Some D.C. renters are holding homes hostage for high-dollar payouts and blocking sales by exploiting a decades-old law, the News4 I-Team learned.
If you live in a rental that’s going up for sale, you can get a piece of the profit.
“I’ve heard payouts as high as $50,000 to $100,000, and that’s for single family homes,” D.C. Association of Realtors President Colin Johnson said.
Renters have become more savvy in using the law to force buyers and sellers to pay up or risk having their sale held hostage, Johnson said.
Enacted in 1980, the Tenant Opportunity to Purchase Act (TOPA) was designed to keep longtime D.C. renters from being forced out of gentrifying neighborhoods or to help them afford a new lease in a different building.
It basically gives the renters the first right to buy the place they live once it goes up for sale.
But the News4 I-team found even when tenants don’t want to, or can’t afford to buy it, they can rake in big bucks by selling those rights to the highest bidder.
“It Felt Like Extortion”
A first-time homebuyer named Clara said her sales contract for a Capitol Hill row house fell apart the night before closing because of TOPA.
“It felt like extortion … like the whole thing felt really slimy,” she said.
The sellers had been asking for the renter who lived in the basement to sign a TOPA waiver since they first accepted Clara’s offer to buy the house.
“They were offering her $10,000 to sign the waiver, and so we felt who wouldn’t take that kind of a deal?” Clara said.
But the renter got an even better deal by selling her TOPA rights to a developer who was willing to pay more and got to buy the house instead.
“It was really frustrating,” Clara said. “I had a legal agreement with the seller to buy the place and I felt like it was kind of being ripped out from under my feet.”
The News4 I-Team found out your name doesn’t even have to be on the lease to get paid, because the district’s TOPA law doesn’t define what a “tenant” is.
“If you had your live-in significant other consider this property their home, they’re also a tenant,” said real estate attorney Joy Siegel, who’s also seen an increasing number of sales contracts collapse due to TOPA.
TOPA payouts also happen long after leases are up and tenants have left the property, Siegel said.
It’s gotten so bad, some title insurance companies won’t let you close without a TOPA waiver from every tenant who’s lived in the building going back a whole year just in case a TOPA chaser finds them, Siegel said.
That could include a health worker who lived in the home to care for grandma for a few weeks or the summer intern who rented a room. Even a squatter can stop a sale and demand payment for TOPA rights.
“They can post it online and say, Hey, anybody want to buy my row house that I live in? I have the right to assign this to someone else,” Siegel said.
Clara said in her case, the renter bragged about having multiple offers she was considering.
“It felt like she had me hostage,” said Clara, who tried to abide by TOPA’s mission of keeping renters from being booted from their homes.
“I was up for collaborating with her to figure out what she wanted and what she needed to stay,” Clara said. “But instead, what I got back was, What’s your best offer?”
In the end, the renter forced Clara to leave instead.
“I’ve Been Accused of Hostage-Taking”
The News4 I-Team uncovered a whole new industry of TOPA chasers targeting D.C. renters for a portion of their payout.
“I would estimate it’s essentially about a $100 million a year industry that is virtually untapped,” said Andrew McGuire, who has converted his entire law practice to handle only TOPA cases.
“I’ve been accused of hostage-taking,” McGuire said. “I don’t like that term.”
But he acknowledged he holds up home sales for a living.
He said his goal is to get tenants the most money he can for their TOPA rights, and he takes a cut of the payout.
“You want the buyer to walk away,” he said. “If the buyer walks away, it clears the deck so the tenant can assign his rights to a developer who’ll come in and then the seller has no one else to sell to.”
McGuire drives a TOPA mobile, decked out with a TOPA billboard. He’s even trademarked the phrase, “Got TOPA?”
Because renters who do can get paid.
“I have several cases where there’s over $100,000 being paid,” McGuire said.
“It’s like someone actually sticking a gun to your head and actually saying, ‘You know what, until you pay me exactly what I want, your home and your life will be held hostage,’” said Yolanda Smith, who had never heard of TOPA when she bought her home in Northeast D.C. in 2012.
She decided to rent it out a year later when she moved out to care for her mother. Now, she’s been trying to sell for more than six months. She’s already lost one buyer to a TOPA delay.
“Had I known, I would never ever, ever rent property in Washington, D.C.!” Smith said.
“It’s Almost Like Ambulance Chasing”
McGuire said he disagrees with the term “extortion” being used by some buyers and sellers to describe TOPA payouts. Renters who are losing their home to a sale have every right to maximize their profits under TOPA, he said.
He finds his clients by using a list the District posts online once landlords give notice of their intent to sell the property.
“I go throughout the city, I knock on doors, I try to meet every tenant in every property where there’s a TOPA notice,” McGuire said.
“It’s almost like ambulance chasing, only they’re chasing tenants,” Siegel said.
“They learn later that they didn’t get their TOPA rights and they come to the lawyer and say, ‘Well, what can I get out of it?’” Siegel said.
The D.C. law’s failure to define a “tenant” as being on the lease or paying rent complicates it even more. You just have to have stayed in the rental unit that’s up for sale.
“My view of the law is that ‘tenant’ would be anything short of a trespasser,” McGuire said.
But his view of the law has the DC Association of Realtors questioning how it’s being used.
“Is it extortion? Call it what you will,” DCAR CEO Ed Krauze said. “But I think, more importantly, people are taking advantage who might not be the intended beneficiaries of it.”
Those who are forced to pay higher prices to buy out renters will eventually pass that cost on to the next buyer or renter, raising housing costs District-wide, Krauze said.
TOPA allows the people most affected by the changeover of affordable housing to have a direct say in what happens to them, McGuire said.
“Tenants have not only the right to buy the house, they have the right to essentially sell the house,” he said. “And this is the magic of TOPA.”
He thinks renters should even have the right to show the house, just like an owner would when looking for the highest bidder.
And the only way for renters to know what their TOPA rights are worth is to open them up for sale on the free market.
McGuire has some advice for owners thinking of selling.
“You have to look at the tenant as a partner in the process,” he said. “If you don’t do that, it can get very messy and difficult.”