[REN #872] Rental Income: Virus-Related Tenant Defaults, Eviction Bans

Rental Income: Virus-Related Tenant Defaults, Eviction Bans, Real Estate News for Investors Podcast Episode #872

An invisible enemy is attacking, and it doesn’t seem to matter where you are or who you are. The Coronavirus is quickly spreading to all parts of the world. Whether people are sick or not, many can’t go to work, and that could mean missed rent payments — especially for people living hand to mouth. So what is the appropriate course of action?

Headlines across the nation are echoing the same idea — that cities, counties, states, and even the nation, impose a temporary moratorium on evictions while this virus scenario plays out. People are being advised to self-quarantine in their homes. Some people can work from home, but many can’t. It’s not clear what percentage of renters can’t work at all right now, but the National Multifamily Housing Council says there are an estimated 43 million renter households in the U.S. That’s about 109 million renters. 

New York Shuts Down

New York is already feeling the effects of the outbreak and has shut down all restaurants and bars. It has also suspended evictions for coronavirus-related defaults because many people won’t be able to pay their rent. But it isn’t just the tenants who are suffering. As the Daily News reports, those defaults will impact landlords who have to pay the mortgage, utility bills, property taxes, and other expenses. (2)

A New York rent control advocate who normally defends tenants is now defending landlords. Joseph Strasburg says that forgiveness programs are also needed for landlords, effective immediately. According to the Daily news, PropertyNest has calculated that 39% of New York renters won’t be able to pay their rent next month if they can’t work. That will also impact a lot of landlords, especially in times like this when evictions are not the right course of action.

In New York, the owners of more than 150,000 apartments have pledged to suspend evictions for the next three months because of the virus. Curbed reports that the city is also extending Section 8 housing vouchers that are set to expire. (3) Utilities have also announced a moratorium on gas shut-offs. There’s no word yet on whether homeowners and landlords will get a virus-related break on property taxes.

New Federal Guidelines

The situation is changing rapidly and many cities are implementing emergency policies and procedures. We haven’t seen a coordinated Federal effort to fight the virus. The Trump administration is encouraging local governments to handle the situation. President Trump did acknowledge on Monday, March 16th, that the situation is very serious, and issued more stringent guidelines. They call for people to avoid groups of 10 or more people, to stop going to restaurants and bars, and to work or take classes from home. These guidelines are not mandatory, just suggestions.

Bay Area Shelter In Place

On the same day, six counties in the San Francisco Bay Area announced a three-week mandatory “shelter in place” for all residents. The S.F. Chronicle says it’s now the strictest measure in the nation. (4) There are nine Bay Area counties. The ones issuing the directive include San Francisco, Santa Clara, San Mateo, Marin, Contra Costa, and Alameda. It’s not clear whether Sonoma, Solano, and Napa Counties will also do the same. It’s not a complete lockdown.

People don’t need to ask permission to leave their homes, but the city is asking that people only leave their homes for essential reasons, like a doctor’s appointment, food shopping, feeding a neighbor’s pet, or similar reasons. It suggests that people can engage in outdoor activities like walking, hiking or running, but only if they practice social distancing. Homeless people are obviously exempt but they are being asked to look for shelter.

Forclosure Moratorium Needed

We may see more of these directives as this pandemic progresses. Experts are saying it could last three months or longer. That’s causing great concern about the economy as well and prompted the Federal Reserve to cut interest rates to zero. That will give consumers some relief from credit card interest, but more needs to be done to prevent people from losing their homes.

U.S. Senators Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts have both asked President Trump to issue an immediate, nationwide moratorium on all foreclosures and evictions from properties owned or insured by federal agencies or enterprises, like Fannie and Freddie.

Rent Default Insurance

Landlords may want to consider another option to help cover missed payments by tenants. A company called Rent Rescue offers Rent Default Insurance. (5) The website says that landlords can get reimbursed for up to six months of lost rental income, and $1,000 in legal fees. It says the average monthly cost for the insurance is just $25 a unit. If you have more than 20 units, you might get some sort of a quantity discount. The website calls it a “tailored solution.”

Links:

(1) Forbes Article

(2) New York Daily News Article

(3) Curbed Article

(4) San Francisco Chronicle

(5) Rent Rescue

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