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How a Private Equity Firm's Home Management Led to a Child's Death

For the Cedillo family, a missing pool fence changed life forever.

| Mon Jun. 23, 2014 2:57 PM EDT

Multiple Violations

As far as legal liability goes, Arizona pool laws are not very complicated.

If a property is out of compliance with city or state codes, the responsibility for possible injuries or death, such as a drowning, falls on the owner of the property—especially when the injured party is a minor. Reviewing photos of the West Camino house taken by the police and investigators, Doug Dieker, a personal injury lawyer in Scottsdale, explained that the place was clearly "in violation of city code."

If an interior fence around a pool is lacking, city code requires one of three precautions: the doors with pool access need to be self-latching and self-closing; there needs to be a power cover for the pool; or there needs to be audible alarms on all the doors. None of these three things existed at the house at the time of the drowning, according to both photo evidence and testimony from the family.

Dieker, who has worked on a similar wrongful death case in which a 16-month-old child drowned in a pool in neighboring Glendale after crawling through a doggie door, explained, "Anytime you rent to a family with small children, the duty under Arizona law is that the landlord needs to take the precautions of a reasonably prudent person."

As he reviewed the photos, he added, "The outside fence is in violation of city code, also."
 

Not "Traditionally Correct" Practices

When Christine arrived at the hospital, Zahara was hooked up to a breathing tube and her stomach was dramatically inflated. Javier, who works in construction, was out of town on a job. Christine called to tell him to come home, now. The doctors informed her that even if they could get Zahara to breathe again, she would have suffered serious brain damage. Christine said she just wanted her daughter alive, so the doctors continued trying to resuscitate her.

"They were pressing and pressing on her and I said, 'Just leave her alone,'" was how Christine described her daughter's final moments. "We said a prayer and the priest blessed her body and I just fell on the floor and started crying."

The family returned from the hospital and began a nine-day mourning period, but Christine didn't stay idle for long. Brenda remembers that her sister almost immediately began attending to the preparations for her daughter's funeral. In the process, as Christine tells it, she called Golba to let the company know what had happened. Rather than receive condolences, she was told to submit a police report.

Christine began researching the city building codes and laws on the subject, only to find herself shuttled from one agency to the next. "On the City of Chandler website, I looked up code enforcement," she recalled. "I called a couple of times. It was very confusing; when I called code, they said to call [the Department of] Buildings. And when I called Buildings, they told me to call code."

Finally she went down to the code office and told one of the inspectors how her daughter had died. She wanted to know if there was a violation at the house and, if so, how to report it. The inspector took her number and scheduled a time to come inspect the house. Instead, he called back that afternoon and left a voicemail suggesting that Christine call the Department of Buildings. When she recounted the exchange with Golba and the frustration with the city to the funeral director at Zahara's service, Christine was advised to find herself a lawyer.

In a phone interview, Scott Golba, cofounder of the Golba Group, claimed that issues like drownings or code violations are not common at the investor-owned homes his company has managed. (Pool drownings in Maricopa County, it should be noted, are remarkably common; 10 children have drowned there so far in 2014, according to Children's Safety First.)

Golba did, however, suggest that Progress's need to achieve a high rate of returns for its investors had brought a financial pressure previously unheard of to the single-family rental market. "Institutional owners want to know, 'How much money did I make on every single square foot? How much money did I have to put in capital wise, and how much money did I make on that capital?'... It's all about spreadsheets when it comes to institutional owners."

For Progress and other institutional investors, so far the returns on their single-family rental homes haven't always proved to be a happily-ever-after story. Last summer, another private equity firm, American Homes 4 Rent, fired a number of its employees after posting losses. In February, data showed that the rents Blackstone was collecting from 3,207 houses that together made up the collateral for the first-ever "rental-backed security" had declined by 7.6%. "Single-family landlords have struggled to turn a profit while acquiring homes faster than they can fill them with tenants," Bloomberg News reported last August.

Scott Golba explained that sometimes this gap between anticipated profits and actual ones led companies like Progress to skirt the rules to increase returns. "Initially they have to sell to their stockholders a certain dollar amount, and if it doesn't come to that, when everything's said and done, if they can't make that much money out of the home, they have to explain that to their stockholders or the bank they lend to."

"On the negative side," he continued, "they'll try to raise the rents or do something that isn't traditionally correct to save money—or I should say, to make more money out of the property."
 

The Fence

In the spring, while Christine and Javier were still coping with their grief, the Cedillos moved out. "We've got to learn to live without her for the rest of our lives," Christine told me.

Zahara's death affected other family members as well. Olga remained heartbroken, while Brenda felt the stress of keeping the family together, even as she held down a full-time job, finished her junior year of college, and cared for Jesus, who grew increasingly withdrawn and angry at school. At the cemetery, Christine remembers the six-year-old exclaiming, "It's just so stupid! Why couldn't they just put up a fence?"

In fact, more than three months after the drowning, Progress did finally approve and pay for the installation of a fence at the house. But even that didn't go according to plan because the fence was initially installed next door, at 1461 West Camino Court. (That home's owner, Michael Hoard, remembers returning home to find an unexpected barrier in his backyard. "I got back Saturday, went outside, and there was a pool fence that I hadn't asked to be installed. Two or three days later, I got back from work and it was gone.")

Christine and Jesus are now preparing to file a wrongful death suit against Progress. So far, they've refused to put down a dollar amount on the compensation they would accept. Instead, they want to see local laws enacted that would require institutional investors like Progress to have their houses inspected to ensure that they are in compliance with local ordinances. "I just want this not to happen to someone else," said Christine. Employees from Progress's Scottsdale office did not return repeated requests for comment.

Rob Call, a graduate student in the department of Urban Planning at MIT, has researched institutional investor homes in Atlanta. What he's found is that the sort of vulnerability experienced by the Cedillos is a distinguishing feature of the wave of private-equity ownership. "I see it as a business model that is anti-community control." He sees the logic behind the private equity push into the rental market—essentially using housing as a "wealth extraction tool" from communities—as similar to the one lenders and mortgage companies employed in the years leading up to the 2007-2008 crash.

"If Wall Street is involved and willing to dump $20 billion into something, it's because they think they can, and they plan on making a bunch of money on it," he says. "Last time they got involved in housing, that's exactly what they did. And then everything came crashing down."

In the meantime, the Cedillos tend to a grave instead of a child, sad proof of what might be called "rental-backed insecurity" in a new American housing world.

TomDispatch regular Laura Gottesdiener is a journalist and the author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home. She is an editor for Waging Nonviolence and has written for Playboy, Al Jazeera America, RollingStone.com, Ms., the Huffington Post, and other publications. To stay on top of important articles like these, sign up to receive the latest updates from TomDispatch.com here.

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