Mercury News: San Jose landlord evicting tenants to house vets at higher rents

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A San Jose apartment owner has found a way to evict long-time tenants, jack up the rents on her units and collect government subsidies in the process — by leasing her apartments to homeless veterans.

Peggy DeMaio is taking advantage — perfectly legally — of a city housing policy that allows landlords to bypass rent controls for certain hard-to-house groups. The law was designed to help solve the persistent difficulties many veterans face finding places to live. DeMaio has rented to more than 20 of them, according to city records and interviews.

But city officials say they never expected that landlords would kick out other renters to create space for the veterans. That is what DeMaio appears to have done, evicting at least 35 of her 41 tenants, city records show, as she renovated four small apartment complexes in San Jose.

Because those tenants paid lower rents under the city’s rent control law — and the veterans often pay market rate — DeMaio benefits twice, first from rents that may be $1,000 a month higher or more and then from $11,000 in bonus payments awarded to her by a city-county program created to end homelessness among veterans.

“We’ve been doing housing subsidies for 20 years and we’ve never had anything like this happen,” said Paul Hepfer, vice president of programs at The Health Trust, which helps manage the “All the Way Home” program’s incentive payments to landlords. “That’s not the intent of the program. To hear this story — we were dumbfounded.”

It’s not the first brush with controversy for DeMaio, who got in hot water last month after trying to evict a 92-year-old man from his home of 44 years. Paul Mayer had been paying far less than market rent — $525 for a studio — until DeMaio bought his complex and served him with an eviction notice. After mediation, DeMaio agreed to give him a three-month extension to leave.

Peggy DeMaio declined a request for an interview. Her son, Anthony, who co-owns some of the complexes, did not return calls seeking comment.

The situation is rooted in a rent control law that gives preference to certain groups who get housing vouchers, such as veterans, and the absence of a law requiring San Jose landlords to give tenants a reason when they don’t renew their leases.

Under San Jose’s housing law, one-third of the city’s apartments — those built before 1979 — are under rent control, which limits rent increases to no more than 5 percent a year. But when a landlord accepts a state or federal housing voucher — such as those used by veterans — he or she is allowed to raise the rent to a market rate, city officials say. And because San Jose has no “just cause” eviction ordinance, a landlord can kick out one tenant and rent to another.

“We’re finding that there are some owners who are issuing no-cause evictions to long-term tenants and then they’re renting at a much higher price by accepting vouchers,” said San Jose’s housing director Jacky Morales-Ferrand. “We want to make sure there is not a financial incentive to evict tenants. We shouldn’t pit low-income people against each other for one apartment.”

Morales-Ferrand, who learned about the situation from housing advocates, said she plans to ask the City Council at its April 18 meeting to revise San Jose’s policy to close what has become a loophole in the system. She said she will suggest the city prohibit landlords from increasing rents for voucher-holders when a previous tenant is evicted without cause.

Meanwhile, Hepfer of The Health Trust says his group is creating an affidavit that landlords will sign before collecting an incentive, saying they haven’t displaced anyone else to house a veteran.

Joshua Howard, the California Apartment Association’s senior vice president of local public affairs, said the so-called “loophole” was designed to encourage property owners to rent to voucher holders, such as veterans or Section 8 tenants. But he said the association has “always held the position that a property owner should not terminate a tenancy without cause simply to raise the rent.”

DeMaio — and 225 other landlords — have received bonus payments for housing veterans as part of the “All the Way Home” campaign, launched on Veteran’s Day in November 2015 by Mayor Sam Liccardo and county Supervisor Dave Cortese to end homelessness among veterans. Program officials said DeMaio has collected $11,000 for housing 20 veterans — $1,500 for the first veteran tenant and $500 for every additional veteran housed.

A Veterans Affairs official said she contacted Anthony DeMaio, hoping to discourage the displacement of other renters to house veterans.

“I told them, I’m not happy with this and we wouldn’t want anyone to be homeless in order to house our veterans,” said Mona Bazzi, program manager of the Veterans Affairs voucher housing program at the VA Palo Alto Health Care System. “He said that’s his business practice based on the money he is trying to make after rehabilitating the units.”

Reached at one of her complexes, Peggy DeMaio declined to be interviewed, saying, “I don’t want to talk to you — ever.” After this news organization’s article about Mayer’s eviction, she became a target on social media, where some called her names and others posted that “karma will get her.” In a Facebook post last Thursday responding to one of those comments, she wrote that she’s not the person “portrayed by the media” and that she’s “taken 26 homeless veterans off the street.”

Michelle Cyann, a struggling mother of five and longtime tenant at a DeMaio complex on Randolph Drive, said she got an eviction notice telling her to leave by May 9. But city officials red-tagged the 7-unit property on March 17 for “unsafe stairs, walls and landing” so Cyann, along with two other households, had to leave immediately. She and her five children are living in a motel arranged by the city’s housing department.

“It’s a little unfair because I’ve lived here 12 years,” said Cyann, 30, a Costco worker. “I have to save and cut back from my kids to be able to move.”

The situation has also been stressful for the veterans living in DeMaio’s buildings. Five of them, who signed one-year leases after the DeMaios took over, said they were just looking for a place to stay and had no idea it meant displacing someone else. Most asked not to be identified because they are worried about keeping their new homes.

But Mario Pina, a 60-year-old Marine Corp veteran living at a DeMaio-owned complex on Hester Avenue, said, “I don’t think that’s cool.” He pays $2,600 to share a two-bedroom apartment with his daughter, but his veteran’s voucher covers the majority of the rent. He said he didn’t know the reason for any evictions.

“I’m just thinking of having a roof over my head,” he said.

Read the original report.