How Will the New Eviction Moratorium Impact Multifamily?

Many investors are talking about the new eviction moratorium, and worry about the potential and immediate impact on multifamily. On the surface, it does sound troubling, but I have read the new moratorium and also witnessed the actual impact on my multifamily properties. Before we start talking about the actual impact, let’s dive into the new eviction moratorium basics. The original eviction moratorium expired on August 31st and included a broad cross section of tenants regardless of their income, as well as the loss of employment whether or not it was due to COVID-19. In most cases, eviction depended on the state where the property was located. Some states had a more inclusive moratorium, while others had a loose moratorium or didn’t have one at all.

The truth is that some tenants tried to take advantage of the moratorium and failed to pay rent in a timely manner before COVID-19 came along. The original moratorium was much harder on landlords than the current one, because with the original moratorium, you couldn’t even start the eviction process. The main difference between the old and new eviction moratoriums, which many investors are unaware of, is that now you can actually evict tenants who are not paying their rent. Moreover, the tenants who want to be shielded by the moratorium need to take some actions, which we will discuss later, to stop the eviction.

So, how does the new eviction process work today? It starts, of course, with an eviction notice. Individual states and counties have their own unique rules and regulations, with some requiring a 3-day eviction notice to tenants and some requiring a 30-day notice. Once you provide notice, it’s up to the tenant to research, find, and sign a declaration form that claims that they will become homeless if evicted, and that they have loss of income due to COVID-19. With the original eviction moratorium, tenants didn’t have to do anything when they didn’t pay their rent. Managers or staff would often knock on doors, and tenants would choose not to answer the door or their phone, avoiding the eviction process entirely.

Major Differences Between Eviction Moratoriums

With the new eviction moratorium, the burden is on the tenant to sign a declaration stating that they’re not paying rent due to the COVID-19 and are requesting that the landlord stop the eviction process. Previously, the tenant didn’t have to do this.

With the new moratorium, the tenant is declaring that they’ve used their best efforts to secure government assistance for rent or housing. They are also declaring that they are unable to pay their full rent or make full housing payments due to substantial loss of household income, loss of compensable hours or wages, layoffs, or extraordinary out-of-pocket medical expenses due to COVID. This was not included in the original eviction moratorium.

In addition, tenants now must declare that they are making less than $99,000 per year (individual) or $198,000 if they file jointly. Most tenants in Class C and D properties will likely meet that income requirement. For tenants renting in Class A and some B properties, it’s more likely than not that they will be making more than the maximum allowed under the new eviction moratorium.

Now, once the tenant signs the new declaration, they’re doing so under the penalty of perjury. This puts the tenant at risk of being sued by the landlord and the state if any false statements are made.

The CDC Created the New Eviction Moratorium

It’s interesting to note that the new national eviction moratorium for the balance of this year didn’t come from Congress or the Department of Housing and Urban Development. Instead, it came from the Center for Disease Control. So, why would the CDC be involved in issuing a halt in residential evictions? According to their director, Dr. Robert Redfield, evictions could end up being detrimental the measures used to control public health, as well as increase the potential spread of the COVID-19 virus. Some of the wording in the declaration that the tenant must sign is designed to call attention to that aspect of the moratorium. This includes declaring that being evicted might lead to homelessness, or being placed in a shelter where many other people will also reside. Both of those scenarios would increase the potential for acquiring COVID-19.

The new eviction moratorium was written under the Public Health Service Act. As you would imagine, a tenant can still be evicted from their residence if they engage in any criminal activity on the premises, are found to be threatening the health or safety of other tenants, being in violation of any health ordinance or building code, or posing an immediate and significant risk or damage to the property.

Putting Things in Perspective

Landlords are not responsible for instructing tenants on how to deal with the new eviction moratorium or how they should proceed with the new declaration that is required. The burden is now on the tenants to gather all of this information and submit it to the landlord. Because the declaration is comprehensive in what it includes, and that it explicitly states that signing it makes one subject to perjury if they aren’t truthful, helps to reduce those who have previously used the COVID pandemic as a reason to avoid paying their rent, even if they could afford to pay.

The truth is most tenants are unaware of the declaration form and how to stop eviction. I can tell you that on my properties, once we’ve sent eviction letters, tenants actually paid right away, which means, that the new eviction moratorium has a low impact on multifamily. Of course, this is only my experience as an operator, and some states have a more expansive statewide eviction moratorium.

Many tenants don’t realize that while they will avoid eviction during the moratorium for not making full rent payments, once they submit a declaration, they will still be liable for paying their full rent when the moratorium ends. The landlord can, if he or she chooses, ask for the entire amount in arrears when the moratorium ends. This can put an undue burden on many individuals and may discourage them from signing the declaration.

Additionally, the tenants may be liable for fees, penalties, or interest payments as a result of the failure to make their rent or housing payments in full on a timely basis. Currently, the moratorium is scheduled to expire at the end of this year. If you have tenants who have submitted a declaration, it’s important to encourage tenants to continue to communicate with you if their situation changes, as well as encourage them to continue to pay what they can in rent. This shows that they are making their best efforts to pay and will also help when the moratorium ends for the amount due in arrears. There are also some creative ways to handle non-paying tenants, which you might want to consider.

Summary

The previous eviction moratorium expired at the end of August, and the new one was put in place on September 4th of this year. It is expected to last until December 31st. The original eviction moratorium was much harder on landlords because they weren’t able to initiate eviction proceedings, while the new one that requires a sign-off from the CDC does, in fact, give landlords the right to institute eviction proceedings.

Now, the burden is on the tenant to obtain and sign a declaration stating that despite their best efforts they are unable to obtain the funds needed to stop any eviction proceedings. The declaration is comprehensive, and subjects the tenant to fines, penalties, and even imprisonment if they perjure themselves when signing the declaration. They must state that they are unable to pay their full rent or make full housing payments due to substantial loss of household income, loss of compensable hours or wages, layoffs, or extraordinary out-of-pocket medical expenses due to COVID.

Tenants must also declare that they earn less than $99K per year ($198K per year if filing a joint tax return). In addition, they have to declare that eviction would leave them homeless or require them to be placed in a shelter which they would have to share with multiple tenants, exposing everyone to a higher risk of COVID-19.

It should be noted that while signing the new declaration may stop eviction proceedings, it doesn’t excuse the tenant from having to pay all past due rent when the moratorium expires on December 31st. In fact, the landlord might ask for payment in full at that time, which could place a huge burden on the tenant.

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About the Author

Ellie is the founder of Blue Lake Capital, a real estate company specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

Ellie is the host of REady2Scale , a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital at www.bluelake-capital.com and learn more about Ellie at www.ellieperlman.com.