ATLANTA — An Atlanta-based housing startup is facing major backlash and legal trouble. It is accused of operating illegal rooming houses across metro Atlanta and providing unsafe living conditions for lower-income tenants.

As part of a seven-month investigation, Channel 2 investigative reporter Nicole Carr and a producer interviewed dozens of former tenants and neighbors who reported dangerous living conditions to police and code enforcement. Many said there is no accountability for who comes and goes week to week.

The company called PadSplit is adamant that it is an affordable housing solution. It has continued expanding during the pandemic, claiming to be an answer to the affordable housing crisis. But PadSplit is facing questions in court.

“PadSplit is, wants to be a good neighbor,” said PadSplit attorney Carter Clayton. A crowd of DeKalb County residents responded with a loud “No” outside a court hearing on March 10, 2020, just days before COVID-19 forced Georgia into a lockdown.

“So now, these people are outside. They smokin'. You can smell they smokin', and the ain’t smoking cigarettes,” said one DeKalb County woman.

Frustrated, angry DeKalb County neighbors waited for a judge to rule on seven code violations against PadSplit. The company helped guide the renovation of rental homes, many with no inspections on the books. In at least one case, a neighbor told Channel 2 a three-bedroom home was turned into seven bedrooms with one common space — a kitchen — for weekly renters in a single-family neighborhood.

“I refuse to feel unsafe in the place that I call my sanctuary, my home,” said Janet Dukes about the PadSplit home being renovated next to her DeKalb County house.

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“Why the Black neighborhoods?” Carr asked George Chidi.

He served as PadSplit’s director of public policy before stepping down in May.

“That’s a fair question. Because we don’t want to just be in Black neighborhoods. We want to be all over everything,” Chidi answered.

The startup needs to convince neighbors that it hasn’t been preying on properties in older, Black neighborhoods and low-income tenants. Tenants told Channel 2 their living conditions and unaddressed problems, such as easy access to strangers, have led to major health and safety concerns in small, shared spaces.

“What was the final straw for you?” Carr asked former PadSplit member Jacqueline Brantley.

“The final straw for me was the bathroom overflowing with feces all over the floor, and no one came to clean up when I called,” she answered.

“I wouldn’t refer my enemy there. And I mean that,” said another former PadSplit member Kathleen SayVon.

“Even if PadSplit went away tomorrow, there are 100,000 people who are living in far worse conditions,” said Chidi.

PadSplit started in 2017 and is backed by some big investors, including Cox Enterprises, a minority owner of WSB-TV.

There are currently about 1,000 PadSplit rooms for rent in metro Atlanta. The company has expanded into Maryland. Late this summer, online publisher Tech Crunch reported on PadSplit’s $10 million in new financing as it moves into Texas.

The business model includes criminal background checks on prospective tenants called members. They pay weekly rents from $125 to $255 per room. The rental houses can net the company and homeowners as much as $5,000 a week.

The owner of the home enters an agreement with PadSplit but does not deal with the renters.

In DeKalb County, no inspections were completed on some homes because, in several cases, no one filed for building permits. One homeowner told Channel 2 that PadSplit advised it was an unnecessary step.

“But it was doing it totally under the radar and against the law. So, I mean, that’s a problem for everybody because nobody knows who’s accountable,” said DeKalb County Commissioner Kathie Gannon.

The company’s founder Atticus LeBlanc has described operating within legal loopholes. He declined an on-camera interview for this story. But LeBlanc sent a statement that reads in part:

“DeKalb has no limits today on the size of a family or the number of bedrooms in a home, regardless of zoning district. How is it not discriminatory then to attempt to prohibit two unmarried couples, or a group of unrelated friends...”

“I bet you he can’t open that door,” said a PadSplit member captured on Atlanta police’s body camera video.

In September 2019, his roommate woke up to a man breaking into his room, eating a bowl of spaghetti. The man claimed to be a new tenant in the northwest Atlanta home. He wasn’t. None of the paying tenants knew how he got into the house. He couldn’t punch in the key code for police.

“Turn around. Put your hands behind your back,” said the officer as he put handcuffs on the man.

“I didn’t even know who owned the home. I’ve heard about squatters. It kind of made me feel like this is what we were,” said Brantley.

She found PadSplit on Facebook last year and rented a room in Atlanta until that plumbing explosion led her to move in with her mother.

“I felt unsafe,” Brantley said. She told Channel 2 that PadSplit never ran a background check on her. She never met a representative and that an access code to the home was given to her via text.

She said electricity in a shared bathroom was out for months. She could not get maintenance to come out, and she never knew exactly where her money was going. Brantley said she received harassing text messages about a week of missing rent that confused her.

“They were sending constantly,” she said.

Brantley’s rent was automatically debited from her bank account. But she couldn’t get the person from PadSplit to provide a statement to show her rent was really missing.

“You want to see my monthly statement, and I’m not going to show you. All that you need to tell me what week it was that I didn’t pay it. I can tell you whether or not I paid,” said Brantley.

“Now, the first test of anybody’s integrity is how you respond when you’re having a problem,” said SayVon.

She said when she fell on hard times, the company agreed to reduce the rent in exchange for her cleaning units. But PadSplit went after her for the full amount.

“Now I’m going to do all this work for you, and this is what you do after you agreed to this? It’s in writing. They totally ignore. I have the email,” said SayVon.

A PadSplit homeowner in a contractual dispute with the company sent Channel 2 a guidance sheet and agreement. It discourages the homeowners from identifying themselves but encourages them to push affordable housing talking points to combat negative online reviews and angry homeowners who say PadSplit has visited them to talk about code violations next door.

“He already had started saying things that were not true. And at that point, you have to be escorted out because you can’t do that,” said Dukes.

Former tenants said PadSplit needs to live up to its end of the bargain.

“When you do your part, it’s called accountability. How about you do your part because we have to pay our rent. And we can’t get anybody to respond,” said SayVon.

There’s been an effort to change state law to make PadSplit’s business model legal. State Rep. Teri Anulewicz, of Smyrna, introduced House Bill 980, which would, in February, change the state zoning law’s definition of family to a group of people living together. That legislation is currently stalled.

The code violations in DeKalb County are on hold for now until a new hearing is scheduled.

STATEMENT FROM ATTICUS LEBLANC, PADSPLIT’S FOUNDER

There are more than 340,000 households in metro Atlanta that cannot afford decent housing. Contributing factors include rising rents, gentrification and systemic racism. Most impacted are the frontline workers we interact with every day –– teachers, law enforcement, grocery clerks, waitresses, and others. PadSplit is a Public Benefit Corporation that believes that these workers who serve our communities also deserve an opportunity to live in them.

Housing insecurity is getting worse day-by-day, and there are not enough solutions. Building enough housing with public dollars isn’t a viable option, since it costs billions in taxpayer money and decades to complete. As an innovative, market-based solution, PadSplit addresses this crisis now, by creating quality affordable housing, at NO COST to taxpayers.

As PadSplit’s founder, I believe it’s important to treat our community’s essential workers with respect. This is why I started PadSplit and why I’m sharing my own home with a PadSplit member, to live alongside my family.

Our communities have a choice to solve the affordable housing crisis and help workers achieve financial independence, but we can only do it together. So PadSplit welcomes continued collaboration with elected officials, neighbors, nonprofits and housing providers to provide housing opportunities for our workforce. However, we humbly disagree with those who believe affordable housing should only be relegated to locations far from their own neighborhoods, thereby eliminating access for many essential workers.

Questions from WSB

DeKalb courts have temporarily halted proceedings, but earlier this year, dozens of neighbors showed up to hearings tied to PadSplit code violations (flipping homes in multi-unit dwellings in areas zoned for single-family homes).

How do you plan to address this legally,(and outside of this suggested response provided by the company for landlords)?

I think the question we should be asking is whether the frontline workers serving our neighborhoods also deserve an opportunity to live in them. PadSplit is a Public Benefit Corporation that exists solely to find solutions for the affordable housing crisis. PadSplit does not flip houses, has never done so, does not own any of the houses in the DeKalb Citations or any other houses currently. Since the DeKalb proceeding is pending, we cannot comment on the merits of those citations. We can state; however, that PadSplit works proactively, and upon request, with local governments throughout the country to provide an efficient and cost effective solution to the affordable housing crisis. We are proud to have saved taxpayers more than $225 million dollars in subsidy that would have been required to construct the number of housing units PadSplit has created, while also reducing traffic by eliminating more than 230,000 car-trip hours per year. We are also proud to help hard working individuals on their journeys to achieve financial independence, by providing savings opportunities on average of $516/month per Member and increasing credit scores an average of 102 points per Member.

How does flipping and doubling the room capacity in these homes not considered a code violation or a rooming home? In a 2018 Curbed Atlanta article, you described PadSplit working within code “loopholes,” to complete conversions. Can you explain those loopholes?

Again, PadSplit does not flip houses, has never done so; and it is inaccurate to state we double the room capacity in homes on our platform. As referenced in Color of Law and multiple other historical studies, zoning ordinances have long been a tool for discrimination on the basis of both race and class, and continue to be today. And sadly, with the pandemic and financial impact, the affordable housing crisis is getting alarmingly worse as it disproportionately affects people of color.

PadSplit is dedicated to modernizing zoning ordinances to address the affordable housing crisis in a way that is inclusive and based on internationally accepted building code so the teachers, grocery clerks, bus drivers, waitresses, rideshare drivers and others serving our communities can live in them. DeKalb has no limits today on the size of a family or the number of bedrooms in a home, regardless of zoning district. How is it not discriminatory then to attempt to prohibit two unmarried couples, or a group of unrelated friends, or even The Golden Girls from living together simply because they may not be immediate blood relatives? – particularly when maximum occupancies in dwellings are already limited by international building codes, which DeKalb already has in place? The U.S. government recognized this discrimination and, through HUD, defined “Family” as simply “a group of persons residing together.” PadSplit believes this HUD definition should be universally adopted.

During the pandemic, has the company made any special considerations to home capacity and limiting access to shared spaces?

Yes. At the onset of the pandemic, PadSplit developed a policy to address COVID, based on CDC guidelines and has been reviewed by health care professionals. We have long included free & universal access to 24/7 medical care through telemedicine as part of every PadSplit membership. By implementing the policy at the very beginning of the pandemic, we have no evidence of a COVID case that originated in a house on our platform, nor has there been community spread within PadSplit residences.

Some of those long-term homeowners surrounding new PadSplit properties have described soliciting by the company. They’ve talked about company representatives repeatedly offering a marketing pitch on why the set-up is beneficial to the company, almost in a harassing nature. What type of communication have you or do you have with residents in the communities that you move into?

We do not solicit neighbors. If a neighboring owner or renter has reported a concern or complaint, we have attempted to address their concerns and assuage their fears as would any responsible neighbor. Again, we do not own these properties, so often our course of action is to contact the property owner to address the issue in a timely fashion as possible. We have set up a designated page on our website to make it easy for neighbors to contact us directly. We have also hosted neighborhood town halls where we can address neighbor concerns. We want to continue to address the shortage of affordable housing options for workers and seniors, and we are happy to discuss our efforts with any neighbors or elected officials. At the same time, we know that some neighbors do not believe that affordable housing should exist, unless it is far away from their own community. We humbly disagree in those situations.

We understand that in addition to national expansion, there are plans for expansion within the Metro Atlanta area? Can you tell us where you’re operating now, and where you’re currently expanding?

We operate throughout Metro Atlanta and are expanding in multiple cities across the country. Many cities, property owners and affordable housing advocates have proactively asked us to enter their markets to help them solve their growing housing affordability issues. We have also been contacted by think tanks, nonprofits and government agencies, including HUD, to provide data on how our model increases affordability without the use of taxpayer dollars.

Multiple residents have described ‘open-access’ to the homes that have led to police being called for drug and prostitution claims. They say the response from PadSplit has been either to install cameras that are not monitored , or to say that residents are entitled to their guests.

What’s your response to this, and how does the company address safety concerns in terms of who has access to these homes, and what happens when those terms are violated?

PadSplit takes the safety of our members and the neighborhood very seriously. All PadSplit members must pass a background check prior to being able to book a room, and PadSplit also verifies employment and income for every member prior to setting foot on a property. Almost all PadSplit homes use wifi-enabled electronic locks, where each authorized user has their own specific code and access is limited and recorded. Certain homes have cameras for added security that record activity for up to 30 days. PadSplit requires that each bedroom has a smoke detector and two-points emergency egress, and kitchens are equipped with both fire extinguishers and automatic fire suppression over the stove. These guidelines exceed HUD standards. To become a PadSplit member, you agree to abide by a set of rules that if violated, subject a member to a warning, fines and termination of their membership. PadSplits are a demonstrably safer housing alternative to apartments, rooming houses, extended stay motels, or even many other homes in the neighborhood that lack similar protocols for security and fire safety. It’s possible that a PadSplit member would have a guest visiting them just as you or I can have guests visit our homes, but this is not “open access” and members are held responsible for the actions of their guests.

We also have multiple residents who have described issues with key infrastructure, like plumbing (ex: sewage backing up through toilets into showers). They say the issues went on for weeks before anyone tended to them? What’s PadSplits policy/SOP for handling tenant needs like this?

Current building code evaluates sewer line size based on the number of bathrooms, and every PadSplit home on the platform meets these guidelines. Our SOP is as follows: If a member has a service request, that request is sent directly to the owner or their designated maintenance management provider. The responsible party addresses the issue as quickly as possible with the response time and satisfaction rate tracked by PadSplit. Admittedly, for anyone experiencing a sewer backup, a repair can never be soon enough, particularly when tree roots or other debris clog drain lines and require extensive repair or replacement. PadSplit also has a dedicated maintenance department set up for the quick resolution of minor maintenance requests and has been able to help members resolve more than 30% of maintenance issues over the phone.

Have you all offered any residents deals to clean property in exchange for not reporting problems to authorities or paying full rent?

No. All members are expected to maintain a clean household just like in any other home. PadSplit recommends that Hosts schedule monthly professional cleaning for common areas, and these occur at more than 90% of properties.

Our standard operating procedure is to direct any member suspecting criminal behavior, dangerous conditions, or other emergencies to call 9-1-1.

Have accuracy issues with payment portals for landlords and tenants been resolved?

Just as with any system, errors in applying payments do happen. PadSplit addresses all payment portal issues as they are brought to our attention. We are unaware of any outstanding and unresolved accuracy issues related to payments. PadSplit offers weekly rent payments to members to help them better budget and save for their financial futures. And, all on-time payments are reported to credit bureaus to help members improve their credit scores. We are proud that we’ve helped members raise their credit score by 102 points, on average, within three months.

Is there a full accounting method offered to tenants? How are their payments processed?

Yes, PadSplit members have access to a dedicated payment portal designed to make their payment of membership dues easy and efficient via Stripe, a large 3rd party payments processor. Members can access their entire payment history through this portal, and if they have any questions regarding their account, they can reach a member success representative via phone, text or email to discuss, and any disputes that we cannot resolve can be escalated to Stripe or the member’s banking provider. Moreover, PadSplit raised more than $61,000 for a nonprofit to assist members who were affected by job loss during Covid, and continues to work with nonprofits, churches, and staffing agencies to assist any member that is struggling financially.

Cox Media Group