What will we see with Tenants, Landlords and Banks during the Pandemic ?
As we start our third month of quarantine and social distancing, the jobless and unemployment rate continues to rise. Currently, our country is seeing its highest unemployment numbers since the Great Depression. People have no income, they haven’t received their unemployment checks, their stimulus checks and they cannot pay their bills. People are lining up at Food Banks in record numbers as disruptions in the food supply chain continue. Stores like Costco are beginning to ration supplies such as meat as the country prepares for many unknowns as the summer approaches.
Various states and jurisdictions, including Broward and Miami Dade County, have proposed moratoriums on evictions. New York’s Governor Cuomo just announced a moratorium on all eviction actions until August 20th. It’s a good thing that landlords can’t arbitrarily evict people in these times of crises. It does however create unintended consequences for landlords and banks. This piecemeal approach without a comprehensive package of relief for landlords and banks just won’t work. There are many legal issues that make the eviction moratoriums as well-intentioned as they are problematic at best. First just because you cannot be evicted, because of unpaid rent doesn’t relieve you of the obligation to pay it. At some point, the restriction against landlords taking action for non-payment will be lifted. Be mindful of the fact that state and local law may prohibit a landlord from evicting you, those laws do not relieve you of your monthly obligation to pay rent.
If you don’t pay your rent, you will be forced to pay it once the moratorium ends. You could then be evicted from your home or your business. If you can pay your rent for your residence or your business, you should pay it so it will alleviate problems in the long run.
If you can’t meet your monthly obligations, instead of ignoring them, contact your landlord, let them know the situation you are in, and see what you can work out. This way you’re not faced with major rent obligations when the crisis ends.
For businesses that received PPV loans, paying rent is a no-brainer. The rent payments for the business owners who use the loan money properly, the loan and debt obligations are forgiven. Also by paying your rent, it will stop the domino effect of renters not paying landlords and landlords not paying the banks and avoid the respective parties being forced to take legal action.
The Federal Governments CARES Act provides a temporary moratorium on evictions for most residents of federally subsidized apartments, including those supported by HUD, USDA or Treasury (Low Income Housing Tax Credit developments) as well a moratorium on filings for evictions for renters in homes covered by federally-backed (FHA, Fannie Mae, and Freddie Mac) mortgages for 120 days after enactment. Again it’s not rent relief.
According to The Miami Herald both Miami Dade and Broward counties have put a moratorium on residential evictions. We don’t know how long that will last. However, those county actions still don’t get you rent relief. If you are a landlord of either a residential or commercial property and your tenants need help with either the terms of payment or the amount of payment, you should do everything in your power to work out an accommodation for them. There are a number of reasons for this. First, it will keep your cash flow going. Second, it will allow you to pay your bills and financial obligations. Third, is when this financial crisis is over you won’t have to find new tenants for either your commercial or residential properties. Finding a tenant in today’s economic and health crisis is almost impossible.
As a landlord, if you’re having trouble meeting your mortgage obligations, you should contact your bank and attempt to get or receive extended terms on your financial obligations. Just like a tenant, this will avoid the need for your lenders to take legal action and it will allow you to remain in good graces with your lenders. The problem today is that banks need to talk to the landlords and vice versa to prevent the domino effect of non-payment. However, because our government has not made any accommodation for landlords and banks during the first and second stimulus packages, everyone is left in the dark as to what to do.
I believe that communication between landlords and the banks is the best option going forward. Banks that play hardball with their lenders are not seeing the forest between the trees. Threats of foreclosure for nonpayment of their financial obligations when landlords are not receiving rent from their tenants is not only immoral and unconscionable but is creating unneeded duress on landlords. When the banks threaten these legal actions they are hollow at best.
The reason the threats are hollow is that at the writing of this blog most court systems are closed for all but emergency hearings. Foreclosing on a landlord is certainly not an emergency. Additionally, banks have a duty to their communities to ensure that the domino effect does not take place. Do banks really want to be in the property business? The responsibility of landlords and bankers has always been defined. If we learned anything from the 2008/2009 market crash, it’s that with all of the banks saber-rattling, they really don’t want the property business. They just want to get paid. Banks are in the money business and the landlords are in the real estate business.
There is also a very altruistic practical issue for the domino financial effects that are occurring. The Florida Governor’s Executive Order assures no further action will take place for the next 45 days on any mortgage foreclosures around the state, including those covered by the nationwide moratorium. The Florida order does not remove the obligation to make mortgage and rent payments. In addition to freezing foreclosure actions, the Florida measure also blocks the evictions of Florida renters for nonpayment of rent in the case of residential renters who have been harmed by the new coronavirus outbreak. It appears legislators are trying to take action, but without a compressive approach from the federal government, it won’t work.
Let’s assume, a bank does attempt to foreclose against a landlord. Let’s further assume that a landlord has been doing the right thing by his tenants to ensure that family businesses and jobs have been kept intact during this pandemic. Banks that don’t accommodate landlords aren’t going to carry a lot of favor with judges in that situation.
Banks will be screaming, “Judge the landlord didn’t pay its mortgage” and the landlord will say “Judge, it’s not that I didn’t want to pay, my tenants needed help and the same way I worked with my tenants I thought my bank would work with me”. The Judges I have had the honor of practicing in front of have always balanced the equities involved before making a legal decision. Under the circumstances, outlined banks would have a hard time taking property away from a landlord even though they may be “legally” able to do so.
We are at a time when lines in the sand shouldn’t be drawn by either tenants, landlords or banks. This is truly a time when tenants, landlords and banks all need to work together in good faith to ensure the survivability of our countries economy. After all, nobody has voluntarily put themselves in this position and if you spoke to any tenant, landlord or banker, they’d love to go back to December of 2019.