?
[00:11:00] Speaker B: SB721 requires an inspection every six years.
The good news here is the deadline for that first one got extended to December 31, 2025.
[00:11:10] Speaker A: And what's the scope of the inspection?
[00:11:12] Speaker B: The inspector has to review a minimum 15% sample of all the EEs on the property. And this usually involves some limited destructive testing. They have to see what's going on under the surface.
[00:11:21] Speaker A: And given the Berkeley context, how long do owners have to keep these reports for liability defense?
[00:11:26] Speaker B: And just to show you're doing your due diligence, you have to keep the reports for two full cycles. It's 12 years. It demonstrates a pattern of compliance.
[00:11:33] Speaker C: Today's episode is brought to you by Dr. Balcony, California's leading balcony inspection company for SB326 and SB721 compliance. With over 4,000 inspections completed, Dr. Balcony uses a patented, minimally invasive process that protects your property while ensuring safety and compliance, servicing all of California while providing fast inspection report turnaround, and backing it up with a 20% price beat guarantee, beating any competitor's bid by 20%.
[00:12:05] Speaker A: Learn
[email protected] now for the stricter rules, condos and HOAs. Senate Bill 326.
[00:12:12] Speaker B: Yes, SB 326 also applies to properties with three or more units. But for HOAs, the cycle is longer every nine years. The problem is their initial deadline was not extended. It already passed at the end of 2024.
[00:12:25] Speaker A: So a lot of HOAs are already.
[00:12:27] Speaker B: Out of compliance and at serious risk. And the scope for them is much broader. They have to inspect every single e, not a 15% sample. The goal is a 95% confidence level for the whole property. It's way more expensive and comprehensive.
[00:12:40] Speaker A: What's the immediate real world risk for an HOA that missed that deadline?
[00:12:45] Speaker B: It's, it's financial and it's existential.
Insurance carriers are demanding proof of compliance now. So an HOA could lose its general.
[00:12:53] Speaker A: Liability insurance, which would be catastrophic.
[00:12:55] Speaker B: Totally. Plus, they face daily fines from 100 to $500. And maybe worst of all, lenders might refuse to finance a sale or a refi in that building, effectively trapping the homeowners.
[00:13:06] Speaker A: Okay, here's where it gets really interesting for me. Walk us through the repair process. Let's say an inspection finds a problem, but it's not an immediate emergency. What happens next?
[00:13:14] Speaker B: It's a very specific, time sensitive process.
First, the inspector gives you the written report, usually within 45 days.
Second, the owner have 120 days from getting that report to apply for all the necessary building permits.
[00:13:28] Speaker A: Just to apply for them, not to.
[00:13:30] Speaker B: Get them correct, just to get the application in. And 120 days can be ambitious in some cities. So you have to be aggressive. And then once the city officially approves the permits, and only after that, the owner gets another 120 days to finish all the repair work and get the final sign off.
[00:13:46] Speaker A: So the big takeaway is you can't just call a contractor to start ripping things out. You have to go through the permit process first.
[00:13:52] Speaker B: That is the single most critical compliance point. If you skip the permit process to save time, it's illegal. But more than that, it absolutely destroys your liability defense if something fails later. The law demands that paper trail. You know, we've broken down a tremendous amount of information today. From the tight timelines in SB567 to the need for photo evidence, and now these high stakes EE inspections. The trend is just, it's crystal clear.
[00:14:18] Speaker A: He seems like it. Yeah.
[00:14:19] Speaker B: California is actively, you know, shrinking the profit margin and piling on the administrative work for property owners, all in the name of tenant protection and public safety.
[00:14:29] Speaker A: Every single topic we covered, evictions, finances. Structural safety is another layer of cost, another layer of recordkeeping and risk that owners have to absorb that these aren't just small tweaks, not at all.
[00:14:41] Speaker B: They're systemic changes to the business model.
[00:14:43] Speaker A: Absolutely. And as we leave you to think about all this, here's the question that really sticks with me. Considering this rapid, relentless pace of restrictive high cost legislation, you know, laws that seem focused on closing every path to recovering or repositioning a property, how much longer can traditional rental ownership actually stay a financially sound and attractive business for say, a private landlord or a small company just trying to operate?
[00:15:10] Speaker B: The cost of compliance alone might just be the tipping point for a lot of them.
[00:15:13] Speaker C: Yo, your balcony's cracked. It's looking of shady. Dr. Balcony will save it baby. SB326 we got your back. SB721 we're on the right track. Dr. Balcony we inspect and protect be pits by 20%. That's a flex guaranteed service. You know it's legit. Call us now and we'll handle it quick.
845-312-8508 don't hesitate. Email
[email protected] your balcony's future. It's looking strong.
