The Pandemic Has Altered Work and Home Life, Probably Forever
By: Tom Brady
While cities and states are still figuring out how to allocate the $25 billion set aside in January by the U.S. Department of the Treasury for its Emergency Rental Assistance Program (ERAP), another $26.1 billion in housing assistance was included in the $1.9 trillion stimulus plan President Joe Biden signed in March.
Many landlords with tenants in arrears are trying to figure out how to get funds allocated to stabilize the real estate market.
And the need is great. Some 20 percent of renters in America are behind on their rent by four months, owing an average of $5,600. A total of $57.3 billion is owed by some 10 million American renters, according to an analysis from Moody’s Analytics and the Urban Institute.
The Center for Disease Control’s federal eviction moratorium was extended to June 30, but most housing policy is handled at the state and local level. And the programs to assist tenants and landlords are administered locally as well.
How to Request Rental Assistance
While states decide how the money is distributed, landlords affected by the coronavirus pandemic can request assistance on behalf of their tenants. To access ERAP funds for tenants who are unable to pay, landlords need to:
- Get the tenant’s signature on the application (electronic signatures are acceptable)
- Share all correspondence and paperwork with tenants
- Use the funds for current rent or back rent
Still, landlords whose tenants have moved out without paying rent are left holding the bag. And a few unscrupulous tenants have taken advantage of eviction bans to stop paying rent though they may not qualify under the CDC guidelines for rent relief.
Eviction moratoriums “make sense from a public health standpoint,” said Daniel Bornstein, a real estate attorney in San Francisco, “but they end up creating a cascade of risk that is not prudent public policy.”
A Looming Financial Crisis for Landlords and Banks?
Those risks impact the banking system as well, since some smaller landlords who are not able to collect rent fall behind on their mortgage payments. Though many tenants have failed to pay their bills because they lost their jobs — U.S. unemployment peaked at 14.8 percent in April of 2020 and was at 6.0 percent last month — some just stopped paying and moved out of apartments, leaving landlords no recourse for recouping lost rent.
Bornstein said the delays in distributing the relief funds caused quite a bit of economic harm as many landlords with tenants in arrears are now in debt because they were unable to keep up with their mortgages. Instead of eviction moratoriums, Bornstein said if the government had provided loans at the outset of the pandemic it would “have kept the economy lubricated.”
And he believes the time it will take for the rental housing market to recover could have been avoided.
“I would have not allowed debt to accrue. I would recommend an interest-free loan program instead of owners holding debt and then trying to chase it,” Bornstein said. “Doing it after the fact — some owners have vacancies where they are never going to recoup the debt. In the process, you’ve mucked up the system.”
But now that the damage is done, landlords are looking for relief, and that relief largely depends on which state they are operating in.
A Model Relief Program for the Country?
While California extended its eviction moratorium to June 30, it also established a $2.6 billion fund in late January, taken from federal rental assistance monies, to income-qualified tenants with unpaid back rent. (Money from the rescue plan President Biden signed in March could push this amount over $5 billion.) This program also offers landlords 80 cents on the dollar if they agree to waive 20 percent of unpaid rent. The period covered for 80 percent in rent reimbursements is between April 1, 2020 and March 31, 2021.
The State Rental Assistance Program began accepting applications from property owners and tenants on March 15. To be eligible for the aid, tenants must make less than 80% of the local median income and be able to show some impact from the Covid-19 pandemic.
Bornstein recommends landlords take advantage of the program.
“The cost of chasing the tenant is more difficult than getting it from the state,” he said. “The rollout has been a bit spotty but the policy behind it is attractive because chasing people for money is tricky.”
Are Eviction Moratoriums Constitutional?
A Texas judge ruled in February that the CDC’s eviction moratorium is unconstitutional, and the Texas Supreme Court did not extend its own emergency order, which expired on March 31. But those are not the only challenges these bans have faced.
Stephanie Friese, attorney at law firm Chamberlain Hrdlicka in Atlanta, is representing a landlord whose rental property is his sole source of income and has not been paid in six months. Friese and her client are suing DeKalb County, trying to force the local government to begin eviction proceedings.
Friese told Forbes Advisor in February she doesn’t think the court has statutory authority to halt eviction proceedings.
“What these orders are doing is taking property without compensation. I don’t think it’s constitutional,” Friese says. “It’s indentured servitude to have to uphold your responsibilities as a landlord while people can live there for free.”
Part of the problem, Bornstein said, is that even though housing is a necessity, it's not treated that way in our economy. Grocery stores would not give food away with the promise of payment later, he pointed out.
“We are treating a core group of owners who provide a necessity of life unlike others who provide necessities of life,” Bornstein said.
Coping With the Rental Crisis
Stephanie Graves, a small landlord in the Houston area, says tenants in most of her buildings are struggling.
"I have a small property in town," Graves told NPR. "It's about 22 units and eight residents have not been able to pay over 6 months on and off."
Graves isn't evicting any tenants who try to pay what they can -- some come up $100 payment on a $1,000 rent -- and stay in touch with her. But these payments don't cover her mortgage payments and her payroll.
"Then we had the freeze in Houston and the hot water heater gave out," she said. It cost her $22,000, when she had little income. "I worry, how am I going to pay that loan if this goes on for much longer?"
Graves says a larger property she manages for another owner is hundreds of thousands of dollars behind. "It's scary," she says. "It's a scary situation.”
Federal Relief Programs for Property Owners
Those who have mortgages backed by Fannie Mae, Freddie Mac or the federal government can qualify for a COVID hardship mortgage forbearance and a temporary halt to foreclosures, according to the U.S. Consumer Financial Protection Bureau. Most homeowners have mortgages that qualify.
Property owners facing financial hardships who need forbearance should ask for it immediately. For loans backed by HUD/FHA, USDA, or VA, the deadline for requesting an initial forbearance is June 30, 2021. There is not deadline for loans backed by Fannie Mae or Freddie Mac
If an owner with a federally backed loan requests up to two three-month extensions, the maximum amount of time for forbearance is 18 months. The owner needs to consult with their loan servicer.
Before the forbearance period ends, an owner needs to make arrangements with his servicer to repay any amount suspended or paused, but a COVID hardship forbearance means they are not required to repay their skipped payments in a lump sum. During forbearance, owners should halt auto payments, monitor the monthly mortgage statement, check their credit reports, and make sure property tax and insurance payments are paid by the loan’s servicer.
There are a number of ways to make good on missed payments, including setting up a repayment plan, a modification of the loan, a deferral or partial payment, or a lump sum if an owner is able to pay back all the missed payments at once.
If an owner’s mortgage is not federally backed, he should contact his loan servicer. The servicer’s name is on the mortgage statement, or can be looked up on the Mortgage Electronic Registration Systems (MERS) website.
The CFPB and other regulators have encouraged institutions to work with borrowers who are struggling because of the effects of COVID-19.
Help for Renters
Renters who are struggling to pay their bills because of the pandemic have a number of options through federal, state and local assistance programs.
- Money can be used to cover rent, utilities, and other housing costs incurred due to COVID-19.
- Payments will usually go to landlords and utility companies
- Money may be available to help with moving costs
Though eviction moratoriums are in place in most of the country, these do not absolve tenants from making good on missed rent payments. Tenants should reach out to set up a repayment plan that they can afford.
These options include a repayment plan that will call for bigger payments when the tenant is earning more, a rent reduction until a tenant can afford to pay more, or a forgiveness for a short period if a tenant cannot afford to pay any rent.
Landlords and Tenants Need to Cooperate
The best thing landlords can do is try to work with their tenants, says Zac Oswald, attorney for the Legal Aid Society’s housing practice in Nashville.
If landlords help tenants understand their rights and get rental funds on their behalf through programs like ERAP, it helps everyone. Forcing renters out or making their living arrangements difficult could result in a lawsuit.
“Gigantic no-nos include changing the locks and ending utilities to push people out,” Oswald told Forbes. “There’s a lot of misinformation about what landlords can and can’t do, so it’s important to talk to an attorney if you want to evict a tenant.”
The Path to Recovery
With vaccine programs accelerating and infection rates dropping, the hopes for a recovery from the Covid-19 pandemic is rising. Life will look different, of course. And so will the housing market.
The amount of debt accumulated in the real estate industry will be a burden to tenants, landlords and banks for some time. Employment will likely be the biggest driver to a healthier economy.
“As unemployment numbers go down, more people will be at work,” said Bornstein, the San Francisco attorney. Some back rent will be recouped, mortgages will get back on track and vacancy rates will fall.
“We’ll start to be on a path of a quick recovery,” Bornstein said.
But where people will want to live and their employment situations are sure to change. “This pandemic was a rapid experiment in people’s relationship to work,” Bornstein said.
One extreme example of this is the company Salesforce: it completed the largest tower in San Francisco in 2018. Last month, it announced it will permit remote or flexible work for most of its employees.
Second-tier cities may benefit as people realize they don’t need to commute to a big city for job opportunities, and cities and states that have been destinations for generations may no longer hold the same allure. The population migration to the Sunbelt and the Southwest could accelerate.
California, which has led population growth nationally for the last 170 years, reported a population loss for the first time since 1850, according to Census Bureau data released in July. New York City was losing population before the pandemic hit in 2020, and that trend accelerated as millions fled. Millions also moved in, but those new arrivals were not as affluent. a net 70,000 people left the metropolitan region in 2020, resulting in roughly $34 billion in lost income, according to Unacast, a location analytics company.
Bornstein believes California’s entrepreneurial spirit will prevail, and the state will continue to create new job opportunities and attract new residents. The outlook is less optimistic for people whose jobs were upended by the pandemic, such as those in retail and jobs that were automated and were taken over by robots.
“We’ll have a new way of orienting and people who have a skillset that’s attractive in the marketplace will be fine,” he said. “There may be jobs that will be forever lost.”