Insights on the Challenges of the Extended Eviction Moratorium

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On August 3, the Centers for Disease Control (CDC) signed an order determining tenant evictions for failure to make rent or housing payments could be detrimental to public health control measures associated with COVID-19. The order applies in “United States counties experiencing substantial and high levels of community transmission levels of SARS-CoV-2,” which is basically the entire country, according to the CDC map saturated in red.

The CDC’s eviction moratorium expiring on October 3, 2021, allows additional time for rent relief and to further increase vaccination rates. In the context of a pandemic, the CDC says such a moratorium can be an effective public health measure to prevent the spread of communicable diseases.

Another goal of the two-month extension is to give states and local governments more time to disburse the $46 billion in emergency relief funds allocated by Congress for renters and landlords as part of two separate bills passed in December 2020 and March 2021. While the full $46 billion has been disbursed to state and local organizations designated to distribute the money to renters and landlords, to date, only about $3 billion of those funds have been disbursed. The delay is due to the lack of state and local infrastructure to administer the program and complex rules to qualify for the relief. With approximately $21 billion in delinquent rent owed as of July 31, the problem is not lack of available funds, but the inability to disburse those funds quickly and efficiently. The administration hopes states and local organizations can streamline the process to get money to tenants and landlords during the two-month moratorium.

The moratorium will not apply when a county no longer experiences substantial or high levels of community transmission for 14 consecutive days. However, the moratorium can come back into effect if a county again experiences significant or high levels of transmission.

A broad real estate coalition strongly opposes the CDC’s decision to re-impose the eviction moratorium. The coalition consists of organizations representing housing owners, operators, developers, lenders, and property managers involved in both affordable and conventional rental housing.

This coalition says the targeted moratorium   was ordered despite the administration noting it lacks the legal authority to enforce it. This makes the moratorium subject to lawsuits, says Eric Paulsen, regional president of brokerage for Kidder Mathews’ Southern California and Southwest offices. He says the fact that the order was instigated by the CDC, a health agency with dubious authority to enact it, is of concern as it could set a precedence of government interference with contractual relationships.

“Most apartments owners are small businesses or individuals, not major corporations, so any loss or delay of income can be significant. For example, if one tenant in a fourplex is not paying and your options for recourse are limited or delayed, that represents 25 percent of the income,” Paulsen says. “In California, the government has said they will pay 100 percent of the rent owed by certain tenants, but there are several jurisdictions that are enacting this differently. One jurisdiction requires the rent relief request to come from the tenant, while others allow the landlord to fill out the extensive paperwork. The concept is just kicking the can down the road, as it most likely won’t resolve the issue of nonpayment and is creating a backlog of rent owed by tenants and mortgage payments owed by landlords. By the time money is received it may be too late and the result will be a potential foreclosure by lenders.”

To be sure, the small, often mom-and-pop landlords are taking the brunt of the extension, which technically began in 2020. Brian Richardson, vice president of multifamily investment sales in Kidder Mathews’ Olympia, WA office, says these landlords are feeling the most pain associated with the moratorium.

“In the short term, smaller landlords are impacted the most. They were hit the hardest through 2020,” he says. “This (moratorium) is preventing the smaller landlords from beginning to recoup any of the lost income through rent increases and take advantage of the current rent increase trends being seen in B and C markets.”

The recouping process by this and other means has indeed been difficult. Jordan Carter, executive vice president and shareholder in Kidder Mathews’ Portland office, says recouping lost income across the board has been challenging.

“For the most part, owners have been able to make all expense payments, but that doesn’t leave a lot leftover,” Carter says. “This puts the onus on landlords to try and recoup some money from landlord compensation funds, which in Oregon have had significant issues since their rollout.”

In a practical sense, the moratorium also affects an owner’s ability to sell if collection issues impact financing. While many lenders have grown accustomed to nonpaying renters and may not count that against the borrower, the moratorium could continue to create more problems.

“We saw this a lot earlier in the pandemic, but there are still collection issues with some properties that have had a lingering impact,” Carter says. “And when buildings have collection issues with 10 percent or more of their tenants, that’s usually the profit they were putting in their pocket.”

Furthermore, Clay Newton, executive vice president and shareholder in Kidder Mathews’ Portland office, says the moratorium simply is not sustainable in the long-term.

“In the long run, extended moratoriums can’t be sustained without offsetting measures to protect owners from unconstrained expenses,” Newton says. “In theory, a pandemic like this is a once-in-a-lifetime event, so the hope is there is no need to continue eviction moratoriums any more than they already have been — it’s not sustainable.”


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