COVID-19 Eviction Moratorium
Actions by state and federal officials have highlighted an issue that investment property owners or aspiring investment property owners should pay attention to. It is a disturbing trend of forcing landlords to kick the can down the road and then dealing with the possibility of a greater financial reckoning in the future. The reasoning behind an eviction moratorium may seem humane at face value since government action has contributed to the COVID-19 pandemic’s economic disruption, yet it essentially places the financial burden on landlords.
The U.S. Congress banned evictions in federally subsidized housing (houses with government secured loans) in March through the end of July. Hawaii Governor David Ige quickly followed suit in March by suspending a landlord’s remedy of evicting a tenant for failing to pay rent or for failing to move by the deadline specified in a legally written notice-to-vacate order. The Centers for Disease Control and Prevention (CDC) issued a sweeping ban on evictions that took place on Friday, September 4th, banning all landlords from evicting tenants who claim they can’t afford to pay rent as a result of pandemic related reductions to their income through the end of the calendar year.
The order does not absolve the tenant’s responsibility of owing the rent, it simply forces the landlord to provide an unsecured loan to the tenant for the unpaid rent. Experienced landlords realize that charging rent and collecting rent are two separate activities. Stott Property Management, LLC carefully tracks past due rent at all times (not just during the pandemic) and recommends that their clients consider eviction if a tenant falls more than one month behind in rent, fails to provide an acceptable payment plan, and/or stops responding to voice-mails, texts, and emails. Experience has shown that the chances of successfully collecting the past due rent falls dramatically once a tenant falls more than a month behind in rent. The only realistic relief for the landlord is the ability to take possession of the property and rent it to another willing and able tenant.
There are some saying that the CDC order and state emergency actions are violating the U.S. Constitution’s takings clause. In other words, the government has seized private property, at least temporarily, without providing the private property owner fair compensation. According to an editorial by the Wall Street Journal, “about half of the 48 million rental units in the U.S. are owned by small businesses, many of which could be foreclosed on if they don’t pay their mortgages.” Government forced shutdowns are wreaking havoc on small businesses during the pandemic, and this is just one more example.
Until the state and federal restrictions on evictions are lifted or overturned by the courts, landlords have some decisions to make. The CDC order still allows the landlord to charge late fees and interest spelled out by the lease or rental agreement. Stott Property Management, LLC waived all late fees and interest through the spring and summer. Now that the restrictions are becoming a major burden for some clients, Stott Property Management, LLC has started to charge late fees and interest on those tenants that refuse to respond and are not making efforts to seek the city and state rent assistance currently being offered. There are a few tenants that will be evicted as soon as feasible due to their unwillingness to communicate or make any effort to pay rent.
The CDC order does not prevent landlords for taking possession for other reasons. Unfortunately, Governor Ige’s emergency order still prevents landlords from requiring tenants to move at the end of their lease even if the tenants are not experiencing any financial hardship. This restriction was just recently extended until October 31, 2020. Therefore, property owners may not move into their property or sell it unless the tenant voluntarily moves. In a few cases, Stott Property Management, LLC’s clients were in desperate need of selling the investment property and we communicated this need to the tenants. Fortunately, the tenants acknowledged the owners’ distress and voluntarily moved so that the owners could sell. If you find yourself in this position, then opening the lines of communication may be your best option until the governor starts enforcing the laws again.