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Podcast Hard Money Lenders Books Washington
BlogArrowCoronavirus UpdatesArrowHow Does the CARES Act Impact Landlords?
Coronavirus Updates May 27, 2020

How Does the CARES Act Impact Landlords?

G. Brian Davis
Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
139 Articles Written
white main behind window sitting at table with phone and tablet and inquisitive expression

The world has changed shockingly fast in the last 10 weeks.

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Ten weeks ago, I was sunning on a beach in Brazil and sipping coconut water directly from the coconut. Today, I rarely leave my apartment and consider myself lucky to still be earning any income (reduced as it is).

During that short period, 36 million Americans have filed for unemployment, sending the unemployment rate soaring from near-record lows around 3.5% to a Great Depression-levels of 15% or higher.

The federal government has pushed a series of measures through in rapid succession to try and limit the losses as much as possible. But this rapidly evolving crisis has impacted real estate investors and landlords in unexpected ways and left many unsure about ever-changing rules.

And if there’s one new set of rules that landlords need to understand, it’s the CARES Act.

The CARES Act Eviction Moratorium

The Coronavirus Aid, Relief, and Economic Security Act—cutely monikered with the acronym CARES, as Congress so loves to do—included sweeping measures that impacted nearly every single American. But one section proved particularly relevant to landlords.

The CARES Act suspended evictions for 120 days, from March 27 through July 24, 2020, for a wide range of properties. Those properties include:

  • Properties with Conforming Loans: All properties secured by a mortgage owned or securitized by the federal government, particularly Fannie Mae and Freddie Mac.
  • Properties with Federally Insured or Guaranteed Loans: All properties secured by FHA, VA, or USDA loans.
  • Rentals with Section 8 & Housing Choice Voucher Tenants: All properties with tenants paying with vouchers. That includes public housing projects.
  • Properties Using LIHTC: All properties where the owner takes the Low Income Housing Tax Credit when filing their tax return.

That, of course, leaves many other rental properties unaffected. The two loan-based inclusions, for example, apply to mortgage loans designed for homeowners, not landlords. Even if landlords sometimes use them for house hacking or other savvy financing tactics.

Related: These States Will Be Hit Hardest by COVID-19 Recession

Still, it does suspend evictions at millions of rental properties across the country. Note that the act prohibits landlords from even beginning the process by serving an eviction notice to cure or vacate. The suspension applies across the board, not just for nonpayment of rent, so landlords can't non-renew leases or evict for other lease violations such as criminal activity or abusing their properties. The act also stipulates that after the suspension ends, landlords must provide tenants at least 30 days’ written notice before requiring them to vacate.

And the CARES Act marks only one of several potential eviction restrictions on landlords right now.

Eviction Roadblocks Beyond the CARES Act

Dusty road closed sign on a city road, background

Even if none of the CARES Act property stipulations apply to you, you still may not be able to evict tenants violating your lease.

Many states, counties, and cities have declared local eviction moratoriums, preventing any evictions for any reason within their jurisdictions. Some come with explicit timelines, others left the suspension open-ended.

Nor do landlords' enforcement challenges end with express moratoriums. Even in many landlord-friendlier jurisdictions, civil courts remain closed. Landlords can't complete the eviction process without a rent court hearing, which leaves them with no practical way to remove tenants in violation of their lease contract.

Screening Implications

It’s not easy to fill vacant rental units during the pandemic. I know—I’ve been trying to do it.

But I’ve also been even pickier than usual right now. If I can’t enforce a lease contract, then I’m effectively signing a lease based on the renter’s character and my belief that they will honor the agreement.

Not that it comes down to character alone. Many unemployed tenants simply can’t afford to make rent payments right now.

So, you also need to scrutinize the applicants' jobs, under the cold light of the pandemic. How likely is it that they'll be able to continue working? Because not all careers are getting hit evenly by the coronavirus-induced recession. Nurses have far greater job security than, say, bartenders right now.

I’d rather leave my property vacant than rent it to someone who will damage and wear the property without paying rents, who I can’t evict for the foreseeable future. And make no mistake: you can’t assume that the initial timelines, such as the CARES Act 120 days, will be the end of it.

Related: How the Unemployment Rate Affects Us All (Yes, Even the Employed)

Regulation Uncertain

One standing on the road to future life with many direction sign point in different ways. Decision making is very hard to design.

My city has extended its lockdown timeline three times now—which goes to show that the future is more uncertain than I can ever remember, at least when it comes to rules of commerce.

The CARES Act could very well be extended another 120 days. Local eviction suspensions could extend even farther into the future. And it’s anyone’s guess when courts will reopen in any given jurisdiction.

In its original form, the CARES Act stipulates that tenants are still liable for all rent payments, even if landlords can’t legally enforce that liability right now. But what unemployed renter can come up with four months’ back rent payments all at once?

They can’t, and the longer our economy remains closed, the clearer it will be that tenants simply won’t be able to catch up on back rent. This leaves lawmakers with three choices: allow mass evictions, stiff landlords for those back rent payments, or step in and pay tenant’s rents—with a series of ugly strings attached for the landlord but not the tenant.

Look no further than the several disturbing bills proposed by fringe-left members of Congress. Bills like the Emergency Rent and Mortgage Cancellation Legislation and the Take Responsibility for Workers and Families Act.

This legal uncertainty, even more than the soaring unemployment rate and recession fears, is why the pandemic is changing my real estate investing plans.

The Growing Eviction Backlog

Don’t get me wrong, I too worry about the building backlog of evictions waiting to happen. With much of the world’s economy simply closed down, people can’t earn money, can’t pay their rent, and certainly can’t spend money to bolster other people’s jobs. Fully one in four renters is struggling to pay their rent right now, and frankly, I expect that number to get worse before it gets better.

When eviction bans lift, brace yourself for a wave of evictions. Any landlord who’s been through the process knows how miserable it is for everyone involved. It’s expensive, time-consuming, emotionally draining, and it usually ends with rents that will never be collected and damage to your rental property.

And a backlog means a much longer process than usual. I’m accustomed to a backlog of evictions in Baltimore City, where it can take months just to get a court hearing scheduled, much less an actual put-out date. The rest of the country should prepare for a similar experience.

Related: Coronavirus & the Real Estate Market: 4 Challenges Investors Face Today (& How to Overcome Them)

No Foreclosure Relief for Landlords

Tenants are getting eviction relief at the moment. But landlords aren't getting foreclosure relief.

Yes, the CARES Act suspends foreclosures at those properties included under the bill. But most landlords use other forms of financing, such as portfolio loans, commercial loans, or private loans to fund their properties.

So rents stop coming in, but mortgage payments need to keep going out.

Not that mortgage payments even represent the bulk of landlords' expenses. Landlords must still pay for repairs, maintenance, property management fees, property taxes, landlord insurance, travel and accounting expenses, and a dozen smaller costs.

Speaking of insurance, some landlords are finding help from their insurance policies. Rent default insurance policies are paying out (even though most have stopped issuing new policies). And even standard rental property insurance sometimes includes "business interruption" or "business income" protection. Landlords should review their policies carefully and discuss with their insurance agent.

Final Thoughts

While real estate has historically beaten stocks handily in recessions, this time investors face not just threats from the market and economy but also threats from legislation and the legal environment.

Until the legal environment becomes clearer, I’m extremely cautious about buying new rental properties. It’s a politically dangerous time to be a landlord, and what lawmakers fail to grasp about vilifying landlords is that investors won’t put money in rental housing if they don’t have protections under the law.

I love real estate as an asset class. But landlords should be careful they don’t find themselves an unwilling subsidizer of other people’s housing.

Recession-Proof Real Estate book blog ad

Are you still buying rental properties right now? What precautions are you taking as an investor?

Join the discussion in the comments below.

By G. Brian Davis
G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their living expenses. Through his company at SparkRental.com, he offers free rental tools such as a rental income calculator, free landlord software (including a free online rental application and tenant screening), and a free masterclasses on how to reach financial independence within 5 years.
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26 Replies
    Erik W. Real Estate Investor from Springfield, MO
    Replied 8 months ago
    Excellent article that covers some of the major risks to be considering right now.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    Thanks Erik, hope you (and your portfolio) are staying safe!

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    Daryl Luc
    Replied 8 months ago
    I'm not a conspiracy person, just thinking out loud here, but the fact that the gov. seems so incredibly focused on the tenant end of the contractual obligation and not the investor end smacks of either stupid or conniving thinking. If the landlord was protected with at least an automatic sponsored payment of the mortgage, not forbearance, then the tenant obligation would potentially shrink away until a later date, the landlord obligation would be mitigated until the tenant makes payments and the mortgage servicer would be realizing the required cash flow to reward the super notes that back mortgages in the first place. Holding tenants at arms length from their obligation hurts everyone above them in the food chain with potentially damaging fallout that can't be repaired after the fact. I know it's not easy to 'fix' these things, but the current thinking just baffles me.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    I hear you Daryl. I'm not buying any rental properties in tenant-friendly jurisdictions that have suspended evictions.

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    Steve Wilner from Nong Phok, Chang Wat Roi Et
    Replied 8 months ago
    Very interesting and well written article. I have some very interesting and unusual circumstances and would love to bounce some ideas and conversations off of you? Also learn more about what you are selling and doing? Beaches in Brazil are in our sights and we can share some beaches in Thailand too if you want or like?

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    Dave Rav from Summerville, SC
    Replied 8 months ago
    Wow, quite a bit of doom and gloom here. Though all of these points COULD precipitate, frankly, not all have been (at least for me). I keep saying this - COVID's impact is affecting folks differently in different locales. Also, in contrast with that you're saying, much of the country is opening up (whether or not that is a safe idea - it's happening). This includes the courts.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    The virus has definitely not impacted all areas evenly, or at the same time. It'll be interesting to see what happens over the next few months, how regulators respond to the backlog of evictions, and whether a second wave hits. My greatest concern is not so much the doom and gloom but the unknown.

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    Kahnica Cole Rental Property Investor from Richmond, VA
    Replied 8 months ago
    I thought the article was informative...until it became a little too political...
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    (shrug) You don't have to agree with anything I said :-) But it's good for everyone, regardless of their political views, to be reminded that every piece of content they consume contains the inherent slant and perspective of the person who created it. We Americans far too often forget that, as we sit in political echo chambers and just consume media that reflects our own beliefs.
    Ed B. Real Estate Investor from Sacramento, CA
    Replied 8 months ago
    If there's a political slant, what's wrong with mentioning it?? If the government thinks they can block evictions, the should also block foreclosures for failure to pay mortgage payments, which can only be paid from rental income.

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    Steven Ashwood
    Replied 8 months ago
    I didn’t see where it got political, but everything going on with our economy is about politics.

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    John Yarenis Real Estate Professional from Park Ridge, New Jersey
    Replied 8 months ago
    From what I’ve been reading, most of the information out there has been focused on the residential side of the spectrum. The bigger challenges I’m concerned about are the mom & pop commercial property owners who have small strip centers or mixed use properties where the businesses are forced to close.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    There's a lot of cause for concern on the commercial side. Many former office workers will continue telecommuting indefinitely, leaving far less demand for office space. I suspect we'll see many commercial office properties repurposed to residential or some other function.

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    Ivan Widman Rental Property Investor from Minneapolis, MN
    Replied 8 months ago
    Is there anything specific to charging late fees for properties that fall under the CARES act? I thought I've read in a few places that landlords cannot evict or charge late fees during this time. Maybe it was fake news or maybe it's location specific. Any thoughts?
    Ed B. Real Estate Investor from Sacramento, CA
    Replied 8 months ago
    Ivan, in my area late charges have been banned. Big deal. I'm more concerned about collecting rent. I'll gladly forgive late fees in exchange for rent. But don't you think it's kind of stupid to think you're owed a late fee if the cause of the lateness or non-payment is from something out of the tenant's control? I do. I've got bigger things to worry about than late fees.
    Account Closed Rental Property Investor from Temple, TX
    Replied 7 months ago
    Ed, big deal? What about the people who decide to take advantage of this law? In my lease it states tenants cannot smoke on the property or have unauthorized people living in the property. I found out they have had someone living in the property, since they moved in, and that person smokes on the property. Now they decided not to pay rent, because I told them not to smoke on the property. So due to this ignorant one sided law, which I had no say in, I cannot evict them for lease violations or non payment of rent. So yes, I want to charge any fees against them available in the lease, because as a grown adult they signed a lease which binds them to responsibilities as an adult. People now days have decided if they can push their responsibilities on someone else they will. If I can't collect rent, late fees, or evict someone because they don't want to take care of their own responsibilities. Then what am I or other responsible adults like me, who have made good choices to get where we are, supposed to do to continue taking care of our responsibilities?

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    Cindy Casper from Tucson, AZ
    Replied 8 months ago
    I have a property in WA state. My tenant is still paying but I have been wanting to sell it. I was wondering if we can offer the tenants money to leave on a month to month rental? Anyone heard about this?
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    You can offer to renegotiate lease terms, although depending on when your current lease term expires, it may make more sense to just wait and non-renew them.

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    Joanna Benz from Las Vegas, NV
    Replied 8 months ago
    Hi Cindy -- I don't see how this is any different than offering a renter "cash for keys" when you are buying a house. You would not be evicting or foreclosing in any manner. They're not gonna issue any laws saying you can't GIVE the renters money. Just make sure they will not actually receive the cash until they have actually relocated and turned over their keys. Put everything in writing, stated plainly, and then stick to your word.

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    Account Closed
    Replied 8 months ago
    Thank you, Brian, for a thoughtful & sober piece. I have rentals in one of those dreaded "tenant-friendly" jurisdictions (though what's friendly about making sure there won't be any rentals available for tenants to live in I couldn't say) & I am looking to sell before the year is out. Most of my tenants have been managing okay, & the one deadbeat was already behind before the plague hit (& is successfully using the plague as an excuse), but I just don't trust those city & state governments to do anything sensible anymore.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    I hear you Olga! I've been selling off my units in tenant-friendly jurisdictions as well. Just not worth the headaches.

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    Mia Fairly
    Replied 8 months ago
    I am hoping many of these courts will all court order mediators to handle eviction cases virtually , in order to ease the backlog of eviction cases.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    It's a great idea Mia. Although with so many state and local governments in serious financial trouble, the only way I see it happening is if it saved them money, rather than costing extra.

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    Ana Perez Investor from Burbank, California
    Replied 8 months ago
    Thank you Brian for this interesting report. I have a question one of my landlords gave me 30 day notice, they are buying a house and they just ignored the one year lease that expires next January. I’m wondering if they are protected by this law by breaking the lease. I don’t know what should I do, and this property is in California No loans. Any suggestions? Thanks a lot
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    Hi Ana, I don't believe they're protected by the CARES Act. But to actually collect lost rents from them, you'd have to take them to court. Unfortunately, that's often more trouble than it's worth.

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    Eric DeNardo New to Real Estate from Denver
    Replied 3 months ago
    Brian, Thanks for this article. Really informative about the risks of rental properties right now. I like how you are "picky" about new tenants coming in because you are unable to enforce your contracts.

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