The Denver district attorney filed felony charges against two realtors in Denver County for allegedly running illegal nightly rentals.  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.”  How will this impact real estate?

 

What happened?

Two realtors 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 accused the couple of owning three houses, one primary residence that is not rented, and two other properties that are used for nightly rentals.  Affidavits were signed that the nightly rentals were their primary residences, which is impossible to have 3 primary residences with only two people.

The District attorney has filed class 4 felony charges against each of them for “attempting to influence a public servant.  This is the first case I’ve seen where the District attorney has filed criminal charges for nightly rentals

What does the future hold for nightly rentals in Denver?

I suspect that there are considerably more illegal nightly rentals in Denver county.  Furthermore, the Denver District Attorney has stated that the public can “expect some additional cases in the future”.  This case will be a test for how far the District Attorney and the court system are willing to go to enforce the nightly rental ordinance.  It will also serve as a warning to others that there could be severe consequences for not following the law

How will real estate be impacted?

The recent case is the most aggressive enforcement I have heard of in Colorado.  I see this as the beginning for Denver and other cities that will use this case and others as a roadmap for their enforcement efforts.  Currently in most cities, the worst thing that happens if someone is caught illegally renting a property is a minor fine.  This recent case greatly changes the 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 an 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 either of the two defendants will go to jail, the mere threat of jail time 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.

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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.

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