When a Tenant Is Late With Rent During the COVID-19 Pandemic
In March 2020, being a rental property owner suddenly became much more challenging. When nonessential businesses closed in order to protect public health, millions of people lost their jobs and the income they needed to stay current on their rent. Some tenants won’t be able to, or may even simply refuse, to pay rent at all for the foreseeable future. Some of the usual options for landlords to address late are still viable while others are off the table. Here is what to do when your tenant is late with rent.
Check the Current Law and Status of Court Operations
Federal legislation and state and local emergency measures have suspended evictions for properties that have “federally backed” mortgages during the COVID-19 crisis through late September. These same properties/landlords are prohibited from charging late fees. Before you do anything about late rent, find out what laws apply to your property and what remedies you may or may not pursue right now. Some landlords are still trying to file eviction actions against nonpaying tenants, claiming that their properties are not subject to these federal restrictions. If your rental property has a mortgage that was originated as an FHA or VA loan, or was originated as a conforming FNMA or FHLMC loan, you are subject to the new CARES Act provisions. If you own your rental property free and clear, then you are not subject to the federal restrictions. However, even if your property is NOT subject to these restrictions, understanding the government’s intent to provide tenants with time to find new jobs and get caught up on their rent, how is a judge likely to perceive the landlord who is trying to get around these new provisions?
The CARES Act will prohibit most landlords from evicting tenants for nonpayment of rent until late September. However, landlords are still able to terminate leases that are expiring, and if necessary, those landlords may be able to evict the tenant for holding over beyond the termination of the lease. If your local courts are open for business, and your lease is expiring, consult with your attorney about evicting for holding over.
Communicate and Document
The CARES Act only postpones the payment of rent. Call your tenants and have a conversation to find out their circumstances. Perhaps only one adult lost their job. Perhaps there is only a cut in pay. In a normal market, there are often legal considerations that keep a landlord from accepting partial payments. Now there is every reason to accept partial payments from your tenants.
Remind your tenants that 1) the rent is still due, and 2) refusal to pay when they have the ability to pay will only create a circumstance where they will eventually be evicted and the amount that they owe will be substantial. What kind of home are they going to rent next when any future landlord sees that they were evicted from the last place without paying rent for months? As your tenant looks further down the road, they will see it is in their best interests to work with you to the best of their ability.
Be Patient—You May Have a Forbearance Option
If your property is subject to the CARES Act restrictions, then so is the mortgage company that holds your mortgage. You have the option to not make your mortgage payment for up to six months, and you may be able to extend that option for six additional months. In the same way your tenant will owe all that is due, but they have a few months to get caught up, the same obligation applies to you as the mortgagor. You still owe the full amount, you just have a window within which you can get caught up. If you can’t make your mortgage payments without the rent, then the CARES Act is giving you time for the tenant to get caught up so you can get caught up too.
So far, through the end of April, single-family tenants are paying over 90 percent of the rent due throughout the industry. Many of the tenants who did not pay April rent are starting to receive stimulus checks and other assistance. If your tenant is communicating with you and diligently working to get caught up, being patient is likely to be much less expensive than to have to have your tenant vacate, lose a month’s rent while you find a new tenant, and pay a contractor to turn the new unit. Experts are predicting that, as downturns go, this one is likely to pass much more quickly than the Great Recession of 2008–2015.
These are tough times for everyone. Be fair but firm. Make sure tenants know that if they can’t pay now, they will still have to pay eventually if they want to stay in your rental property. In the Atlanta metro area, contact Excalibur Homes for property management in Roswell, Suwannee, Alpharetta, Cumming, and the city itself. Excalibur can help real estate investors navigate tough times in a way that retains good tenants and maintains the viability of your real estate investment.