Political Advocacy in the REI Industry

Every year in every state capital and every day in Washington, D.C. and your local town, politicians get together to pass laws. The simple truth is that most Americans blissfully go about their day with no knowledge that elected officials meeting behind closed doors are in the process of “goring someone else’s ox” and oftentimes (especially if you are a landlord) that “ox” is you and your business. History has shown that entire industries can and are destroyed by the simple stroke of a pen when new laws go into effect. While some groups attempt to fight these laws in court after the fact, it’s far better to “derail” or at least have input into these laws while they are proposed and not after.

Real estate has often been described as a “bundle of legal rights,” which is why no industry is more at risk to the whims of politicians and their new laws than real estate. We’ve seen this play out just recently when politicians in Washington, D.C. attempted to put forth provisions in a new Federal law that would decimate the self-directed IRA industry and make it impossible for small scale investors to raise money through syndications, a key tool for transitioning into commercial real estate deals.

Fortunately for the independent real estate investor industry, established players in the syndication and IRA industries (with full-time paid lobbyist and staffs) were able to kill this proposed legislation before it got too far down the path. However, individual real estate investors cannot relax and rest easy as for every draconian law being considered in Washington, D.C., there are exponentially more being drafted in state capitals and local city halls and townships.

Case in point, the recent pandemic gave numerous local and state politicians cover to draft and pass state and local laws that severely impacted landlords’ abilities to collect rents and evict non-paying tenants, all without providing any relief to the actual (tax-paying) owner of the property. While there are a number of real estate advocacy groups that exist at the Federal, state and (in some cases) local level to advocate for real estate investors, each of us needs to be prepared to get involved particularly at the local level where our pocket books can be most impacted.

The good news is that most elected officials, especially at the local level, will listen to all sides of the argument and most genuinely want to do the right thing, even if they disagree with your politics.

Case Study: East Meets West in Maryland the Story of Bruce Norton and Brian Frosh

In 2004, one of the members of our local Real Estate Investors’ Association (DC-REIA) came to me to discuss his concerns about a new state law being discussed in our state capital (Annapolis) that would make it illegal for investors to purchase the home of someone who was facing imminent foreclosure.

The logic behind this new law was sound. An unscrupulous investor had recently taken advantage of the widow of a State Trooper and got her to sign over her deed in exchange for a pseudo-loan that many considered usurious. At the eviction hearing for the widow and her children the judge was quoted as saying, “I’m sorry ma’am. What is happening to you is quite unfair, but according to the laws of the state of Maryland he has every right to evict you and there is nothing I can do about it.” It was one of those stories that when you read it you say to yourself, “there should be a law about this!” The woman lost her home, but she chose not to go quietly. She got her local-elected official to pass a law based on her story.

Unfortunately, when the pendulum swings, it swings hard in the opposite direction. Maryland, once a state where evictions were relatively quick and tended to favor landlords, was suddenly on the forefront of passing an “anti-investor” law that would make it completely illegal to purchase a home from a person going through foreclosure for the purpose of reselling or renting it.

Bad enough for investors, but even worse for anyone going through a foreclosure as it would cut off an exit strategy that in many cases is their only option from facing complete financial meltdown.

Our member wanted our local real estate association to mobilize and “march on Annapolis.” To his surprise (and mine) when he finished debriefing me on the topic, I said something like, “You seem very knowledgeable about this, why don’t you go down and testify.” The thought of which made him want to (in his words), “puke on my shoes.” I was serious though. I told him, “Go testify; tell them how harmful this will be not only for investors, but also the homeowner and if they won’t listen, then we’ll send out an alert and mobilize.”

To his relief and delight, the public hearing was in a room of about 50 people with about 10 being elected officials who were part of the committee writing the law, and about 30 being people who wanted to testify. All but one testifying in favor of the new law. Turns out, our member was the only one who showed up that day to advocate for investors. He made points that had not been considered, and most importantly, clearly demonstrated the negative impact to homeowners who, by the new law, could not sell their homes to investors.

His testimony was so well thought out that the sponsor of the law sent his staff member over, asked for his contact information and then requested that our member meet with him to rewrite major sections of the law that did away with making it illegal for an investor to purchase the property and in the end, preserved the rights of the homeowner to sell their home to whomever they pleased, even an investor.

The member who went to testify that day is of course Bruce Norton, known as Dr. Pre-Foreclosure. He is one of the most sought-after investors on the topic of foreclosure investing and how to comply with state foreclosure laws designed to protect homeowners like the one in Maryland. The elected official, Brian Frosh, is now the State’s Attorney for the State of Maryland. Although their politics are as far as “East from West,” today they still maintain a friendship and open lines of communication.

Five lessons learned from this case study:

No. 1: Stay informed and be ready to step up.

While what happens at the federal level in Washington, D.C. rarely goes unnoticed, at the state and (especially) local level there is far less scrutiny over what is being drafted for new laws behind closed doors. As investors we need to stay diligent at all levels (local, state, and federal). Join your local and state associations and even more importantly, connect with local elected officials and tell them you want to know about anything that impacts real estate investors and landlords, no matter how (seemingly) minor. The best way to know what’s happening on the inside is to connect with insiders.

No. 2: Be friendly, especially if your politics do not align.

Do not expect to be in political alignment with every elected official you interact with, including people who represent you and your business. Being friendly and respectful means that you can have your phone calls returned, even if “you didn’t vote for me.”

No. 3: Don’t be afraid to point out the harm the legislation will cause.

In addition to being friendly and respectful, be prepared to clearly demonstrate how their proposed legislation will negatively impact the people in their district. Most elected officials are hype-focused on the people who put them in office, not their opposition. As a result, their early drafts of proposed laws can be myopic. By demonstrating the negative aspects of their proposed legislation, you help them see the side of an issue that was probably never discussed by their constituents or even their staff.

No. 4: Help elected officials from being embarrassed, especially in front of key constituents.

If possible, meet privately to share why their proposed legislation could cause more harm than good, and how it could embarrass them, especially with the increasingly key swing voters. To be elected to an office, a politician needs to get the votes of 50 percent of the people who voted that day, plus one more. In most places across the country elected officials not only need the support of their “reliable base” voters, but also independents. If you can show them how their proposed legislation could really hurt them with the independent voter, they are far more likely to listen and make changes to their proposed law.

No. 5: Avoid “my way or the highway” thinking.

In some cases, the public outcry is too strong to derail a piece of legislation, even if the legislation is wrong and harmful. Rather than storming out, it is better to point out the challenges of implementing a law (as drafted) and instead for the elected official to make changes that not only mitigate some of the fall out, but also might make it easier for the elected official to get it through. In the case of what happened in Maryland there was no way the proposed protection of homeowners in foreclosure law was going to be stopped. Instead, our member worked closely with the legislator to make changes that do provide some protections for homeowners in distress, but still allow investors to participate as a buyer, provided investors follow state guidelines instituted by the law. Half a loaf is better than no loaf when you’re facing a public outcry that could have been a disaster for all.