What Small-Time Landlords Think About Eviction Moratoriums
Sona Sulakian Intern
“I can’t make my mortgage or property tax payments without rent income.”
These are the responses we got from a few landlords - those who only own one or two rentals - when we asked them why they are considering evicting their tenants when eviction moratoriums expire (July 25th nationally, but some states and cities have their own deadlines).
While eviction moratoriums have protected tenants, many small-time landlords complain the bans are unfairly forcing them into debt, foreclosure and even bankruptcy. One lawyer, interviewed below, wonders if the moratoriums actually violate the Constitution.
Who are landlords?
When most people picture a landlord, they think of an evil, money grubber who never returns phone calls about broken plumbing.
But that's not really true.
Generally, businesses own large apartment complexes, while individual landlords own single-family homes.
A 2018 survey confirmed this trend, showing that individual investors (mom-and-pop landlords) own over 70% of the nation’s rental single-family homes but just under half of apartment rental units.
But don't even small-time landlords have a lot of money?
Of the $174 billion in tax breaks in the $2 trillion CARES Act, small landlords got close to nothing. Many of the nation's wealthiest businesses, including large property management companies, saved billions.
While some small landlords have savings to last them through the eviction moratoriums, they will likely recoup little of their losses. With unemployment rising, renters will likely still be cash short when rent comes due as the job market remains slow in the coming months, possibly years.
Are eviction moratoriums a Constitutional violation?
Attorney Doug Michie recently filed a complaint in federal court against California Governor Newsom’s statewide moratorium on evictions. We asked Michie for his view on the current situation.
Michie says, "Eviction moratoriums will march our economy into a recession.”
In his view, the Governor is trying to prevent California's homelessness problem from getting worse. With eviction moratoriums, the state may be temporarily doing that, but landlords are paying the price. Michie believes homelessness is a problem the state has to deal with.
“The government’s placing of the cost of the recession on landlords is completely unfair. The costs should be spread throughout society and not concentrated on just a small portion of the population,” says Michie.
Michie believes that eviction moratoriums violate a landlord’s contractual rights as established in the Constitution. He argues they violate the takings clause in the Constitution, which requires the government to compensate individuals for taking their private property for public use.
Essentially, this clause bars the government from forcing some people to bear public burdens that should be borne by the public as a whole.
And, he argues, that prior cases have established that when the government uses private property for public use, they must compensate the owners of the private property.
What can landlords do?
Michie urges landlords to communicate with tenants, understand their tenants' situation, and work together to come up with a mutually beneficial resolution.
“The shame with eviction moratoriums is that tenants don’t need to negotiate with landlords,” says Michie.
By creating eviction moratoriums, the government eliminates the leverage that landlords have to negotiate with tenants.
The CARES Act, and most state and city moratoriums, say only those tenants suffering from COVID-19-related hardships are exempt from eviction.
But in many states, there is no requirement for tenants to prove that they have suffered some financial hardship. Michie believes many tenants have the ability to pay at least partial rent. For those out of work, the state provides unemployment insurance which the federal government tops with another $600/week on top of the stimulus check.
“The idea that landlords can collect back rent from tenants is just a pipe dream,” says Michie. “In my experience, landlords will never get back any rent from tenants."
Eviction courts will likely be backed up once the courts open. Even if landlords win in court, tenants can often escape by changing bank accounts, ignoring collection agencies, filing for bankruptcy, or leaving the state.
The landlord’s struggle
Michie points out that owning rental property isn't for the faint of heart. When tenants don't pay rent, the landlord bears the legal expenses of evicting a tenant. Sometimes there are months of vacancy and income loss, while landlords still have to cover property taxes and mortgage payments. Sometimes tenants call in the middle of the night to fix a clogged toilet, and landlords bear these maintenance costs.
“It’s a lot of work, which landlords usually do because they know that eventually they’ll have their retirement income,” explains Michie.
He knows many landlords who started 30 years ago, and struggled, with the goal of retirement and retirement income. These people don’t have pensions. Rent is their retirement fund. These landlords have lost the return on their investment, but still have all the duties that come with owning property: property taxes, mortgage payments, maintenance.
Michie hopes this issue goes to the Supreme Court, so landlords can know for sure if their personal and financial sacrifices will be compensated. He fears that eviction moratoriums and related regulations “might chase the mom-and-pop landlords out of the market.”
He worries that the landlords who can’t make ends meet without the rent income will sell. The properties will be scooped up by large businesses (the only ones with the cash to buy in a recession, in his opinion) who will renovate, gentrificate, and increase rental prices even further.
Already, states like California have an affordable housing issue. But, as Michie explains, landlords don’t create the issue. The government regulations and labor costs, not to mention the years of delays in granting new construction payments and the associated horrendous fees, add to the costs of housing.
The resulting increase in rental prices will disproportionately affect minority families, who are about twice as likely as white families to rent rather than own their homes.
So what’s the solution?
“A blanket moratorium that allows any tenant for any reason not to pay rent is the wrong approach,” Michie says. Instead, he suggests an alternative solution: subsidize the tenants with rental assistance that goes directly to the landlord.
Whether you are a small-scale landlord or a tenant, Court Buddy can help you.
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