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One of President Biden’s early executive orders extended the temporary national moratorium on evictions for nonpayment of rent that began on September 4, 2020. The moratorium is intended to help renters struggling to make rent payments because of the economic impact of the pandemic. Based on data reported by the National Multifamily Housing Council, rental delinquencies increased from 4.1% in December 2019 to 6.2% in December 2020.
While the moratorium technically doesn’t apply to every residential tenant, qualifying for it is relatively easy. According to the National Low Income Housing Coalition, a tenant needs to give the landlord a written declaration, subject to the penalty of perjury, that affirms:
- They expect to earn less than $99,000 ($198,000 married) in 2021;
- Have used their best efforts to obtain governmental renters' assistance;
- Can’t pay the rent because of a substantial loss of income or out-of-pocket medical expenses;
- Are using their best efforts to make partial payments; and
- If evicted they would likely become homeless.
The declaration also underscores that the tenant understands all late payment penalties apply and the total of past-due rent becomes due and payable on April 1, 2021, when the tenant can be evicted for nonpayment.
Tenants can still be evicted for violating lease provisions unrelated to late payment – such as engaging in criminal activity, damaging the property, violating health and safety ordinances, or threating the health or safety of other tenants.
While moratorium is well-intentioned, the weak wording of the declaration makes it relatively unenforceable. Words like expect, best efforts, substantial, and likely are wide open for interpretation, and tenants are not required to prove any of the statements. Enforcement would require the landlord to sue the tenant.
A landlord who evicts a tenant who has signed a declaration faces substantial penalties, including a fine of up to $100,000 ($250,00 if an eviction results in a tenant's death) and up to one year in jail.
It would probably be less costly for the landlord to suffer the economic hit of the nonpayment of rent than to pursue an expensive lawsuit. Even if the landlord prevailed in court, a judgement is only enforceable if the tenant has enough assets to pay the back rent and penalties. If that were the case, they probably would have been paying rent.
Without the remedy of eviction for a nonpaying tenant, almost any landlord could be left holding the bag for several months of rent. During that time, the landlord could have also been required to pay mortgage payments, property taxes, utilities, and maintenance. While most landlords budget for a one- or two- month lapse in rent, very few small landlords have the reserves to survive seven months of no income. Without income to cover mortgage payments, landlords could face the loss of the property through foreclosure.
The December 2020 COVID-19 relief package include $25 billion in emergency rental assistance for tenants, but no relief for landlords. Since around 10 million individuals who own only one or two rental units account for about 50% of the rental housing stock in the US, this hardship disproportionately impacts them. I have some good friends who are retired, in their 70’s, and both suffering from significant medical challenges. They rely largely on their Social Security and pension income to make ends meet. They own one small rental home. The tenant stopped paying rent months ago. With no recourse to evict the tenant, they are struggling to pay the expenses of the rental as well as their own home.
Is this fair? Of course not. Yet I don't expect Congress to throw small landlords a much-needed lifeline any time soon.
Rick Kahler, MS, CFP®, CFT-I™, ChFC, CCIM , is founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advi
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
