The widespread economic upheaval resulting from the coronavirus outbreak has led to business interruptions and job loss throughout the US. Governments have stepped in to assist renters and homeowners through measures such as temporary eviction bans, mortgage assistance, and individual financial assistance under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and its successor, the Consolidated Appropriations Act of 2021 (CAA). These programs are critical to preserving many people’s ability to remain in their housing and pay basic expenses, and will also indirectly assist landlords by making it possible for many tenants to continue paying rent despite experiencing income loss.
However, questions remain as to whether any large-scale solutions will be available to landlords seeking to remain financially afloat when much of their rental income has abruptly dried up, particularly if they do not hold mortgage loans. Most government aid thus far has not been tailored specifically to landlords, but there are some opportunities they may be able to take advantage of in order to replace lost cash flow and defer loan payment obligations. Negotiating solutions with their tenants and mortgage lenders can also be an important strategy for landlords navigating the economic challenges that have arisen from the pandemic.
Mortgage Assistance and Foreclosure Relief
Under the CARES Act, landlords who held mortgages backed by Fannie Mae, Freddie Mac, or the US Department of Housing and Urban Development (HUD) on multi-family properties were eligible for up to 90 days of forbearance due to financial hardships that they had experienced related to COVID-19. Borrowers could not evict or charge late fees to tenants during the forbearance period. Additionally, the law prohibited foreclosures on all federally backed mortgage loans for a period of 60 days starting on March 18, 2020, and provided 180 days of forbearance for borrowers in this category who had been affected by the coronavirus outbreak. (There were eviction and late fee restrictions on rental properties with these types of mortgages as well.)
These federal mortgage and foreclosure relief programs initially were scheduled to end on December 31, 2020. However, President Joseph Biden extended the foreclosure moratorium for federally guaranteed mortgages through June 30, 2021. Similarly, the mortgage payment forbearance window was extended through June 30, 2021, and borrowers who entered forbearance on or before June 30, 2020 will receive up to six months of additional mortgage payment forbearance in three-month increments.
States like California and New York, along with some local governments, have also issued orders related to mortgage forbearance and foreclosure prohibitions related to the coronavirus, although the details and degree of relief available vary greatly by jurisdiction.
Mortgage and Foreclosure Protections by State
Justia provides regularly updated information and resources on the measures that each state has taken to assist property owners during the coronavirus pandemic.
The CAA provided $25 billion for federal rental assistance to eligible households that were unable to make rent payments due to the coronavirus pandemic. These funds were distributed to the states to award by September 30, 2021. Eligible households can receive up to one year of funding, with an additional three months if needed to ensure housing stability. Importantly, the CAA allows a landlord to submit the rental assistance application on the tenant’s behalf, so long as the landlord obtains the tenant’s consent in the form of a signature on the application and provides them with copies of all the documents. These funds can be sought through each state’s appointed agency.
Small Business Assistance
Landlords with qualifying expenses may also be able to benefit from some of the small business assistance funds that are available under the CARES Act and its successor, the CAA. For example, under the Paycheck Protection Program, small businesses are eligible to borrow the lesser of $10 million or 2.5 times the amount of their average monthly payroll expenses to cover costs associated with payroll, mortgage interest, and utilities. Any such loan proceeds that are expended on these items within the first 8-24 weeks after the loan is funded are also forgivable, and the forgiven amount is not counted as taxable income. Qualifying entities include businesses with fewer than 500 employees, sole proprietors, and people who are self-employed.
Small businesses can also access disaster assistance loans from the Small Business Administration (SBA) to an increased extent and subject to fewer restrictions than normal under the COVID-19 emergency. These low-interest loans are available in amounts of up to $2 million, and can be used for expenses including fixed debts, accounts payable, payroll, and other bills that landlords could have paid if the pandemic had not occurred. These disaster loans can also include an immediate grant of $10,000 that does not need to be repaid, even if the loan application is denied. In order to qualify for the $10,000 emergency grant, the applicant must be in a low-income community.
Under the CARES Act, small businesses can also take advantage of new tax provisions that can assist them in weathering this time of uncertainty. For example, tax returns from 2018, 2019, and 2020 can be amended to distribute net operating losses across a period of up to five years, with no taxable income limit. Employers and people who are self-employed can also defer paying the employer share of their Social Security payroll taxes incurred from the CARES Act enactment date through the end of 2020, with half of the deferred amount being due at the end of 2021, and the rest payable at the end of 2022. With regard to local real estate and business taxes, landlords may be able to access some relief through state and local government policies, though these options vary by location.
Negotiating With Lenders and Tenants
Another key strategy for most landlords during the COVID-19 outbreak will be to reach out to their lenders as well as their tenants to see if alternative arrangements are possible. In situations where tenants are unable to pay their full rent, it can be wise to accept a lower negotiated amount based on what the tenant can pay, and possibly spread the remaining amounts owed over future months. With regard to mortgage or other debt payments that are not eligible for government assistance, landlords can contact their lenders to discuss whether forbearance, loan modifications, or other revised terms may be available.