A real estate analysis company filed a California False Claims Act suit against a national rental company in October, 2020, in the names of 18 California cities, eight in the Inland Empire, alleging the company intentionally avoided paying permit fees.
San Diego-based Blackbird Special Project, LLC, named San Bernardino, Riverside, Perris, Rialto, Moreno Valley, Temecula, Yucaipa and Corona in the San Diego Superior Court qui tam suit, which also names Sacramento, San Diego and Los Angeles.
This type of lawsuit allows Blackbird to litigate on behalf of the cities, and receive a reward if successful. So far, no government or city has joined the lawsuit.
Invitation Homes denied the complaint’s claims.
“We are not aware of any instances where a contractor failed to obtain a necessary permit, but we are reviewing our records now to confirm,”
Kristi DesJarlais, Invitation Homes
“While we generally do not comment on pending litigation, we believe the claims are frivolous with no merit whatsoever, and we intend to vigorously defend against them. At this time, to the best of our knowledge, no municipality has affirmatively chosen to join/intervene in the suit, however that could change over time,” said Kristi DesJarlais, Invitation Homes senior vice president of communications and public relations, in an emailed statement.
“Generally, certain changes to a home do not require permits, and when a permit is required, the contractor hired to do the work is responsible for obtaining them. We are not aware of any instances where a contractor failed to obtain a necessary permit, but we are reviewing our records now to confirm.”
The rental company, Invitation Homes, owned at least 2,815 homes in the named Inland Empire cities as of December, 2019, and intentionally neglected the permit process, according to the complaint.
“In Moreno Valley, where 20% of all homes in the city had pulled building permits, 3.6% of Invitation Homes houses pulled permits for the same period of time,”
Blackbird Special Project, in the complaint
“IH’s business model was simple: It purchased thousands of single-family homes that were devalued by the financial crisis, renovated them, and then rented them out at a higher valuation. It chose to ignore permitting requirements to avoid permit fees and to get the properties into the rental market as quickly as possible,” the complaint alleges.
The company prays for Invitation Homes to stop their alleged violations of the False Claims Act, that the court enter judgment against the defendants in an amount equal to three times the amount of damages lost from ignored permits plus a civil penalty for each violation of the False Claims Act, and that Blackbird receive the maximum award a qui tam plaintiff can receive, which would be 33% of the proceeds of the action.
Artificial intelligence
Blackbird Special Project, LLC, an artificial intelligence real estate company whose name is inspired by the 1941 Humphrey Bogart film “The Maltese Falcon,” found discrepancies in building permits, according to the complaint.
Blackbird, incorporated in 2020, uses proprietary technology to analyze real estate data nationwide.
They claim in the complaint that an underpayment of property taxes in California was due to large corporate purchasers’ failure to obtain permits for renovations.
Blackbird used its technology to flag renovations for addresses owned by Invitation Homes, and checked to see if a permit was issued for it.
“(Blackbird) owned 517 homes in Riverside, 526 in Moreno Valley, 135 in Temecula, 348 in San Bernardino, 285 in Fontana, 274 in Murrieta, 183 in Perris, 181 in Yucaipa, 180 in Corona and 176 in Rialto as of December 2019,”
City of San Diego et al vs. Invitation Homes
Blackbird found a home on College Avenue in Riverside, and claimed Invitation Homes replaced the roof, but did not receive any permit.
At another home on Jones Avenue in Riverside, satellite and interior images show a change in layout, and the removal of a corner of the house, even though Invitation Homes did not obtain a permit, the complaint claims.
The complaint lists homes on Riverside’s Snowberry Street, Jones Avenue, Central Avenue, Hole Avenue, Lively Street and Hiawatha Place.
It continues to list homes on Moreno Valley’s Rio Grande Drive, Lorna Drive, Brodiaea Avenue and Renoir Avenue, and on Temecula’s Red River Circle and Hupp Drive.
The 15 provided examples included allegedly unpermitted kitchen remodels, pool installations, new central air conditioners and an automatic garage door installation.
In Moreno Valley, where 20% of all homes in the city had pulled building permits, 3.6% of Invitation Homes houses pulled permits for the same period of time, according to the complaint.
Invitation Homes owned 79,505 single-family homes in 12 states as of December, 2019, and has purchased 12,000 in California since the financial crisis of 2008, according to the complaint.
The company owned 517 homes in Riverside, 526 in Moreno Valley, 135 in Temecula, 348 in San Bernardino, 285 in Fontana, 274 in Murrieta, 183 in Perris, 181 in Yucaipa, 180 in Corona and 176 in Rialto as of December 2019, according to the complaint.
Parties
Ed Chapin and Vincent McKnight of Sanford Heisler Sharp, LLP, with Len Simon, of his own firm, represent Blackbird.
Randall Luskey of Paul Weiss Rifkind Wharton & Garrison LLP represents Invitation Homes.
San Diego Superior Judge Earl Mass III, oversees the case.
Case number 37-2020-30619.
Read the complaint here.
