[REN #959] Eviction Ban: Short-Term Band-Aid, Long-Term Disaster

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Short-Term Band-Aid, Long-Term Disaster, Real Estate News for Investors Podcast Episode #959 Heade

A national eviction ban is now in place that protects tenants for the rest of the year without offering any help for landlords. The Centers for Disease Control and Prevention announced it as an emergency health measure to prevent the further spread of COVID-19. But it does little to solve the problem of unpaid rent for landlords, who have bills to pay, or tenants, who face a giant balloon payment when the moratorium expires.

The CDC order went into effect on September 4th and runs through December 31st. That gives tenants a four-month reprieve from their rent obligations, if they don’t have the means to pay. Local eviction bans that provide equal or greater protection for tenants take precedence, so properties already covered by a COVID-19 eviction ban, are likely exempt from the national ban.

There’s no doubt that the pandemic has created a very dire situation for a lot of renters. Many are still unemployed and struggling to pay rent, but eviction moratoriums only delay the inevitable and cause problems for landlords. Tenants will still owe all the back rent when the new moratorium is over. They may also owe late fees and/or penalties, if that’s written into their rental agreement. And landlords will have to dip into their reserves, if they have them, to pay their own bills.

Tenant Declaration

The mandate is not complicated. Tenants must meet five basic criteria to qualify for the eviction moratorium. They don’t have to provide personal documents, but they do have to sign a declaration stating that they meet the qualifications. (1)

That declaration must state that: 
1 – The tenant has used “best efforts” to find and obtain government assistance for rent payments.

2 – The tenant was eligible for a stimulus check under the CARES Act, or an annual income under $99,000 a year.

3 – The tenant is unable to make a full rent payment due to a substantial loss of income.

4 – The tenant is using “best efforts” to pay as much of the rent as possible in a timely manner.

5 – The tenant would be at risk of homelessness or a crowded household if evicted.

It’s not clear how landlords should proceed if they don’t believe that the tenant is being truthful. Senior administration officials told the New York Times that a tenant may need to provide “reasonable” specifics to the landlord. If the issue isn’t resolved between landlord and tenant, it may need to go to a housing court judge. (2)

Another grey area is the handling of roommates. The order specifies an income cap for each roommate, but doesn’t say whether one roommate must take up the slack for another roommate who can’t pay. The Times suggests that it may depend on a written agreement in the lease or between roommates. It may also depend on local laws. If the issue winds up in court, director of litigation for the National Housing Law, Eric Dunn, believes the case would be dismissed. He says that protection for just one tenant would be an “absurd result” and that “regulations should be interpreted to avoid absurd results.”

Tenants Must Still Pay All Rent

As for that balloon payment I mentioned, tenants will owe all back rent when the moratorium expires. That includes any fees, penalties, or interest imposed by the rental agreement “and” back rent that was not paid during the previous CARES Act moratorium. If the tenant can’t pay, landlords can proceed with evictions, although there’s no specific mention of that process.

Landlords who violate this order are subject to a fine up to $100,000. If someone is evicted, and dies, the landlord may face a $250,000 fine and jail time. The fines are double if the landlord is an organization. Landlords can still evict tenants who violate the lease, cause problems on the rental property, or fail to pay rent when they have the ability to do so.

Strong Opposition to the CDC Order

The order has been met by strong opposition from landlord groups. San Francisco Realtor, Vince Malta, issued a statement for the National Association of Realtors. He says, “While NAR appreciates and is supportive of administration efforts to ensure struggling Americans can remain in their homes, this order as-written will bring chaos to our nation’s critical rental housing sector and put countless property owners out of business.” (3)

Chuck Fowke, of the National Association of Home Builders, also echoed a major concern about the order. He says, “Absent rental income, these small mom and pop property owners must continue to pay their mortgage, property taxes, employees and cleaning/maintenance services. And without sufficient rental income, a number of properties would be pushed into foreclosure.”

Bob Broeksmit of the Mortgage Bankers Association says, “The result would be a cascading reaction that would only exacerbate the current economic crisis, leading to more job loss, financial pain, and long-lasting economic effects.”

Maryland landlord, Taylor Denchfield, also believes the CDC rule will cause more harm than good. He told CNBC, “I am afraid that in the long term, this will result in even more evictions due to the snowball effect of renters’ debt surpassing what may — as of right now — be a more manageable number. Generally speaking, it is a lot easier to work with a tenant now who may only be two to three months behind on rent than it will be at the end of the year when they would be an additional four months behind if no payments are made.”

We are sending a survey to our own 50,000 Real Wealth members to find out who’s been impacted by an eviction moratorium. We’ll have an update on that survey at a later date. (4)

Links:

(1) Tenant Declaration

(2) NYT Article

(3) NAR Article

(4) Info on Local Eviction Moratoriums

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