COVID-19 continues to spread across the United States while many tenants and landlords are wondering, “how do I ethically collect rent from my residents during COVID-19?”
Naturally, landlords have and will be sending out letters to their tenants to ensure that rent will continue coming in. However, there is an ethical, empathetic way to go about collecting rents and a non-empathetic strategy to go about collecting rents during COVID-19.
Take it from Steven Kresena, who has “financially been freaking out,” wondering, “Can we pay rent this month, and if so, can we do it the month after?”
Then he received this letter from his landlord:
“Thank you for understanding the coronavirus pandemic in no way changes your legal obligations to pay your rent. These trying times will be hard on all of us, but we see this ending soon and look forward to life returning to normal.”
He felt this letter was heartless and certainly did not garnish the real estate company and landlord with good press.
Lacking empathy and compassion in this situation is not going to help the rent get paid faster and, in many cases, may lead to the rent not getting paid at all. Instead, follow us along as we dive into ethical, empathetic strategies to collect rents from tenants during COVID-19.
Keep your tenants safe & informed with our free COVID-19 resident sample letter template
There are roughly 8 million individual landlords throughout the United States who own, on average, 1 to 10 properties. Out of these 8 million landlords, they own and manage nearly half of all properties in the nation totaling 48 million renters.
These smaller, DIY landlords do not have the cash reserves comparable to REITs and real estate companies that own thousands of units across apartment buildings—leaving them without the credit or cash to cover the expenses needed during COVID-19 when tenants are unable to pay rents.
This means now more than ever; landlords must collect rents from tenants during COVID-19 ethically. Failure to do so may lead to you facing foreclosure and having to sell your rental property to an investor.
Recent surveys from Avail show that 53.5% of renters have lost their jobs due to the COVID-19 pandemic. Which leaves the question of how will 54% of renters pay their rent with no money coming in?
Some will dip into their savings, receive unemployment, borrow from credit cards, or ask family and friends. While 32% of renters said they would not pay their rent if they are unable. As we can see, the numbers are not looking too good for landlords who do not know how to collect rents from tenants during COVID-19.
Coronavirus may seem resoundingly negative for landlords and residents. However, there is good news for landlords. The majority of tenants say they can still pay rent, with 66% responding that they can pay their rent and that numbers grows when you add in residents that say they want to pay their rent even if they are unable to do so.
During this time, it is even more important for landlords to come up with win-win strategies for tenants that allow them to pay their rent in creative, non-traditional ways.
As the global pandemic continues and our economy sinks further, residential landlords are entering a crisis situation. Ethically, how do landlords respond to late payments? How do small property managers collect rent? And what happens if tenants stop paying rent?
1. Utilize Government Rental Assistance Relief Programs
The first place to look when assisting tenants with paying rent is emergency government programs such as the CARES Act to provide relief to help tenants pay.
What Is the CARES Act?
The CARES Act is a federal law signed into effect on March 27th, 2020. This act provides:
- The Department of Housing and Urban Development with $17.4 billion in funding, which includes rent assistance, housing vouchers, public housing, and housing for the elderly.
- Direct-to-citizen relief checks in the form of stimulus payments to qualifying Americans.
Who Qualifies for the CARES Act?
To qualify for a stimulus check, you must have an AGI (adjusted gross income) of $75,000 or less as an individual filer or head of household, and married couples receive up to $2,400. Roughly 48 million stimulus checks went out on April 18th, which means your tenants may have received theirs.
Rental assistance through HUD allows landlords to provide housing for low-income tenants receiving a guaranteed portion of the rental payment from HUD. Contact your tenants and determine if they qualify for the program.
Next, if your tenants qualify to register your property within HUD, provide assistance to your tenants to help sign them up for rental assistance. Doing so will guarantee a portion of the rent every month and provide your tenants with financial relief.
These programs and stimulus payments can help keep residents in a position to make their rent payments for another month and keep landlords from facing foreclosure or falling behind on mortgage payments.
Example of What NOT to Do as a Landlord
Do not check if tenants received their stimulus check directly through the IRS using their social security number provided in residents' application or lease agreement. While this may be tempting for landlords or small property managers, this is unethical , breaks landlord-resident trust, and is illegal.
Unfortunately, some landlords lack these ethics and break the privacy rights of their tenants, such as Austin Goodrich’s landlord did. Austin certainly was not happy - and with the negative press and possible legal troubles facing this property manager or landlord, it is not worth the risk.
You have probably heard the story about my landlord circling the internet, but I would like to take this opportunity to highlight the gaping holes @IRSnews security and verification system which allows for anyone to access it using minimal information.See my statement below pic.twitter.com/dVopGWLr9B— Austin Goodrich (@CascadianRebel) April 20, 2020
2. Utilize Non-Profits Providing Relief to Help Tenants Pay Rent
Multifamily investment firm Gelt launched the Gelt Foundation, a nonprofit organization that provides rental assistance to tenants who qualify during unexpected financial emergencies such as COVID-19. Their goal is to keep responsible tenants from being evicted during times of financial crisis. Tenants who have a history of on-time rental payments while being an essential part of the community adhering to their lease and property rules will qualify.
Unexpected financial crises include but are limited to temporary loss of a job, temporary furloughed employment, medical emergencies, family emergencies, car repairs, and natural disasters. Issued aid is equivalent to one month’s rent and is paid to the landlord as a grant or no-interest loan. As a landlord, it is your responsibility to compile these strategies and provide them first hand to your tenants. Doing so will not only ensure rents continue to come in but will also save your tenant from being evicted and possibly homeless.
3. Speak Individually With Your Tenants to Understand Their Situation
More than ever, it is crucial to reach out to tenants with compassion to learn more about their current financial situation and how to help. Effectively reaching out will enable you to provide solutions that will ensure rent continues to come in.
Tenants who are treated with respect have an emotional incentive to continue paying rent. The opposite approach ignoring COVID-19 and demanding rent be paid on time or face eviction just might push your tenants over the edge to skipping town. The reason being is that people are facing unprecedented levels of anxiety, fear, and worry.
Do not make a challenging situation worse by failing to empathize with tenants and keep the rent roll coming in despite the pandemic.
4. Lease Amendments, Partial Payments, or Rental Payment Plans
Lease amendments or suspension of rental payments make the most sense for landlords that have federally backed mortgages. Provisions of the CARES Act allows federally backed mortgages to be suspended for up to 12 months.
More so, you will not be charged late fees, and this will not affect your credit. Suspension of mortgage payments is not a forbearance, which means you will not have to pay the payments back. This fits for a win-win situation between the landlord and tenant.
How to Find Out if Your Loan is Federally Backed
- Your mortgage servicer is required by law to let you know who owns the mortgage and their name, address, and phone number. Call them and find out if your loan is federally backed.
- Using tools provided by Fannie Mae or Freddie Mac, you can find out if your loan is owned by Fannie Mae or Freddie Mac government-backed loan providers.
- The MERs website or Mortgage Electronic Registration System enables you to find your loan servicer if you do not know who issued the loan.
Alternatively, you can work with tenants to accept partial payments or forbear payments for some time. Although you may not cash flow your property during this time, it will allow you to keep vacancy rates at an adequate level to continue paying the mortgage. Be sure to go back to the original basic rental agreement if you go the amendment or lease re-modification route.
Are you a landlord who is struggling to collect back due payments from a tenant? If you answered yes to this question, the first step is to use effective communication.
Now you may be wondering, “I tried effective communication for the past two months to no avail..” in this case, you should take into consideration the state of which you are located. A post-COVID multifamily housing trend is rent moratoriums. Depending on the state, you may have eviction moratoriums and foreclosure moratoriums.
States with Eviction & Foreclosure Moratoriums
- Arizona: Evictions are temporarily delayed tenants impacted by COVID-19 for a maximum of 120 days by an executive order from Governor Ducey.
- California: Local governments in the State of California pause evictions for renters effective executive order until May 31, 2020, by Governor Gavin Newsom.
- Hawaii: Statewide eviction activities are suspended by the Department of Public Safety Sheriff Division in Hawaii. Governor David Ige signed a moratorium through April 30, 2020, at the least.
- Idaho: Statewide, there are no eviction moratoriums. However, if you are a landlord or tenant in Blaine County, eviction hearings have stopped indefinitely from an order of the 5th District Administrative Judge Eric Wildman.
- Indiana: Evictions and foreclosures are on hold until Indiana’s state of emergency is over by the executive order of Governor Eric J. Holcomb.
- Kansas: Business, personal, residential evictions, and mortgage foreclosures are paused until May 1 by the executive order of Governor Laura Kelly.
- Kentucky: Eviction court cases are paused indefinitely by Governor Andy Beshear.
- Louisiana: Effective March 18 by Governor John Bel Edwards, the state is suspending all foreclosures and evictions.
- Maine: Evictions are hereby banned with the exception of unlawful circumstances until at least May 1 by the executive order of Governor Janet Mills. Fortunately for landlords and tenants, there is a rental relief fund that offers a one-time payment of $500 to landlords for tenants that are struggling to pay rent.
- Maryland: Until the state of emergency in Maryland is over, and Governor Larry Hogan issued an emergency order. The emergency order prevents the eviction of tenants who can prove they are unable to pay rent due to COVID-19.
- Massachusetts: Massachusetts has an emergency declaration preventing sheriffs/constables from evicting tenants. More so, they are unable to enforce foreclosures on residential property.
- Minnesota: Moratorium bill has been issued in the State of Minnesota, which blocks landlords from filing for eviction for 30 days where public health emergencies have been declared. No charging late fees on unpaid rent for 60 days.
- Missouri: Jackson county has suspended eviction proceedings; however, the rest of the states have not.
- New Hampshire: Foreclosures are frozen, and eviction proceedings for tenants missing rent due to pandemic are not allowed by the executive order of Governor Chris Sununu.
- New Jersey: Evictions and foreclosures are paused for 60 days as of March 19 by the executive order of Governor Phil Murphy.
- New York: Mortgage payments for people who are out of work for 90 days are suspended. More so, there is a three-month suspension of commercial and residential evictions as enacted by Governor Andrew Cuomo.
- Oklahoma: Until May 18 at the very earliest, have all court proceedings suspended, which includes eviction hearings.
- Oregon: 90-day eviction moratoriums are enacted in the State of Oregon as of March 22 by an executive order from Governor Kate Brown.
- Pennsylvania: All courts are closed, and state residents cannot be evicted from their homes or businesses through April 3 by order of the Pennsylvania Supreme Court.
- South Carolina: Eviction proceedings that do not involve “essential services and/or harm to person or property” are paused by South Carolina Chief Justice Don Beatty.
- Tennessee: In-court proceedings are suspended, including eviction proceedings.
- Washington: Residential landlords are prevented from serving eviction notices due to defaulted rental payments through June 4 by order of Governor Jay Inslee. No eviction orders may be enforced through law enforced by nonpayment of rent.
- Washington D.C.: Foreclosures on homeowners and evictions on tenants are suspended indefinitely.
- Wisconsin: Both evictions and foreclosure are paused for the next 60 days.
Instead of looking to evict, urge your tenants to apply for a COVID-19 rental assistance program that is short to be passed through the Senate. The program provides emergency vouchers for eligible individuals and families, as defined by the terms. Read up on the bill to figure out if your tenants qualify and be sure to follow along as it will be reviewed on the senate floor shortly.
Consider a Work in Exchange for Rent Program
Alternatively, see if there is a way your tenants may be able to work in exchange for rent. Perhaps your tenants have skills in the trades, accounting, or finances and are able to help you in exchange for rent in other areas of your business.
For instance, maybe you have a leaky roof in one of your properties, and in another property, you have a roofer facing eviction. Reach out to the roofer and offer them the work in exchange for rent. This way, both parties win, save money, and, most importantly, a roof is still over the roofer’s head when they lay down to sleep.