The CDC's Eviction Moratorium Puts Mom-And-Pop Landlords In A Tough Spot

On Sept. 4, under Section 361 of the Public Health Service Act of 1944, the CDC issued the “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19.” The order, effective through Dec. 31, is a nationwide halt to prevent the eviction of the most vulnerable tenants. 

The order is in place to protect approximately 40 million renters, with violations costing landlords as much as $250,000 if a COVID-related death is involved. 

At first thought, a moratorium preventing residential landlords from evicting tenants until the end of 2020 could be considered outside the CDC’s purview. Unless the moratorium falls under the category of “health risk.”

In the case of the recent order, the CDC pointed out that keeping renters in place — especially those whose work has been impacted due to COVID-19 — is a health imperative. But landlords will also face challenges. Especially impacted will be landlords who own smaller properties, and who have been struggling since the pandemic’s onset.

Evictions And Illnesses

The main preventative measures introduced by this order are that

• Preventing evictions means renters will remain in place, meaning better enforcement of stay-at-home orders. 
• Evicting tenants who run the risk of homelessness could drive them to shelters, “which then puts individuals at a higher risk to COVID-19,” the directive said.
• If tenants can’t find any kind of shelter after being forced to leave their residences, they could experience serious illness, especially if they contract the coronavirus.

However, the CDC has made it quite clear that residential tenants can’t just stop paying rent until the end of the year; they are required to continue making their monthly payments, plus any late fees, based on leases signed. Additionally, to prevent their evictions, renters must sign a declarative form, indicating that jobs were lost because of the pandemic and that they aren’t expected to earn more than $99,000 a year (if filing singly) or $198,000 (for joint filings).

The problem with the order is that it deprives landlords of a viable tool, one that ensures tenant compliance.

Landlords Are People Too

No landlord is in business to kick tenants out for not paying their rent. In fact, with turnover resulting in very high costs for small-property landlords, they would rather work with tenants, than to remove them. And, while it might be tempting to view all landlords as greedy corporate entities, the reality is vastly different.

According to data from the 2015 Rental Housing Finance Survey, approximately 48.5 million rental units are spread across 22.5 million properties. Approximately 16.7 million of those properties, totaling 22.7 million units, are owned by individual investors — in other words, “mom and pop” enterprises. And, many of these properties consist of five units or less, such as single-family or duplex rentals. It is the remaining 25.8 million units — most of them in mid-rise and high-rise properties — that are owned by businesses and larger corporations.

The takeaway is that it isn’t the large businesses that will feel the brunt of this eviction moratorium. Rather, it’s those smaller investors — many of whom own and operate workforce and low-income housing — that will.

From a pure economics standpoint, ongoing income, called cash flow, is necessary to keep these properties running, whether the landlord owns a single four-plex or a portfolio of 50 apartment buildings. That income is generated from rent. Without that rent, the building can’t be maintained or kept up to code. When too many codes are violated, the building could be shut down, and the tenants would have to find another place to live. 

Additionally, many of these small-residential owners rely on cash flow from rent to pay off debts, such as property mortgages, as well as municipal and state taxes. An inability to collect rent means a negative impact on both the owner and his or her current and future livelihood.

The eviction moratorium could erode the cash flow necessary to maintain residential buildings. Just because the CDC said tenants are required to continue paying rent doesn’t mean they’ll do so. Why should they? Landlords have no recourse, at least until the end of the year, assuming the moratorium isn’t extended. The tenants get to stay, whether they pay rent, or not. The case of a six-plex, in which half the tenants stop paying rent, could spell disaster for the owner.

But in this scenario, can’t landlords pursue legal options? Of course. The problem, however, is also COVID-19. Courts of all sizes have large backlogs, due to closures and reduction of hours. The result is that landlords — and again, we’re discussing the smaller entities — will spend a lot of money, and time, to chase after income to which they are legally entitled. 

If a renter simply refuses to pay, it can take the landlord several months (or more) to actually evict the tenant. From there, the landlord has limited options in terms of recouping from an economic standpoint. Chasing multiple tenants in small claims courts could take months due to the case backlog, and recovery probability may be outweighed by legal bills and the landlord’s time and effort. 

Adding to the issue is that there are no extended stimulus benefits or packages to assist smaller landlords, especially those who are catering to working-class and lower-income tenants. The only guidance the CDC has given is that they turn to their local states for monetary assistance, which is an inconsistent way to address this scenario. 

Katy Ramsey Mason, an assistant professor of law and director of the University of Memphis Medical-Legal Partnership Clinic, indicated that landlords are already struggling, because tenants have been unable to pay rent. Non-payment evictions have also been limited, both by state moratoriums and the CARES bill. The difficulty is fairly isolated to the smaller landlords without deep financial resources, who might sell out to larger corporations or land developers because they don’t have another choice. That, in turn, could increase rents by a large margin. Mason believes the moratorium could “result in a loss of affordable housing units across the country,” a loss that the country can ill afford.

Finding Solutions And Common Ground

Just as landlords aren’t all that eager to kick tenants out for non-payment of rent, most tenants aren’t deliberately trying to bilk landlords. The majority of those who don’t pay just might not have the money, due to coronavirus-caused furloughs, pay cuts, and layoffs. 

Because of this, the best way to help ensure at least a partial cash flow during this period is for landlords and tenants to communicate, and to work out some kind of payment plan. Landlords might not be able to recoup everything, and tenants might not be able to pay their full rent, until things improve. But proactively getting ahead of the situation can help manage the risk on both sides.

The order is a done deal, put into place to help stop the spread of COVID-19. It’s important to understand, however, that such moratoriums, while well-meaning, can have dire consequences. Landlords and tenants can — and should — work together to prevent these consequences.

Full disclosure. The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.