Invitation Homes Reaches $20M Settlement Affecting 35 California Cities

Single-family rental company Invitation Homes has reached a roughly $20M settlement in a case alleging that the residential landlord and its contractors didn't pull the required permits for updates and renovations on the overwhelming majority of the more than 12,000 homes it purchased across California since the Global Financial Crisis. 

“The Company has maintained that the complaint was without merit since it was filed,” according to a release about the settlement from Invitation Homes, the SFR arm of Blackstone Group. “However, the Company believes reaching this settlement is in the best interest of all its stakeholders and allows the Company to better focus on its core business operations.” 

Once the settlement is approved by the U.S. District Court for the Southern District of California and paid, Invitation Homes will be fully released, without an admission of guilt, the statement says. A representative for Invitation Homes declined to comment further.  

“Invitation Homes deprived many California governments of much-needed funds by renovating rental properties without securing the permits and inspections they require,” Sanford Heisler Sharp partner Vince McKnight said in a statement.

McKnight is the lead attorney for Blackbird Special Projects, which filed the complaint against Invitation Homes. 

“The company’s actions had both long- and short-term adverse financial consequence for these cities,” McKnight said. 

Blackbird Special Projects is an entity owned by La Jolla-based entrepreneur and investor Neil Senturia, whom McKnight also represented.  

Blackbird, along with a company Senturia co-founded called Deckard Technologies, “uses proprietary technology, which implements aspects of artificial intelligence and machine learning, to review and analyze various issues concerning real estate nationwide, including California,” according to an amended complaint filed by Blackbird’s attorneys in September.

One of the issues Blackbird was looking into was underpayment of property taxes in California. Its investigation “discovered that the source of much underpayment of property taxes in California was the failure of large corporate purchasers, including IH, to obtain permits for renovations of homes bought after the 2007 to 2008 financial crisis,” according to the complaint.

Blackbird's analysis found that Invitation obtained the necessary permits for less than 7% of the homes it owns, the complaint says. Invitation Homes' holdings span more than 100 cities in the state, from Northern to Southern California, with the greatest numbers concentrated in Los Angeles, Sacramento, Moreno Valley and Riverside. 

The case was a qui tam action filed under the California False Claims Act. Qui tam is a type of whistleblower lawsuit in which fraud against the government is alleged. In these cases, outside parties called relators sue, the government decides to intervene or not, and if the case succeeds, the relator gets a reward. 

Depending on the outcome of the case and whether or not the government decides to step in, relators are entitled to as much as 50% of the settlement amount. Because none of the appropriate government entities decided to step in and Blackbird pursued the case for roughly four years on its own, it is asking for 50% of the settlement. That request is also subject to court approval. 

Although a date for settlement approval is unknown, the motion announcing the settlement and the request for the division of the settlement bear a hearing date of Aug. 26. 

It's the second settlement in California this year for Dallas-based Invitation Homes. In January, the company agreed to pay $2M to settle a rent-gouging suit.

Even before the pandemic, Invitation Homes and the single-family rental industry in general faced backlash from critics who blamed the worsening housing crisis on investors snapping up for-sale homes and making them rentals. The sentiment has only grown more intense. In the last couple of years, legislators have gone so far as to introduce bills that would force single-family rental operators to sell off their holdings. 

Although the high cost of debt and waning rental growth have taken some of the wind out of the sector's sails, Invitation seems geared up to grow. In February, it announced plans to spend up to $1B acquiring more single-family rental properties, CoStar reported.