I always hate in the news where you hear about a story and are left wondering how it was actually resolved.   A few months ago, Denver began filing felony charges against homeowners for illegally renting properties via airbnb and Homeaway and lying on the affidavit.  The first case has gone to trial and didn’t end well for the city.  What happened?

Cities across the country are now coming to terms with the impacts of nightly rentals as primary residents demand action.  Before now nightly rentals have been the wild west of regulation, but the tide is starting to change quickly.  Denver is leading the way with NY as the district attorney filed felony charges against two realtors & a prominent attorney in Denver County for allegedly running illegal nightly rentals.  Why is this monumental?  What does this mean for other cities?  How will this impact real estate?

 

What happened?

Two realtors along with an attorney are accused of illegally operating nightly rentals in Denver County.  In Denver, an affidavit is required stating that a house is your primary residence.  It is illegal to rent a property nightly that is not your primary residence.  The District Attorney has filed felony charges for violation of nightly rental laws.  To obtain a nightly rental property, affidavits were signed that the nightly rentals were their primary residences, which is impossible to have two primary residences.  This could result in jail time of 2-6 years.  The spokesperson for the Denver District Attorney’s office, Carolyn Tyler, says these charges stemming from short term rentals are “a new area we are pursuing.”

The District attorney has filed class 4 felony charges for “attempting to influence a public servant” by lying on the affidavit.  This is the first case I’ve seen where the District attorney has filed criminal charges for nightly rentals

How was the case against the attorney resolved?

On Thursday, at the request of the Denver District Attorney’s Office, a judge dismissed the charge of attempting to influence a public servant — essentially making a false statement — brought against Aaron Elinoff, a Denver immigration attorney.

“After further investigation, we did not believe we could prove it beyond a reasonable doubt,” Carolyn Tyler, spokeswoman for the DA’s office, wrote in an email. Recht Kornfield attorney David Beller, who represented Elinoff, told BusinessDen he wished prosecutors had done more research before “damaging the reputation of an innocent man.”

“I believe that Aaron was a convenient scapegoat and high-enough profile to accomplish what the city wanted to accomplish, which was to send a shock wave through the Denver Airbnb community — to garner media attention,” Beller said.

I would expect the other cases to be resolved in a similar manner with future felonies dropped.

 

What does the future hold for nightly rentals in Denver and throughout the country?

It is interesting how the district attorney is pursuing these cases.  For anyone suspected of operating an illegal rental the district attorney sends them a letter with an affidavit they must sign and notarize stating the home is their primary residence.  They are then charged with “influencing a public servant” by making false statements when it is discovered that it is not their primary residence.

The District attorney in Denver is making it clear that they are not backing down and will go to court to enforce the nightly rental ordinance with severe consequences for violations.  It will also serve as a warning to others that there could be large consequences for not following the law.

Denver like NY and others will influence the discussion around nightly rentals throughout the country.  Denver county is  a leader in the prosecution of running afoul of nightly rental laws;  other cities will look to cases in Denver as templates for their own enforcement efforts.

The objective of the lawsuits is to garner attention to “scare” people into following the regulations.  As the first case against the attorney shows, the prospect of going to jail or having a felony on your record for renting a property is highly unlikely.

 

How will real estate be impacted?

The recent case is the most aggressive enforcement I have heard of in Colorado.  Even though Denver “lost” this case it actually won as the media publicity scared owners into compliance.  I see this as the beginning for Denver and other cities will use these cases as a roadmap for their enforcement efforts.  Currently in most cities, the worst thing that happens if someone is caught illegally renting a property via Airbnb or Homeaway is a minor fine.  This recent case greatly changes the “perceived” repercussions for not following the law.

The mere publicity of this case should greatly help future enforcement of nightly rental ordinances.  I don’t see much impact on real estate prices, but as enforcement is stepped up it could put some property owners under duress that were banking on the increased revenue from nightly rentals.

Summary

The felony case in Denver against two realtors is a warning sign for greater enforcement of ordinances governing nightly rentals.  Although I doubt the defendants in any of these cases will go to jail, the mere threat of jail time / a felony on your record for illegally renting a property will greatly enhance enforcement efforts.  Denver will just be the start of this trend as other municipalities adopt similar practices to try and gain control of the burgeoning industry.  How many property owners this impacts is the million dollar question; I suspect there are a considerable number of illegal nightly rentals that could face enforcement action in the future. Regardless of if you are personally impacted, this case will be interesting to watch as a precedent for future cases/enforcement throughout the country.

Resources/Additional Reading

 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

 

Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.  To get started on a loan all they need is their simple one page application (no upfront fees or other games).

 

 

 

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