Buried on page 2,281 of the new $900 billion dollar stimulus act is a short little paragraph that extends the CDC’s eviction moratorium until January 31, 2020. These actions show that our political leaders are serious about delaying and preventing evictions. As January 31, 2020, comes closer, pressure will grow for Congress to extend the eviction again.
This eviction moratorium comes on top of current eviction bans for anyone with FHA Mortgages until February 28, 2020. In addition, numerous counties and towns have their own local eviction moratoriums.
Investors have largely been caught in the middle. Mortgage payments, property taxes, insurance costs, repairs and maintenance, all continue. However, investors are now without any rental income to pay the bills if a renter becomes delinquent. Many investors will likely find themselves insolvent and in bankruptcy if our political leaders continue to extend the eviction moratoriums.
Take Action to Protect Your Investments from the Eviction Moratoriums
Investors in rental properties should take pro-active steps to protect their investments. First, anyone with a property secured by an FHA mortgage or by Fannie or Freddie Mac should try to refinance the mortgage into a loan not backed by the federal government. Ask your local lender if they do “portfolio” loans, which are loans they do not sell to fannie or freddie mac.
Second, understand that the CDC eviction moratorium only applies to evictions for nonpayment of rent. In other words, investors can still evict for any other reason. Now the easiest way to evict a nonpaying tenant is for holding over at the end of a lease. In other words, the investor would ask the court to evict because the tenant has reached the end of their lease term but has not moved out. The investor would not ask the court for back rent.
In order to protect the investments of our owners, we are currently recommending our investors collect a double deposit at the beginning of the lease, and then only leasing for a short-term basis. For example, a month-to-month lease with a 30 day notice to vacate would allow a landlord to terminate a lease with a 30 day notice, then, if the tenant has not moved out, to proceed to evict for holding over, rather than nonpayment of rent. Of course, if the tenant holds over, the tenant is breaking the lease and forfeits the double deposit.