For smaller landlords, rental moratoriums just pass the payment in the chain

by Erik Sherman

Want to live in an apartment without paying rent? In the ‘before times’ it would have been unthinkable – at least without a joint legal battle with an angry landlord.

However, during the COVID-19 pandemic, everything went out the window.

Congress first imposed a moratorium on eviction from March 27 to July 24, 2020, at a time when many millions were out of work. Then the pandemic continued, and Congress and the U.S. Centers for Disease Control took turns extending moratoria to keep people from entering a world of contamination and potentially spreading it.

The latest CDC-imposed extension of the moratorium, announced in late June, is intended to be the last, according to the agency. Although the Supreme Court just weighed in to say that the CDC overstepped its authority and should have required congressional action for the extension, the ruling allowed the current extension to remain in effect.

When it expires, tenants will have to pay again, or risk eviction and court. But it’s been a long time and many landlords are not happy.

Many have lost money and some say they are on the brink of bankruptcy due to unpaid mortgages. The moratoria had led to legal issues over the CDC’s powers, but the new Supreme Court ruling seems to make it clear that Congress could take such measures in the future.

Perhaps the most important question, however, is not whether the government has such broad powers to intervene in the real estate sector when it comes to public health. Instead, government policies based on good intentions may appear useful on the surface, but lead to unintended consequences without proper planning and foresight.

Legal bases

The impact of moratoria was hardest for the smallest landlords.

Large-scale property owners were largely able to “weather the storm because they have a cushion to cover monthly expenses like taxes, heating oil, electricity, employee wages,” said Michelle Quinn, a partner at the Gallet real estate law firm in the United States. New York City Dreyer & Berkey.

But smaller landlords — even those who have “five, six, seven units where they live in one and rent out the others,” Quinn said, just don’t have those resources. “Actually, the landlords are the party bearing the brunt of the impact of the pandemic,” she argued.

Quinn said that while rent moratoriums were needed to contain COVID, little thought was given to what landlords should do as banks still expected mortgage payments.

In fact, many owners, she said, were abandoned after missing months in payments.

“I have two cases in a high-end coop and condo where the tenants just moved out,” Quinn said. “They give tenants a break, but they don’t give landlords a break.”

Paul Getty, CEO of First Guardian Group, which provides services to real estate investors — including many “mommy-and-pop owners” — said many of his clients say they’ve been unable to get payments from tenants who don’t appear to have lost income. .

“It’s a financial crisis for our landlords,” Getty said.

He said that while large-scale real estate owners were able to navigate the options made available to landlords by federal, state and local governments to avoid foreclosure, for many people who bought one or two properties to build wealth, was less feasible.

“You can have a full-fledged accounting department, you can hire some analysts, and you can run the red tape more efficiently that way,” Getty said of major real estate investment companies.

“Our customers are not like that.”

government power

That situation led some landlords to turn to court.

The New Civil Liberties Alliance — an organization founded by Columbia University School of Law professor Philip Hamburger and led by former Koch Industries attorney Mark Chenoweth — has sued Brown, Rondeau, Krausz, Jones, and the National Apartment Association v. CDC.

The case argued that the plaintiffs — who were all landlords who had tenants who failed to pay rent during the pandemic — had expected their tenants to pay rent and, if they didn’t, retained the option to evict them and harass others. find those, regardless of CDC orders.

“Plaintiffs have not anticipated… that the US Centers for Disease Control, a federal agency, would issue a sweeping unilateral injunction to suspend state law under the weak premise that it was ‘necessary’ to contain the COVID-19 pandemic get,” said briefly.

It argued that the CDC had no authority to impose a moratorium on rent.

“But even if they did,” the legal briefing said, “they are unprecedented in our history and an affront to the fundamental constitutional limits of federal power.”

Some legal experts had questioned that argument.

“We have federal legislation that allows action by the CDC if local control isn’t enough to address a public health problem,” said Pamella Seay, a law professor at Florida Gulf Coast University, who noted that many tenants faced the risk of homelessness.

Seay pointed to Title 42, Section 70.2 of the Code of Federal Regulations as a legal statute that gives the CDC sweeping powers to intervene in society for health purposes.

“The [CDC] director may take any measures they deem necessary to prevent the spread of infection,” she said. “Why was this important? Because people couldn’t do their job.”

“How do you pay your rent if you have no income? It was important to make sure that people should not be put on the streets or in other communal housing, because we didn’t want to spread the pandemic.”

Ultimately, Seay said, a balance had to be struck between wider concerns about a pandemic that temporarily shut down the economic situation and the situation of landlords.

“What is good without public health? [property] property?” she said.

Even if the CDC cannot create or extend such a broad moratorium on its own, it does have extensive powers granted by Congress, potentially allowing it to take other measures that would infringe some property rights.

government fell fell

Under the moratoriums, tenants still had to do their best to pay some of their rent and actively seek government support, which was there, to meet their obligations.

“The federal government intervened with a lot of rent relief,” said Mel Jones, a research scientist at Virginia Tech’s Center for Housing Research, adding that it has helped many.

“Where tenants could get into that system, they could pay their rent.”

And where they weren’t, many just couldn’t, she said.

While federal and state aid was supposed to bring relief, the problem was getting tenants and landlords alike to understand what was available in a time of chaos.

“A lot of people probably never went back to and read the CARES Act,” Seay said, referring to the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, passed by Congress in March 2020 to boost a US economy crippled by lockdowns.

Many smaller landlords couldn’t easily find out about tenant money sources, economic loss loans, PPP loans, and even special tax write-offs — and that’s where the largest property owners, with their teams of regulatory experts, are the only one. benefited from.

“A lot of [smaller landlords] didn’t go to CDC regulation and didn’t know what it meant. Even the summary referred to 15 or more lines or acts that were part of it,” Seay said.

For those owners, moratoriums have just passed the payment one step higher in the chain.

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