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Handling Tenant Delinquencies in the Age of Coronavirus

As the COVID-19 crisis worsens around the world, businesses all across America are struggling to make ends meet. Many have closed their doors for the foreseeable future, furloughing or laying off employees in the process. As of this writing, some 3.5 million people applied for unemployment benefits in the last week alone. And 3.3 million applied the week before that. Many are in financial crisis, unable to pay rent.

Inevitably, this crisis trickles down to landlords. If tenants are unable to pay rent, how should landlords respond? With the first of the month here again, many tenants find themselves out of work. But landlords must still pay mortgages on the properties they own. If tenants don’t pay, how can landlords avoid financial ruin?

In Part One of our two-part look at this topic, we’re focusing on landlords and the fallout from missed rent payments. How can landlords respond to this worsening crisis?

In Part Two, we will be outlining resources available to both landlords and their tenants. The government has approved billions of dollars in financial assistance, and many banks are working with property owners to prevent foreclosure.

The Worsening Economic Crisis: Coronavirus and Its Financial Impact

As Coronavirus spreads across the country, local governments have issued orders for non-essential businesses to close their doors. With that, millions of Americans are now out of work

Congress passed a $2 trillion bailout package, which will give some relief to these workers – an extra $600 per month in unemployment for four months. And most Americans will get a $1200 one-time stimulus payment per adult, plus $500 per child.

But those payments could take weeks to arrive. Meanwhile, rent is due, and the money is gone. Now, renters are trying to decide which bills they can safely afford – and rent isn’t one of them.

April’s rent is all but assured to be late, if it gets paid at all. And as Coronavirus has yet to reach its peak, no one knows when workers will be back on the job. The financial crisis could get a lot worse before it gets better.

The Fallout for Landlords

For property owners, lost rent from tenants means they will be unable to pay the mortgage on their property. It’s a domino effect that has landlords uneasy as rent payments come in late or not at all.

On the one hand, landlords are human and understand that their tenants face financial challenges by no fault of their own. On the other hand, mortgage payments are still due. Many real estate investors own just a handful of properties and rely on those monthly rent payments to pay their debts. How can landlords reconcile the desire to give their renters a break with the crushing reality of possible financial distress?

Evictions Put on Hold Across the Country

Data suggests that half of all rentals in the United States are owned by “mom and pop” landlords, or landlords who own only one or two properties. Missed rental payments could spell financial hardship  for these investors who still need to pay their mortgages, even if tenants can’t pay rent.

However, jurisdictions across the country have passed laws protecting renters from eviction over the next few months. The Department of Housing and Urban Development has stopped all evictions from HUD housing until the end of April, at least. Dallas County has placed a moratorium on evictions for at least 60 days, meaning renters could miss two payments or more without consequence.

With eviction being out of the question, what can landlords do to protect themselves?

What Landlords Can Do During the Coronavirus Financial Crisis

Even with all the financial uncertainly surrounding this current crisis, there are some steps landlords can take to both help their renters and protect themselves.

First, landlords should consider giving their renters a break. In times like these, compassion is the best policy. As a landlord, you have options to protect yourself from missed mortgage payments (more about that in Part Two of this story). Therefore, it’s unlikely you’ll end up in foreclosure over this mess.

Just like your renters, you’ll be receiving a stimulus check in the mail in the coming weeks. And if you make more than the cutoff and don’t receive anything, you’re in far better financial shape than most people in the country. So dig deep, put your business brain on hold, and cut your renters some slack.

How You Can Work With Your Renters

We don’t know how long this crisis will continue. But you can work with your renters and find a solution that works for both of you.

  1. Use the security deposit If your renters are responsible and take care of your property, consider giving them back their security deposit now. You can give it back all at once – essentially paying this month’s rent – or give it back in payments over the next few months. 

  2. Work out a payment plan If your renters can’t pay this month, be flexible and work out a payment plan. Maybe that means not taking rent this month, but splitting up one month’s rent over the next 12 months until it’s all paid back.

  3. Give them a break on rent If you can afford to give your tenants a break, do so. Take less than the standard rent, and call it even. This not only speaks volumes about you as a landlord but also helps the economy overall. If the landlords of all of the 22.7 million rental units across America took even $200 off the monthly rent, that would put an extra $4.5 billion back into our economy, which would help everyone.

  4. Remember the Long Game This month might be painful. Next month could be, too. But in the end, keeping your tenants in your property is more financially beneficial than evicting them. In this economy, vacant units could sit empty for weeks or even months, so you’ll be paying an extra mortgage payment anyhow. Then, consider all the fees associated with changing tenants: application fees, cleaning fees, transfer fees, and utilities. In the end, it is likely more financially beneficial to keep tenants in your property, even if they don’t pay rent right away. No matter what you decide to do for your tenants, you still owe a mortgage on that property. If you’re like many mom and pop landlords, you don’t have a stash of money hidden away to help in a situation like this. 

Where can landlords go to get financial help? How can you protect yourself and your family amid this uncertainty? Find out more in Part Two of this story.

At Designated Broker Solutions, we are fully licensed in 36 states, ready to help owners and property management teams meet their state-specific compliance requirements.  Contact us today!

The information provided herein does not constitute legal advice and is for general informational purposes only. This website contains links that are only provided for the convenience of the reader.  All liability with respect to actions taken or not taken based on the contents of this site are hereby expressly disclaimed.  No representations are made that this content is error-free.  Please consult your attorney to determine if the information contained herein is applicable to your situation.

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