On Tuesday, the first part of our Madison landlord series looked closely at MPM security deposit deduction violations and controversial interpretations of ""normal wear and tear."" Recent UW-Madison graduate and Tenant Resource Center employee Elizabeth Gokey caught MPM's photo ordinance omission almost immediately, but others, like UW student Josh Thornton, did not even know the recent ordinance existed.
""Misappropriating Funds""
However, a close examination of Gokey's summary account statement revealed Gokey was also the victim of an MPM accounting practice that, though complex, still cost Gokey nearly $50 in late fees and constitutes ""misappropriation of funds"" according to Wisconsin Dept. of Consumer Protection Manager Jim Rabbitt.
The problem stems from the way MPM handles some of its rent and utility checks. Most landlords require their tenants to either send utility checks directly to Madison Gas and Electric (as Apex Property Management does) or bundle their utilities and rent into one cumulative check payable to the landlord (as Steve Brown Apartments does). MPM, on the other hand, requires some of its tenants to write two checks to MPM: one for rent and one for utilities.
MPM's attorney, Rachel Govin, said MPM requires two checks when different units in the same building share utility meters. MPM combines the utility payments from these tenants and sends lump-sum checks to MG&E for each property. Govin said a ""small minority"" of MPM's units required two checks, and thought it was ""less than 100 units.""
The multiple checks are problematic because MPM does not apply its tenant checks to rent or utilities based on each tenant's written designation. Instead, MPM ignores tenant intention and automatically applies each check to the oldest charge on a tenant's account. The earliest charge, however, is not necessarily the first due.
Rabbitt said he had never heard of any landlord agency disregarding its tenants' payment intentions in this way.
""If I buy two things from a store and say, 'Here's the money for one of those things and I'm going to make payments on the other,' they can't turn around and put that money toward something else,"" Rabbitt said.
The problem is amplified when utilities are charged just before the rent. For example, in February 2008, MPM applied part of Gokey's monthly rent check to her utility bill that had been charged earlier but was not due until after rent. As a result, MPM charged Gokey a late rent fee equal to 5 percent of her total rent payment (the maximum allowed under a city ordinance). Gokey paid the fee, not realizing MPM's error until later.
Even more troubling, Govin said the faulty late fees were a frequent problem that occurred ""every month on many properties"" at MPM. Govin said she verifies all accounts with late balances exceeding $300 - approximately 400 per month - to correct for the mistake. However, this would still overlook numerous overdue balances, as Gokey's case illustrates.
Although the accounting glitch is difficult for tenants to spot, Govin said time constraints prevented MPM from checking every fee. Late fee notifications, she said, are e-mailed to each tenant, and tenants are encouraged to examine the attached account statements themselves.
A simple solution would be to apply all tenant checks to the first payments due instead of the earlier charges. However, Govin said MPM's accounting software, Timberline, would not allow it.
A few weeks after being interviewed for this investigation, Gokey said MPM had changed its policy on late fees and would now ""personally review each charge to make sure it was being assessed correctly."" Govin declined to elaborate on why MPM was suddenly addressing the problem, or how it was overcoming the ""time constraints.""
Madison attorney David Sparer, who specializes in tenant-landlord law, said he recently heard from a woman who had a similar experience with MPM. Although the woman chose not to be interviewed or identified, Sparer said MPM misallocated her rent check toward repairs that had been charged to her account before rent. Like Gokey's utilities, however, the woman's repair costs were not due until after rent.
""Then they hit her with a late fee,"" Sparer said.
Rabbitt said MPM's late fee practices, though unprecedented as far as he could remember, clearly violated a Madison ordinance stating that all rent payments must be used to offset late rent ""before charging a late rent fee.""
Govin said MPM was not violating the ordinance because their leases specifically state that all rent and utilities are considered ""rent,"" though she gave no reason for the clause.
Rabbitt did not think MPM was allowed to redefine rent and utilities to get around the ordinance.
A Troubled Past
MPM's accounting problems are especially troubling because its president, James Stopple, was convicted of ""felonious racketeering"" in 1993, according to court documents. The conviction referred to a period from 1983 to 1986 when Stopple was vice president at Farm Loan Services (FLS), a Madison-based auction company for farm assets.
In 1986, FLS went bankrupt and failed to repay $1.5 million in securities to 17 farmers who agreed to receive their auction proceeds in interest-bearing notes rather than immediate cash
payments. According to Dane County Court records, Stopple gave his employees incentives to sell the security notes and had advised
employees not to mention that FLS had been losing money from 1983 to 1985. Stopple recently said he had ""no intent to defraud at all.""
Stopple was sentenced to probation, had his real estate license suspended for two years and, according to a letter obtained from court records and signed by Stopple's parole officer, William
Busch, Stopple was originally fined $341,171. That figure, however, was either inaccurate or negotiated since Stopple said he ended up paying approximately $110,000 and could not recall the original fine being more.
Check out tomorrow's paper for the final part of our landlord investigation, which takes a closer look at maintenance practices at MPM and in the UW campus rental industry.
