With the outbreak of the coronavirus wreaking havoc across the nation and the globe, the real estate industry is scrambling to balance safety with business. This tension is probably the most acute within the rental markets where tenants are enduring economic hardships brought on by government-mandated stay-at-home orders.
Millions are out of work and can’t make rent, leaving landlords in a precarious position. Many are trying to be lenient and postponing payments, but many more simply cannot afford to be that generous. This leaves one controversial option: eviction.
Being forcibly removed from your home—especially amid a public health panic and economic hardship—is unthinkable for most people, and the exact opposite of what real estate professionals strive to do on a daily basis. From brokers and investors to appraisers and developers, the broader real estate community is all about putting people and families into homes. But this crisis is proving too massive for single entities to solve on their own.
The government, for its part, has deployed a robust stimulus package intended to boost taxpayers and, in some cases, curb evictions. The CARES Act does this by implementing a moratorium on evictions—as well as penalties and fees for nonpayment of rent—from all rental properties that, in any way, receive financial support from the federal government, including the following programs:
- Housing Choice vouchers
- Section 8 Project-Based Rental Assistance
- Low-Income Housing Tax Credits
- Mortgages secured by Fannie Mae, Freddie Mac, the Federal Housing Administration or U.S. Department of Veterans Affairs
The CARES Act protections will remain in place for 120 days starting on the date the measure was enacted, March 27, 2020. However, such properties make up less than a third of the entire U.S. rental market, according to national housing research center The Urban Institute. It estimates that about 31.5 million rental dwellings will not be covered by this program, potentially leaving all those tenants out in the cold.
“There are a large number of renters who are not protected as landlords have alternative finance options and/or the properties are owned free and clear of any mortgage encumbrance,” says Chris McDermott, a Jacksonville, Fla.-based broker and property manager for real estate investment company Jax Nurses Buy Houses.
Some states, including Florida, have issued temporary moratoriums on evictions—as well as foreclosures and writs of possession—but McDermott notes that once it expires in mid-May, those tenants who can’t make rent will likely face eviction.
“The renters can be evicted once the executive order deadline passes,” McDermott says. “Ideally, given these unprecedented times, we have to help others as human beings. No one expected this and it is easier to work together. Given that local courts will ideally be backlogged and the cost for eviction isn’t cheap, it is in the best interest of both parties to work out payment arrangements for rent.”
McDermott’s team buys properties to renovate and resell or hold in their portfolio of rental properties. A portion of their proceeds go to help pay for research and medical treatment in their local community. Lately, he said he’s been spending most of his time educating partners on the benefits and limits of the CARES Act.
Brian Davis, a landlord and co-founder at rental investment firm SparkRental.com, says that the problem with limiting eviction-protections to only those who live in federally-funded or -financed homes is that the programs—namely the securitization products—were not designed for these types of housing models.
“Government-backed mortgages were designed primarily for homeowners, not real estate investors,” says Davis. “So, many landlords have other types of loans, such as portfolio loans, private loans or commercial loans against their properties, which means the tenants aren’t protected from eviction, and the landlords aren’t protected from foreclosure.”
Another layer of the crisis to consider is the backlog in the bureaucracy. With so many local civil courts closed, there is a growing eviction bubble that’s likely to burst once the rent hearings are re-opened.
“No matter how you slice it, a lot of people are going to lose in the months to come,” Davis warns. “Tenants need to pay their rent, landlords need to pay their mortgages, lenders need to pay their investors, or else investors stop funding any loans whatsoever and possibly go under, taking large swaths of the economy with them. When one domino falls, it knocks down all the others.”
Davis’ advice is for tenants and landlords to work together and figure out payment arrangements on their own.
In New York City, the U.S. epicenter of the outbreak, brokers are addressing everything from tenants losing their jobs and rent reduction requests to investors, who’ve fled the city and don’t plant to return until the end of summer, says Louise Phillips Forbes, broker of The Louise Phillips Forbes Team with Halstead Real Estate in Manhattan.
“We are working case-by-case with each tenant and owner and adapting with a collaborating mindset and compassionate attitude,” Forbes sys. “We are all experiencing the aftershock and evolution of our New World.”
According to a National Association of REALTORS® flash survey, 24 percent of landlords and 47 percent of property managers reported being flexible with rent collections that are being slowed by COVID-19, and very few leases have been terminated.
“How we collaborate together, no matter who holds the leverage, is an opportunity to bridge all gaps and work together,” Forbes says. “It has been one of the more fulfilling times of connectivity for me because we are together cutting through egos, entitlements and legalities…All are focused on being fair (and) decent.”
Andrew King is a contributor editor to RISMedia.
My lender, Loan Depot, professes on their website to want to help customers in this time of need, but in reality, still is charging late fees, other misc handling fees and has set up a structure for hardship assistance that is so difficult to understand, forms to difficult to complete and information to complex for processing in a timely fashion. They still are sending out delinquency notices with threats to foreclose at a moments notice.
Love your closing remarks, “All are focused on being fair (and) decent” That’s what humanity is supposed to be.
The 3 most important qualities in Real Estate industry are:
-Communications
-Communications, and
-Communications.
I am glad to see that in the midst of all the legal documents bombarding our Real Estate industry, our ability (and 1st amendment right) to communicate is still the best solution when crisis irrupts. Great story Andrew, Thanks.
I think there should be a section 9
covered by federal government
pay only to landlords
it will be only for 3 months before they can extend it ( hopefully not)
Couldn’t tenants apply for a Section 8 type voucher that has no value to anyone other then the landlord who could take it at a reduced cash voucher or 100% if credited on their tax returns. At least we are getting our fair share and especially where we have tenants that are under rent control and are paying way below fair market and yet the landlord is having cover their shortage. We finally had a 4% increase allowed this year that I was going to be getting in April. Now I don’t get that, I can’t demand or evict until the 120 lapse in the lock. They also put a one year rent freeze for L.A. City. Are they going to allow us to recapture the increase for 2020 and 2021 next year? This will make it where nobody will want to own rental properties, especially those in rent controlled areas which is basically all of California.
While I steer clear of the doom and gloom forecasts I have been advising clients to communicate with landlords and tenants to avoid uncomfortable situation, consider home sharing, and downsizing while you have equity.
Great article, thank you! Where is the “new renter” going to come from if the majority of renters are not able to make rent? Especially when thinking about your rental, you’re generally in a tight range of socioeconomic renters, unless you’ll be doing major upgrades to attract a better income renter, still, you’re in the same neighborhood. We’ve seen a LOT of landlord’s do really horrible things, lock out, shut off toilets, etc. to make renters pay. Not being hateful and spiteful on BOTH sides, like you’re saying work together. As a lender I’ve also seen people that are still employed, have money in the bank take the forbearance, that is spiteful and hateful to lenders and landlords. It goes both ways and this isn’t the time for it.
Great!
A unique circumstance perhaps, but there are renters who are using the COVID orders to their advantage. I have a circumstance where a fully employed, financial secure tenant just decided to stop paying in Jan/Feb no fault of Landlord. Landlord gets full judgement in their favor for rent and eviction from the civil court in mid-March. Tenant does not leave. Two days before physical eviction, March 24, PA State order includes “no evictions” and the municipal courts are closed. Tenant is now living their rent free for these two months without recourse and without open court to process.
What does a landlord do when the tenants have jobs …still….and stopped paying rent in January and when I tried to negotiate with them….they stopped talking when they heard that I could not evict them…my property manager filed the eviction on the 17th Of march and I am stuck losing 1295.00 per month. I still have a mortgage and taxes and insurance to pay….how unfair is this when the virua is not the reason for them not paying me
I am a landlord and a real estate agent. While none of want what is going on, I think the answer lies in fairness. Property owners are going to still owe their mortgage, taxes, insurance, utilities and maintenance for the time during the quarantine, no one is going to give them anything for free. Tenants who are out of work are going to fall behind. I think the reasonable answer is to allow the tenant to catch up over the next 6 to 12 months, by dividing the arrearage into 6 or 12 monthly payments and increasing the rent by the amount, for the months agreed upon.
Gotta love those great tenants that are never late and never tear anything up are sticking to those money grubbing landlords. If I don’t pay the mortgage then what will they banks take the property and evict. We should have never shut down that being said humans work with humans on a case by case basis but the only ones benefiting from this is the low lifes that will use it to get a extra month or two before getting evicted.
The author is spot on about the domino effect in the multifamily rental market. American renters must be protected from eviction both during the pandemic and during the start of any post-pandemic recovery; and individual property owners need some sort of safety net, too.
However, there’s no data that supports any notion that the majority of the 110+ million Americans who rent are not able to make rental payments. None.
It’s time for the broker and agent community to let go of the archaic, inaccurate way it thinks about renters. Renters aren’t just students and families with limited incomes. Increasingly, renting is a lifestyle choice, and there’s $12 billion in rental commissions available annually.
A few stats that might surprise you:
Over the past ten years there’s been a 157% increase in rental households making more than $150k annually.
Three out of eight Millennials believe they’ll rent for life, and three out of the remaining five plan to buy in the next 36 months.
One in three urban renters today are financially comfortable Boomers choosing to rent, many in the course of downsizing.
U.S. will need to produce 4.6 million rental units by 2030 to keep up with demand.
A recent survey by RentCafe showed that 56% of renters who planned to move prior to the pandemic are still planning to move
Truth be told, when there’s uncertainty in the home sales market, the agent/broker community would be wise to take an open-minded look at the rental market.
I am a realtor, licensed agent for over 20 years. I have personal rental units (a few now) and have decided to keep the home empty until the courts can catch up. It is better add onto loan on the back end (private portfolio) than deal with a jobless tenant (tenants). I may decide to sell the properties (at my old age) during the 3rd quarter and avoid all the up coming difficulties. I do agree with most responses. “It is great to be fair” but not sure how many folks are on that page.