evicted couple sitting in kitchen and wishing they had rent deferral

Many Americans living in rental units are struggling to pay their rent. Retail and restaurant businesses who were forced to close and now operating under capacity restrictions are having difficulty meeting their lease obligations. Industrial and office tenants aren’t faring much better.

It’s a new—and extremely difficult—reality thanks to COVID-19’s impact on the economy. Many real estate owners say that tenants are requesting extended rent deferral or reduction. Yet obligations to lenders and investors still apply in many cases.

So what are investors and lessors doing? Nearly 100 cities and states have placed some kind of moratorium on residential evictions. However, this only applies to judicial eviction proceedings and not rent payments themselves.

Some property owners are able to absorb  a few months of rent payments missed. For the many who can’t, here are some popular strategies being utilized across the industry.

Taking Advantage of Assistance from Federal Agencies

Fannie Mae and Freddie Mac have suspended evictions and foreclosures on single-family properties and offered property owners a 12-month forbearance on these mortgages. They’ve also offered up to three months’ forbearance to multi-family landlords as long as they don’t evict tenants who can’t pay due to the crisis. Forbearance allows the property owners to temporarily suspend or reduce monthly payments to deal with short-term financial problems.  Since these companies guarantee roughly half of U.S. mortgages, it could help a wide swath of property owners and tenants.

Getting Rent Deferral Requests in Writing

Many landlords are collecting rent deferral requests from their tenants and taking them to lenders. This documentation generally includes the reason for the tenant’s hardship (such as job loss due to the pandemic). These requests demonstrate their tenants’ inability to pay during an extraordinary situation—strengthening a landlord’s case for lender leniency.

Although landlords may be able to provide a rent deferral, many are expecting lump sum payments in the near future. Tenants, however, may still not be in a financial position to make those payments.

Considering Tenant Histories

Some residential property owners are taking tenant payment history into account when facing lack of payments. In addition to being “the right thing to do,” rent deferral can be a retention tool for good tenants.

Perhaps one renter always pays on time while another regularly incurs late fees or causes other issues. Property owners who can’t defer rent for all tenants might use these criteria to allow for some exceptions.

Landlords are also seeing the difference between tenants who can’t pay their rent… and tenants who won’t pay their rent. In some of these cases, property owners are requesting detailed information on a tenant’s finances before deciding how to proceed.

Investigating CARES Act Provisions for Property Owners

The Paycheck Protection Program (PPP) can also help bridge rental income gap for property owners. This is especially true for companies with multiple locations or more staff—and as a result, larger payrolls.

The PPP also presents a possible indirect benefit for landlords since funds can be used by recipients to pay rent. As a result, some have set up third-party arrangements to help their tenants get PPP loans. (In a few cases, they’ve even required tenants to apply for them.)

Another provision in the CARES Act is the expansion of the SBA’s Economic Injury Disaster Loan (EIDL) program. The EIDL program provides qualified small businesses with working capital loans and advances to help overcome temporary loss of revenue as the result of a declared disaster. The CARES Act has provided additional funding under the program, which has allowed for qualified businesses to apply for an EIDL advance of up to $10,000. (This advance does not have to be repaid.) Due to the program’s popularity, funds provided by the CARES Act were quickly utilized. With the latest round of funds appropriated by Congress, the program is still providing funding.

Contacting Lenders

Many banks are providing relief in the form of forbearance programs, credit line increases, waived fees and more. While property owners are still ultimately responsible for the loans they owe, the timing of payments can sometimes be negotiated.

Whatever steps you might take as a lessor or investor, don’t simply stop paying your mortgage. Contact your lender to let them know about your circumstances. Our real estate CPAs can also be an important ally during these confusing times. By keeping on top of industry-specific relief measures, we bring you the latest information on relief that affects your business.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.