[REN #873] COVID-19 Rent Defaults: What’s Being Done to Help Landlords

COVID-19 Rent Defaults: What’s Being Done to Help Landlords, Real Estate News for Investors Podcast Episode #873

There’s been a lot of talk about rent moratoriums and eviction bans for struggling tenants, but what happens when landlords can’t pay mortgages and other expenses for those very same rentals? There’s been a growing chorus of questions and lobbying efforts in regard to relief for property owners, and some big announcements about forbearance options that apply to landlords in both the single-family and multi-family realm.

It’s now critical that people are able to “shelter in place” to help stop the spread of the virus. Many local governments have issued orders to stay at home, except for essential needs that include jobs that are also considered essential. While some people are going to work and returning to the safety of their homes, many more are laid off and sheltering in place 24/7.

What Happens At the End of the Month?

The big fear now, among landlords, is what happens at the end of the month when the rent is due, and laid off renters don’t have paychecks to pay the rent. Unemployment insurance may help, but many tenants are expected to come up short. There are efforts to provide emergency assistance to renters, but will it be enough? And, what about the landlords suffering from a cash flow deficit because of this crisis?

Landlords also have expenses, such as mortgages, utilities, insurance, taxes, and payroll. The National Multifamily Housing Council says, “If residents cannot pay their full rent obligations because of the COVID-19 outbreak then owners are at risk of not meeting their own financial obligations.” (1) It writes in a blog, “Congress must extend mortgage forbearance to rental property owners and extend similar protections to other financial obligations such as insurance premiums, utility service payments and tax liabilities.”

The NMHC joined with the National Apartment Association in a letter to Congress to bring attention to the need for emergency rental assistance for both tenants and landlords. Congress is already exploring ways to help individuals, families, and business owners so this letter acknowledges those efforts and provides recommendations to help rental property owners.

Forbearance Options for Landlords

In addition to direct federal rental assistance to tenants impacted by the virus, the associations want forbearance options for property owners to avoid mortgage defaults, and other negative impacts. They are in favor of a three-month ban on evictions but tenants must be able to show that they’ve been financially impacted by the outbreak. They are also advocating for the creation of payment plans for these tenants and a hold on rent increases during this time period. Other recommendations include the waiving of late fees for impacted tenants, and information given to tenants about government programs that can help them. At the top of the priority list is “communication” with tenants to help them get them through this.

Right before we were about to record this podcast, the Federal Housing Finance Agency announced forbearance options for the owners of multi-family properties to support those property owners and to keep tenants from being evicted. (2) Just days ago, the agency announced the same for single-family homes. Freddie Mac said in a blog, “Borrowers are eligible for forbearance regardless of whether their property is owner-occupied a second home or an investment property.” The FHFA announcements apply to properties backed by Fannie Mae and Freddie Mac. (3)

Of course, mortgages aren’t the only expenses landlords have to worry about, and Fannie/Freddie loans are not the only ones held by rental property owners. The situation is complex and landlords will have to check with local agencies, associations, and lenders for the latest in their markets. In California, the California Apartment Association has been working with local governments to make sure landlords are not suffering the consequences of virus-related defaults.

Surviving the Coronavirus Crisis

It’s important to note that the moratoriums don’t mean free rent, or skipped mortgage payments. They only allow for a delay in paying those obligations. It’s also important to remember that many people were having a tough time making ends meet before the virus hit. These recommendations and measures are not intended to solve the underlying problem. They are only meant to address the impact of the coronavirus.

That said, it’s in everyone’s interest to keep people in their homes. We want to help slow the spread of the virus by sheltering in place. It’s also in the best interest of landlords, over the long term, to keep tenants where they are and work out payment plans. Many landlords are already adopting policies to waive late fees, halt evictions, and work out agreements for missed rent, but many cities and states are also adopting mandates for this. Landlords need to check on local ordinances and policies for details.

Headlines are often consumed with the impact of a crisis like this on tenants, but rental property operations also need to be considered. The New York Times reports, “A pronounced slowdown in rent and mortgage payments will have a cascading effect on apartment companies, employees like building superintendents and janitors, and finally state and local government revenues. Money that renters pay landlords goes to mortgage payments and property taxes, along with utilities and other public services.” (4)

Forbearance Option as “Circuit Breaker”

There are also efforts underway, at the local government level, to ban the eviction of small business owners. Bisnow reports that more than a dozen California cities have halted or are working on plans to stop the eviction of small business operations. Los Angeles, San Francisco, and San Diego are among them.

The rules vary from city to city. The Los Angeles Times reports that the eviction ban in San Francisco will apply to businesses that gross less than $25 million a year. That eviction ban will last for 30 days. One for unincorporated parts of Los Angeles county would ban residential and commercial evictions retroactively from March 4th through May 31st. Tenants will have six months after that to make up for missed payments.

Stuart Gabriel, of the UCLA Ziman Center of Real Estate, told the LA Times that these measures are similar to a “circuit breaker.” They would give small businesses an opportunity to get through this crisis, and hopefully pay rent when the dust clears. He says, “An ordinance to put it all on the landlord is not the right solution. We have to work with all parties, not just one. The building owner has to survive as well.”

At RealWealth, we have set up daily webinars interviewing property managers around the country to find out how they will be handling this crisis if tenants are out of work. They will be sharing brilliant ideas on how to take care of both the tenants and the landlords during this difficult time. To learn more about our webinars and register, click on the “Connect” tab and “About our Thursday Webinars.”

Links:

(1) National Multifamily Council Press Release

(2) Federal Housing Finance Agency Announcement

(3) Relief to Borrowers: Fannie and Freddie

(4) New York Times Article

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