This is Andy Ritan, owner and broker of Atlanta Property Management Group, here with a blog on how we’re handling tenants who don’t pay the rent during the COVID-19 epidemic while the courts are closed, and during the time covered by the CARES Act.
As I speak, the COVID-19 virus is spreading throughout the nation. Today, April 12, there are over 12,000 active cases in Georgia and the number is doubling every few days. The governor has required as many of us as possible to stay home to slow the spread of the virus. Many businesses are shut, millions of people are unable to work, and many of our tenants will be unable to pay the rent in the months to come.
Meanwhile, on March 27, 2020, the CARES Act went into effect. The CARES Act was a large piece of legislation but here are some implications for our tenants and owner clients in Georgia. Under the CARES Act, landlords may not charge tenants late fees for non-payment of rent for 120 days starting March 27. This applies only to properties that are financed with federally backed loans, such as HUD, Fannie Mae or Freddie Mac. 120 days brings us to July 25. Landlords may not file evictions for non-payment of rent until at least 30 days after that, which takes us to August 24.
Even if the CARES Act hadn’t been enacted, the landlord-tenants courts are closed. The dates the courts will reopen vary by county, but most are closed at least through mid-May. So even if the CARES Act weren’t in force we still couldn’t move forward with evictions until the courts reopen and we don’t know when that will be.
This is a strange and unprecedented time for property managers. We ordinarily rely on late fees and eviction filings to motivate tenants to stay current with their rent payments, and now there is a moratorium on late fees and eviction filings until the dates I mentioned.
Here is what we at Atlanta Property Management Group have decided to do when our tenants don’t pay the rent. Rather just waiting for tenants to default on the rent, we sent them a proactive communication via email. We told them we know about the changes in the world and we are concerned for their welfare. We asked those who will not be able to pay the rent in part or in full to fill out an application for hardship in which they document their inability to pay the rent because of loss of employment due to the coronavirus. We have asked them to provide letters of severance, notices of reduced compensation, or proof they have filed for unemployment insurance. If they can’t pay the full rent, we have asked them how much they can pay.
Here is the thing: Once tenants get a few thousand dollars behind in their rent, they usually simply give up, don’t even try to pay, and await eviction. What we are looking for here is a win for everyone: tenant, owner, and property manager. Let’s say the crisis lasts for four months and the tenant can pay half rent during that time. Four months later the tenant is working again, the public health crisis is resolved, and the courthouses are open. The owner has gotten at least some money, and the amount of money the tenant is behind is reduced.
Here’s how I see the end game possibly playing out: Let’s say that four months from now the public health crisis has been resolved, the tenants we allowed to make partial payments are working again, and they can resume paying the normal rent. Let’s say one tenant is now $2000 behind in the rent. Now we can negotiate with that tenant what to do about this balance. Maybe we amend the lease so the tenant pays an extra $200 per month for ten months. Or, maybe the tenant cannot pay the entire amount. We negotiate with the owner to write off $1000 of the balance owed and the tenant pays off the negotiated balance at $100 per month for 10 months. In some cases, we may need to simply regain possession of the property and start over with a new tenant.
The reason my team and I think this may work is because we have tenants who have had perfect payment records with us for years who have now been furloughed from their jobs. When we reached out them proactively, they immediately volunteered to pay partial rent.
Our goal here is a win for everyone: The tenant wins because they are able to remain in the property and return to good standing in their payment record. APMG wins because we are able to continue to manage the tenant and property for the owner. The owner either eventually receives all rent owed, or, even if the owner has to negotiate a balance with the tenant, the owner avoids the large cost of losing a tenant: Months of missed rent while the courts are closed plus the costs and delays of eviction and turnkey repairs.
The CARES Act provides some generous benefits for many unemployed people, up to $600 per week for 16 weeks. With these benefits many people will be bringing home more money than when they were working. We hope that many of these people will be able to pay their rent.
Let’s look now at properties which are not covered under the CARES Act. For these properties, the moratorium on late fees and eviction filings does not apply. Specifically, a property is covered under the CARES act if the property owner’s mortgage is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program or the Violence Against Women Act of 1994. Homes that are not covered by the CARES Act include properties owned free and clear without a mortgage, homes that have seller financing, and perhaps other situations that none of us have had time to figure out.
Let’s say I have a client whose property is not covered under the CARES Act and who directs me to move forward with an eviction.
Here is how we will work with such owners at Atlanta Property Management Group: Our attorneys anticipate that, during the term of the CARES Act, landlord tenant court judges will require owners to prove their properties are not covered under the CARES Act. If we don’t have such documentation we believe the judges will not rule in owners’ favor. Therefore, before we file an eviction, we are requiring our owners to prove that their properties are not covered under the CARES Act.
- For properties that have a conventional mortgage, we will ask our owner clients to contact their mortgage servicer and obtain a letter stating that the property is not covered under the CARES Act.
- For properties that are owned free and clear, we will ask our owners to state that to us in writing.
- For properties that have-seller financed mortgages or are otherwise not covered under the CARES Act, we are asking owners to document that in writing.
We believe that without such documentation, the owner cannot prevail in court.
When an owner provides us documentation proving the property is not covered under the CARES Act and requests us to move forward with filing an eviction, then we will file electronically and will follow through with a court case as soon as the courts re-open.
That’s how we’re going to do it! If you would like us to help manage your property during these difficult days, please find us at atlantapropertymanagement.com.