Common Legal Issues with Real Estate Attorney, Peter Smith

This article is transcribed from Episode 41 of The Accidental Landlord. Listen to the full episode here.

Today we have Peter Smith with us, an Idaho attorney. Can you give us a brief introduction about yourself?

I was born in North Idaho, and went to college in Washington. Then I attended law school in Malibu, CA. My wife and I decided to go back to Idaho and I was fortunate enough to find a job at a law firm that did a lot of commercial and real estate work. There, I started my career in 2004 by doing a lot of real estate development work. However, things changed a little in 2008 with the big recession. However, my practice has always been around real estate.

Let’s talk about the transition of your work, from where you started, to the big recession, to where you are now and if you are seeing any signs of another recession.

There’s a very different feeling right now compared to 2008. When the big recession happened, a lot of people believed that the real estate market would never go down in value. No matter what you had to do, you could always sell it and get back enough money to pay back your lenders. Maybe you wouldn’t make any money but it would get you out of your debt.

Unfortunately, that paradigm completely shifted into a situation where we could sell our homes but we would not get enough money for them, and that would eventually lead people to bankruptcy. Projects just stopped. We had a surplus of inventory of lots, especially in North Idaho where we are a third market. You know how you have the first markets, which are the big cities, secondary markets, which are the smaller metropolitan areas, and then you have the third markets, like North Idaho, which is a resort area. When we saw that turn, the value dropped very quickly. In that time we had to do a lot of long payments, or return the properties to the bank.

This time is different. We see a slow down in the market, but people are being more cautious. I think it is just a more cautious and prudent real estate market than in 2008. 

What is your experience working with landlords?

My practice is primarily focused on the landlord side, not the tenant side. A lot of that is drafting leases. Because we are a resort town, we are seeing a lot of Airbnb listings.  working with these types of cases. Most of the time, there are one-time investors. We haven’t seen a person that buys 25 properties and wants to manage it in our market. In our sector there are mainly one-time investors for short-term rentals that are mom and pop shops, meaning they manage their properties by themselves.

The problem is that we hear from them after there is a problem. For example, we had a case with an Airbnb that had a hot tub located  on the property line of the neighbor. The neighbor sued them for all kinds of claims related to the hot tub, such as noise, steam, causing damage to the house, and water damage. We mainly see these types of claims with our clients. 

The problem here is that most people do not know that they need to have a license, at least in Idaho, to rent a short-term property. They think I will advertise it, and if it gets rented, that’s cool. And, if it doesn’t, that is cool too. This becomes a problem in the future, If one of the properties gets sued and they don’t have a license, everything starts to get more difficult.

What do the regulation requirements look like towards short-term rental ownership, and what are the legal risks if you ignore those regulations?

The regulations are less enforced in Idaho compared to other states. The ordinance was adopted primarily because neighbors were showing  up at city council asking for the government to regulate some situations. he city adopted the ordinance with light penalties if you violate it. They also imposed having the license to rent your property as something every landlord needed to do. From that point on, the city doesn’t really go out and look for those violations. The neighbors do that job for them. That’s when the city starts looking for any violation the landlord is doing. 

If you want to hear more about city violations and how to prevent them, listen to the complete episode, here.