The Coronavirus has caused financial strain across virtually every industry, and the real estate sector is no exception. While many laws have been passed in many states to protect tenants during these hard times, such as moratoriums on evictions, fewer laws have been passed to protect landlords, who have also suffered during this pandemic. Therefore, a common situation that landlords face is that their tenants are not paying rent, they cannot pay the mortgage and other carrying costs of the property, and they feel stuck because they have no recourse. Below are five considerations that landlords should be aware of if they face this situation.
1. There are Eviction Moratoriums - But They May Expire Soon
In many states there are moratoriums on evictions, both residential and commercial. This means that landlords are not permitted to commence evictions during the moratorium period. However, landlords should realize that this moratorium typically has an expiration date. In Connecticut, the moratorium recently was extended to August 25, 2020. If this deadline is not extended again, landlords will be permitted to commence eviction actions, although it is unclear how long eviction lawsuits will take due to the backlog.
2. Consider Cash for Keys
If a tenant is not paying the rent and you absolutely need the tenant to vacate (for example another paying tenant is ready to move in), a viable option to consider is offering the tenant money to move out, as opposed to waiting for the expiration of the moratorium period and then going through the eviction process. While it may be difficult to pay a defaulting tenant and waive the delinquent rent in order to motivate the tenant to vacate immediately, it is far less painful than having to wait until the moratorium expires and then pursue an eviction. This is a practical solution as the moratorium deadline may very well be extended again.
3. There May Be a Foreclosure Moratorium in Your State
While many laws have been passed to protect tenants that are experiencing hardship, some laws have also been passed to protect landlords that are experiencing financial difficulties. For example, the Federal Housing Finance Agency has extended its foreclosure moratorium for single-family loans backed by Fannie Mae and Freddie Mac until August 31, 2020. Moreover, many states have also passed foreclosure moratoriums on other property classifications such as multi-family and commercial properties. Accordingly, your lender may be prohibited from instituting a foreclosure action if you are unable to make the mortgage payment.
In Connecticut, for example, there are many restrictions on foreclosures. Many banks and credit unions are participating in a mortgage relief program which requires a moratorium on new foreclosures through July 30th, along with 90-day grace periods (only residential properties). This date may be extended. Moreover, other restrictions have been imposed statewide on all foreclosures such as a moratorium on any foreclosure auctions taking place through August 22nd (which applies to foreclosures that began before the Covid-19 pandemic). For a complete list of orders and laws relating to foreclosure moratoriums and restrictions in Connecticut, please view the below links.
4. Mortgage Work-Outs / Forbearance
Many lenders are more willing to negotiate work-outs and/or forbearance agreements during Covid-19. Therefore, if you are a landlord experiencing financial hardship, you may want to consider discussing a work-out or forbearance agreement with your lender.
5. Landlords May Still File a Lawsuit for Damages in Superior Court
While evictions may not be filed, a Landlord who wants to take an aggressive approach with a delinquent tenant may still file a lawsuit in Superior Court for damages, including back rent. However, many courts are closed, and cases are not moving quickly – but landlords are still permitted to file the lawsuit. Filing a lawsuit and getting in line to be heard can at least provide landlords some protection, or perhaps motivate a tenant to work out a payment plan if this is feasible. Of course, landlords should be cautious in using this aggressive strategy if a tenant is truly experiencing serious hardships resulting from the covid-19 pandemic.