Startup Alternative to Rental Security Deposits Gets Legal Backing in Baltimore

Originally published in The Intercept on May 5, 2021.

A NEW BILL in Baltimore passed the City Council last month, promising to address the problem of high security deposits for renters while being met with objections from local housing and tenant groups. Mirroring similar statutes that have passed recently in two other cities, the bill requires Baltimore landlords to offer alternatives to the traditional security deposit. If tenants can’t or don’t want to pay a lump sum up front, landlords must offer one of two alternatives: either pay the regular deposit in three monthly installments or purchase so-called rental security insurance.

The bill doesn’t specifically name Rhino, a real estate startup that launched in 2017, but it’s widely understood that “security insurance” refers to a financial product that Rhino promotes. The product allows tenants to pay a small monthly nonrefundable fee in lieu of a large refundable security deposit. The average Baltimore deposit is $1,000, and a typical Rhino policy for that would be about $5 per month.

Local housing groups in Baltimore say they support the idea of offering three monthly installments as an alternative, but virtually all housing activists in the city have concerns about the Rhino insurance model. Lawmakers rejected an amendment introduced by Ryan Dorsey, one of just two council members to vote against the legislation, to take the Rhino option out of the bill.

The local outlet the Baltimore Brew reported that Rhino lobbied for the legislation and arranged for two council members, including the bill’s primary sponsor, Council Vice-President Sharon Green Middleton, to speak on Rhino-hosted housing roundtables. (Middleton did not return The Intercept’s requests for comment.) Jordan Stein, Rhino’s head of public policy and a onetime assistant in former New York City Mayor Michael Bloomberg’s administration, registered as a city lobbyist on March 29, two days after the Baltimore Brew article was published.

The bill is heralded as “giving renters choice,” but the legislative text gives the ability to pick between monthly installments or Rhino to the landlord, not the tenant. Landlords nationwide dislike monthly installment options, typically viewing them as too risky.

The bill is now on the mayor’s desk. In a letter sent to Mayor Brandon Scott and the City Council, the Baltimore Renters United coalition urged a veto, calling the bill predatory and warning of unanticipated costs for tenants down the line. Under the Rhino model, the company promises to cover the landlord’s risk up to the value of the deposit, and if a landlord files claims for excessive damage on top of that or for unpaid rent that Rhino deems legitimate, then the company will pay the landlord and seek reimbursement from the renter. Rhino co-founder Ankur Jain told The Intercept that it would never sue a renter for those costs and that if a renter defaults on their bill, the company will simply take a loss, but Rhino’s tenant agreement form warns that failure to repay could hurt the tenant’s credit score and their ability to find housing or obtain any kind of insurance in the future. (Scott’s office did not return multiple requests for comment.)

The Baltimore Sun editorial board has urged the mayor to sign the legislation, arguing that renters may even be more protected from false landlord claims with Rhino and that “the important thing is, they will have choices.”

Less than two weeks after the council passed the law, Middleton co-authored an op-ed in the Washington Post with a city council member from Atlanta and the mayor of Cincinnati, the two other cities that have adopted the legislation, in which they “strongly encourage cities across the country” to follow suit. 

“If local leaders have any doubts, look to our results,” they write. “Renter’s Choice legislation is one of the best examples today of private-sector innovations leading to public-sector solutions.”

In December, CNN Business published a piece with a similar stance, in which Los Angeles Mayor Eric Garcetti, Miami Mayor Francis Suarez, and Jain argued together that pushing more “renter’s choice” bills would unlock funds from security deposits and provide immediate relief to tenants. “While the federal government continues to delay, we’re bringing about the single largest rent relief initiative in the country,” they claimed. Tenant advocates in Miami immediately blasted the op-ed.

Lawmakers in at least 10 other states have announced their intent to pursue similar bills, despite little evaluation of how the nascent laws have worked. (Rhino says 1 million renters use their insurance nationwide.) In an open letter, a coalition of supportive politicians linked to a petition hosted by Kairos, a venture capital firm that backs Rhino and which Jain also co-founded. Both supporters and detractors say they’re looking to prioritize the needs of low-income, vulnerable renters.

“Many of the people who will benefit from this legislation are seniors and Black and Latina women raising children,” Middleton wrote on Facebook. “[The bill] is about equity and confronting homelessness in a city where 70% of our neighbors without housing are Black.”

Zeke Cohen, the other Baltimore council member to vote against the bill, noted that his city was ground zero for the subprime mortgage crisis. The Rhino bonds “have a similar logic,” he told The Intercept. “They get tenants into housing quickly without the need for a security deposit. But just like subprime loans, they may result in financial ruin. … As always, the people who will be most hurt by this are financially vulnerable Baltimoreans, who are mostly Black and brown.”

JAIN, THE RHINO CO-FOUNDER, is a well-connected young entrepreneur who formerly worked as a vice president for Tinder. In an interview, Jain insisted that his goal was to ease the burden on renters.

“We look at the opportunity cost and the loss of flexibility from locking away that hard-earned money in an escrow account,” he said. “Someone might decide it’s better for them to have super low monthly premiums [instead of a security deposit] and use that money to pay off debt or interest payments or put it in the stock market where it can have a higher return.” Rhino and its supporters have been calling this idea a “stimulus” since it would free up funds an individual could theoretically spend.

In 2019, Rhino released a “Renter Choice and Flexibility Plan” on Medium, calling to “unleash” $45 billion in security deposit funds sitting in escrow accounts by 2021. Since it is not mandatory in most cities for landlords to offer security deposit alternatives like Rhino, many don’t. Rhino’s political strategy, then, has been to persuade elected officials to require it.

Jain said that by requiring landlords to make it an option, the company is helping ensure that lower-income tenants can take advantage. “If you go to most major cities, most high-rises already offer products like Rhino because it’s become a market standard,” he said. “But landlords operating smaller buildings don’t always offer alternatives, so these types of policies are designed to create more equitable access.” (Other competitors offering Rhino-like products include LeaseLock and TheGuarantors, which both launched in 2014, and Jetty, which launched in 2015.)

Rhino has also been courting landlords. In a leaked webinar the company held on April 28, which has since been taken down, head of sales Eric Krauss encouraged landlords to embrace its product to increase vacancies more quickly. Krauss also made clear that Rhino policies will be customized for each renter and that “riskier” tenants will have higher monthly premiums. 

Critics say calling these products “insurance” is a deceptive marketing ploy that provides tenants with a false sense of security. Some housing experts describe them as more akin to a surety bond, a type of three-way agreement in which a company promises one party that the other will meet its obligations. Housing authorities have taken different sides on the question, and supporters note that Rhino and its peers are licensed insurance agencies. 

“If tenants think of the product as insurance, as it’s described in Rhino’s marketing materials, and either don’t realize they’re purchasing a bond or don’t know how a bond works, they may unwittingly sign up for a liability that far exceeds what they would ever willingly fork over to their landlord for a cash deposit,” warned housing reporter Alex Williamson in a Shelterforce article last December.

Williamson interviewed two tenants who confronted large unexpected charges from Rhino at the end of their leases, after their landlords claimed that they had to make repairs and handle damages due to their behavior.

One tenant was Peter Steininger, a college student in Brooklyn whose landlord suggested that he get Rhino for a $45 monthly fee. (Rhino is available but not legally required in New York City.) When Steininger signed the contract, he didn’t realize that he was agreeing to pay the company for claims up to $7,200, more than double his security deposit.

When Steininger moved out, he learned that his landlord had filed $6,000 in claims. Steininger disputed the charges and provided evidence that the landlord had made false allegations. Rhino sent Steininger an automated message saying the company had ruled in the landlord’s favor, and Steininger said he struggled to connect with anyone in customer service thereafter.

Steininger told The Intercept that Rhino reached out to him shortly after the Shelterforce article was published and agreed to cancel the charges. “I think I probably would’ve been screwed if it wasn’t for Alex and Shelterforce,” he said.“

Rhino maintains that the experiences outlined in the Shelterforce article are not representative, that they’ve since stopped partnering with Steininger’s landlord, and that they cut off landlords generally who make fraudulent claims. “We learned a landlord abused the policy and claimed things that were not necessarily accurate,” Jain said. “We are no longer working with them, and the renter was fully protected.”

Housing advocates warn another major risk of Rhino is requiring that renters sign arbitration agreements, thereby giving up their right to take a landlord to court.

“These Rhino products are basically a scam, and that’s why they’re going around trying to get laws passed to specifically authorize these things,” said Eric Dunn, director of litigation at the National Housing Law Center. “Because they know if they just market them without some kind of legislation saying it’s okay, then they could probably be sued under state consumer protection laws.” 

Rhino supporters say complaints that tenants will lose their right to take landlords to court ignore that most tenants never do so even when they have good reason to. “If a landlord just keeps your security deposit, chances are you won’t spend $5,000 in court to get it back — and they know that,” Jain said.

Dunn thinks there is a version of Rhino that could be beneficial to landlords and tenants, but he’s pessimistic that it will work out in practice because a less scrupulous product “could be more profitable.”

WHILE RHINO AND its legislative partners are urging passage in more cities as soon as possible, citing the pandemic and the nationwide affordable housing crisis, there is not clear evidence of how the laws have worked in cities where it’s already passed.

In Cincinnati, the first city to authorize such a law, the legislation took effect in April 2020.

Zach Frye, a housing attorney at the Legal Aid Society of Greater Cincinnati, told The Intercept that so far they haven’t seen much adoption of any of the security deposit alternatives by local landlords. Some of that, Frye suggested, could be driven by ambiguities in how the law was written. “The text of the law seems to have led to some confusion as to whether it’s mandatory for the landlord to offer, [and] I think that a lot of landlords have decided not to deal with this and keep on doing business as usual,” he said.

While a Curbed article from 2019 suggested that the Legal Aid Society of Greater Cincinnati had backed the entire bill, Frye said his organization had supported alternatives like monthly installments, but not the provision authorizing Rhino. “Overall, we don’t see many tenants as being aware of this law,” Frye said. “And at least as to the ‘insurance’ option, that may be a good thing.”

“Ideally, I’d like to see exorbitant security deposits done away with completely, especially since they are so often used as a way to simply extract more money from renters,” said Seth Weber, a volunteer with the Cincinnati Tenants’ Union, who also doesn’t think most renters know the law exists yet. “But this is a half-measure in a city with a massive housing crisis, and to me that is unacceptable.”

In Atlanta, the legislation passed in October under the radar of local housing advocates, who said they were too consumed by the Covid-19 crisis to pay it much notice. Bambie Hayes-Brown, president of Georgia Advancing Communities Together and an appointee to the City of Atlanta Housing Commission, told The Intercept that she plans to bring up the legislation at their next policy meeting “to see if we can find out some information about how this is going.”

Back in Baltimore, Marceline White, executive director of the Maryland Consumer Rights Coalition, co-authored a Baltimore Sun op-ed in April outlining her concerns with the proposed legislation and its lack of protective guardrails. White told The Intercept that it’s been “radio silence” from lawmakers since her op-ed came out.

“When you hear warnings and pleas from housing advocates and consumer protection experts that this might not be implemented in a way that it was intended, then perhaps you want to take a pause,” she said. “It feels far too casual to say, ‘Oh, we’ll fix it later if we have to.’”

Welcome to the Courtroom That Is Every Renter’s Nightmare

Originally published in Next City (with illustrations by Sky Kalfus!) on September 14th, 2015.
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Deborah Jennings lives in a house in East Baltimore with her daughter and granddaughter. When she first moved in nearly five years ago, she was working as a nursing support technician, helping to draw blood. Hours were long, but she was able to pay her bills. That changed two years ago, when she became disabled and had to stop working. Without a steady paycheck, 57-year-old Jennings has struggled to pay her rent, and each month, that means a trip to rent court.

Each courtroom visit, the same complaints are made, the same issues described, and the same ultimatum given: Jennings must pay her rent or risk eviction. Although the conditions of her house are poor — the basement sink had water running for two months straight, paint hangs from her roof and water has settled in the ceilings — Jennings is in no position to negotiate. “You can start talking, but then the judges say, ‘I understand, but we’re here in reference to this rent, do you owe this rent?’ They don’t want to hear whether or not you have any issues,” Jennings says. “They don’t want none of that.”

“I’m not expecting to live here free,” she adds. “I said bear with me, you’re going to get your rent.”

Each year, Baltimore landlords file roughly 150,000 cases in rent court, which is housed in the District Court of Maryland. The city has 125,000 occupied rental units. Many tenants, like Jennings, are taken multiple times per year.

Despite its undeniable public impact, rent court remains one of city’s least transparent institutions. Any public records are hard to come by and in an era of metrics and open data, analysis of courtroom verdicts appears to be nonexistent.

“People know about it, but there’s no interest to understand why this keeps happening year after year,” says Zafar Shah, an attorney with the Baltimore-based Public Justice Center. “The whole system just does not function as it should.”

In the neighborhood of Oliver, where Jennings lives, nearly a third of families live below the poverty line, many of them on blighted blocks checkered with vacancy. Yet Oliver, along with other sections of Baltimore, is slowly beginning to see population trends reverse and new investment trickle in. With new residents and development come higher rents and more pressure for tenants like Jennings to pay up or get out.

“There is a lot of development in Oliver, a lot of new homeowners, but there are still a lot of people without a lot of money here,” says Darryl Dunaway, office manager and community organizer with the Oliver Community Association. “We hear about rent court all day. From 9 a.m. to 12, I am sending people down to 501 East Fayette Street for eviction prevention. I sent someone there this morning.”

Dunaway says that the community association and others like it around the city help as many people as they can each month, but there is only so much that can be done. “If you can’t pay one month, there is help. You come back next month and you are on your own,” he says.

Originally created to provide a nationwide model of justice for landlords and tenants, Baltimore’s housing court today serves as little more than a state-run rent collection agency, financed by taxpayers and the beleaguered renters themselves who pay court fees for each judgment ruled against them.

“The court system is not for the tenant,” says Jennings wearily. “It just becomes a money thing. It’s no longer about human beings.”

A Court Designed for Tenants

In 1936, the Baltimore Sun published a series of articles that illustrated some of the horrific conditions of Baltimore slums — where 40 percent of the city then lived. With the highest proportion of substandard housing among America’s big cities, local Baltimore officials moved to take action. But by 1941, unsatisfied with the city’s slow progress, some individuals formed the Citizens Planning and Housing Association to apply more pressure. What emerged in Baltimore — a campaign for new building and sanitation codes, and stronger mechanisms for enforcement — would eventually influence the wave of urban renewal across the country, as well as Dwight D. Eisenhower’s Federal Housing Act of 1954.

The Baltimore Plan, as it came to be known, was based on a model of setting — and vigorously enforcing — minimum housing standards. The hope was to one day clean up all of Baltimore’s slums; if some delinquent properties had to be removed, so be it. Besides beefing up the number of housing inspections, reformers also wanted to create a special housing court designed to enforce the new standards. Even in the 1950s, regular courts were fairly overwhelmed, and disputes like rental issues were simply low-priority cases. The idea was to create a new space where both landlords and tenants could come in and expect a fair and thorough hearing. The courts would hold landlords accountable to health and sanitation standards, while landlords could expect the backing of the court if tenants were damaging their property or failing to pay rent. Baltimore’s rental housing court would become the first of its kind in the country. Today, most cities have similar systems in place.

“It was supposed to be about fundamentally changing the way property relations work,” says Daniel Pasciuti, a sociologist at Johns Hopkins University who studies Baltimore’s rent court.

By the late 1960s and ’70s, widespread tenants’ rights changes were taking place all over the United States. In 1968, the Fair Housing Act became law, barring housing discrimination. Six years later, the federal government launched the Section 8 program, offering rental vouchers so eligible low-income tenants could live in private buildings, and in turn, requiring landlords to afford federally subsidized tenants a new set of rights. Perhaps the most notable reform, however, came from a federal ruling in 1970, Javins v. First National Realty Corp., where the D.C. Circuit ruled that if a living situation is deemed uninhabitable, the tenant is freed from his obligation to pay rent. This establishment of “the implied warrant of habitability” was widely seen as a revolution in landlord-tenant relations; it set the precedent for treating leases as contracts between landlords and tenants, a change considered to be more modern and fair. Tenants would now have the right to introduce evidence of housing code violations if they were sued for late rent, and if the living situation were found unacceptable, the tenant would not have to pay.

But in recent years, housing courts look less like the guardian against slum conditions imagined by New Deal-era advocates and far more like other municipal courts that target low-level offenders and focus disproportionately on the poor.

After visiting rent court in the 1990s, University of Maryland law professor Barbara Bezdek concluded that, beneath “the veneer of due process,” litigants “who are members of socially subordinated groups” are systematically excluded. Though rent court was originally meant to be an accessible space where tenants and landlords could speak directly to a judge without a lawyer, the reality is that the arrangement favors the landlords. Bezdek found that differences in speech, the effects of poverty and the unduly high hurdles tenants were asked to overcome to even raise a defense prevented them from being truly heard. All in all, Bezdek described the legal dynamics as “a charade.” In the two decades since, not much has changed.

A Judicial “Charade”

On a typical day in rent court, the average number of scheduled cases ranges from 800 to 1,000. Shah says the court’s “dirty little secret” is that it depends on the overwhelming majority of summoned tenants to not show up — meaning default wins for the landlord — because there’s no way judges could ever hear as many cases as they schedule. Mark Scurti, associate judge at Baltimore City’s District Court, agrees they would not be able to handle as many cases as they schedule if all tenants were to appear. “It would put a tremendous strain on our current staffing and judges,” he says.

For tenants who do show up to court, it’s not much better. “The court really operates like a giant black box. I have a friggin’ Ph.D. and I’m sitting there like, if this were me and I was actually there [for a case], I would have no idea what’s going on,” says Pasciuti. “There’s no direction, there’s nobody there to explain anything to you.” While some legal aid groups try to offer assistance, their availability is minimal, and most tenants go in without professional help. On days with full dockets, a case can easily receive less than 30 seconds of judicial review.

Rent court is one of the few courts in Maryland’s judiciary system for which no digitized records are available. Whereas all other court cases are filed online, no similar computer system has ever existed for these housing disputes; everything must be manually processed and gets filed away into a vault. Relatedly, no court records are available to determine things like the number of judgments ruled in the landlords’ favor, or how many times an individual tenant is brought to court annually. “I think those are critical numbers to know, and I’m all about watching statistics and watching trends,” says Scurti, who hopes the court will be included in a statewide electronic court filing initiative that is being rolled out over the next couple years. “Why we’ve never been electronic before, I don’t know,” he says. “I suspect it has to do with funding.”

Obtaining data on the number of evictions is similarly difficult. While the sheriff’s office tallies monthly eviction stats for rent court stakeholders to review, it does not make the data easily accessible to the public. It took several weeks for the city to agree to share with me that they had a total of 6,309 evictions in 2014. Housing advocates say the number has hovered around 7,000 evictions annually for the last 10 years. An Abell Foundation report published in 2003 found that the chances of eviction are greater if one rents in Baltimore than in comparable cities like Washington, D.C., Philadelphia and Cleveland.

Rent court is easily one of the state’s speediest judicial proceedings. Landlords can file for trial a mere one day after rent is late, no matter what the reason. In other states, like New York, landlords must serve tenants with a “rent demand” that gives them three or five days to pay overdue rent before an eviction case is started. New York tenants who do not receive these notices can raise that as a defense in court, says Jenny Laurie, executive director of Housing Court Answers. There is no similar pre-filing period required in Baltimore, leading to, what Shah describes as, “an enormous amount of unnecessary litigation.”

Such a rapid system also gives tenants little time to prepare their defenses, but from the landlord’s perspective, the process has to be quick. “On a large commercial scale [court speed] is not such an importance because they have an ability to withstand not getting rent, but when you’re not a commercial landlord and you have maybe just three, four units, or just one unit, plus a mortgage on the property, [not getting] your rent is a big deal,” says Dennis Hodge, a lawyer who has been representing landlords in the Baltimore area since the mid 1980s. “Most landlords do not want to do evictions, they prefer just to get their money,” he adds.

But when tenants are unable or unwilling to pass over that money, the courtroom’s speed comes into play again. With hundreds of cases to hear in a day, the judges have little time to hear the details of a tenant’s situation. And without professional legal assistance, tenants are generally unable to defend themselves against common chicanery like landlords tacking on additional charges veiled as rent.

Judges often ask tenants why they don’t just move if a rental is uninhabitable or too expensive. “People can’t afford to just pick up and move!” exclaims Detrese Dowridge, a 30-year-old single mother who has gone to rent court three time since May 2013. Dowridge’s Northwest Baltimore home had cracked walls and windows, scurrying mice and roaches, and a leaky ceiling. “And even if they can move,” she says, “then the person who comes in after them will still be stuck with the [same] landlord getting away with whatever.”

“There’s a lot of blaming and shaming the poor in the courtroom,” explains Shah. “I think the spirit with which the court operates is that you have to deserve your housing.”

Reforming Rent Court

Without a jury or many headline-making cases, civil courtroom proceedings have typically flown under the public’s radar. That is beginning to change. A Department of Justice report issued in the wake of police officer Darren Wilson’s deadly shooting of Michael Brown in Ferguson singled out the Missouri municipal court for “constitutionally deficient” procedures that “undermine the court’s role as a fair and impartial judicial body.”

Now attorneys at the Public Justice Center have teamed up with the Right to Housing Alliance (RTHA), a Baltimore-based human rights organization, and Jews United for Justice (JUFJ), a local activist group, to try and change the frustrating realities of rent court. With $280,000 in grant funding from the Abell Foundation, they hope to lead a court reform initiative and promote greater awareness about housing evictions around the city.

“The bare minimum allowable for any human dignity in the rental housing system is for this court to be fixed,” says Jessica Lewis, an organizer with RTHA.

“Our members that go through rent court are just defeated,” she adds. “They feel there is no dignity. It’s just really, really dehumanizing for them.”

Pasciuti, with a team of Johns Hopkins students, has been helping the three organizations conduct surveys and analyze their quantitative data. The goal is to collect meaningful information about what actually happens in rent court. “Our theory is if the public narrative about low-income renters was articulated, presented with numbers, substantiated in a really sound way, and we got it out to the right people, then we can get to a point where there is the political will, and even maybe the business interest to fix this system,” says Shah. The groups hope to go public with a completed dataset of over 300 tenant surveys, augmented by information from the court proceedings and regulatory agencies, later this fall.

In addition to bringing tenant voices into the public discussion, the Public Justice Center also aims to launch a legal strategy, in order to get sufficient clarity about what “rent” means in a residential lease context. Shah says they are considering either a class-action lawsuit or litigating through the appeals process to investigate tricky lease clauses that landlords often use to get more money or to evict tenants.

The activists’ timing might be just right. Scurti, the Baltimore judge frustrated by the lack of good data collection in his court, says he also wants to move toward a formal evaluation of docket patterns to see how the court can operate better. “I want to understand the process and to reevaluate it,” he says. He is particularly interested in figuring out how technology might help the court function more smoothly.

Ultimately, all sides agree that the court today is a flawed and inefficient operation. “You’re not going to encounter a judge, or a landlord, or an advocate for tenants who will tell you things are going well,” says Shah. The problem, however, is that improvement means different things for everyone involved. Despite the relative speed at which these cases move, Baltimore landlords, for instance, still feel the whole legal process should be adjudicated much more quickly and with less bureaucracy. Tenant advocates, on the other hand, want increased procedural accessibility and due process.

A promising place to look may be Massachusetts, which has one of the best housing court models in the country. First established in the 1970s, housing court officials in Massachusetts have prioritized creating a system that is accessible to both landlords and tenants.

In addition to a robust legal services community, Massachusetts employs court staff to serve as mediators between landlords and tenants and help them solve disputes without going directly before a judge. According to Paul J. Burke, deputy court administrator, the majority of rental disputes are settled this way. The typical length of a mediation session is around 30 minutes, which can provide a greater sense of dignity than Baltimore’s hasty proceedings. In some cases, mediations can even last for several hours.

Ultimately it comes down to fairness. “From day one back in the early ’70s, it was anticipated that many people would be self-represented, would perhaps be lower-income, and perhaps not have the highest level of educational training,” says Burke. “The policies, the processes and the forms in our courts have always been set up with that in mind.”