By Ilan Fuchs, Ph.D.
Faculty Member, Legal Studies, American Public University
COVID-19 has brought about many new challenges and crises that we did not foresee. But some things ring similar to others from the recent past.
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When it comes to the housing market, it is difficult not to think of the subprime banking collapse of 2008. People all across America lost their homes and income. Making rent and mortgage payments was simply not possible then, due to the Great Recession.
Now, job losses during the coronavirus pandemic are making it difficult for people to pay their rent or mortgage. Some renters and homeowners fear evictions.
In September, CDC Halted Residential Evictions during COVID-19
However, on September 4, 2020, the Centers for Disease Control and Prevention (CDC) made a significant move to ease the fears of mass evictions amid the COVID-19 pandemic. The CDC, an agency within the Department of Health and Human Services (HHS), issued an order under Section 361 of the Public Health Service Act to temporarily halt residential evictions as a means to prevent the further spread of COVID-19.
What does the CDC have to do with the rental market? The rationale was simple. According to the Federal Register, “In the context of a pandemic, eviction moratoria—like quarantine, isolation, and social distancing—can be an effective public health measure utilized to prevent the spread of communicable disease. Eviction moratoria facilitate self-isolation by people who become ill or who are at risk for severe illness from COVID-19 due to an underlying medical condition.”
New York Governor Worked to Prevent Both Residential and Commercial Evictions
This CDC moratorium halts evictions of residential property in jurisdictions that did not enact more comprehensive moratoriums of their own. But in some states, the extent of the moratoriums was more ambitious. For example, in New York on March 20, Governor Andrew Cuomo issued an Executive Order on a moratorium on both residential and commercial evictions.
The governor was obviously thinking on the explosive economy of New York City, where so many businesses lost millions in revenue but were still occupying their rental property. The moratorium was extended through August 20.
But Cuomo did not stop there. On June 30, he signed the Tenant Safe Harbor Act (TSHA). This law protects residential tenants from eviction until the state of emergency ends.
How is this law different from the executive orders? Simply put, it is not a moratorium. According to the THSA, a landlord cannot evict a tenant for unpaid rent incurred during the emergency period that resulted from economic hardship related to COVID-19.
Moratoriums Are Delaying But Not Solving the COVID-19 Evictions Problem
So do we have a solution to the COVID-19 evictions? No, not by a long shot. Basically, we are dealing with stopgap measures for a dam that is about to burst. The equation is simple — the moratoriums on the federal or state level do not absolve the debt; they simply delay payment for a future date.
There will be no mass wave of evictions during the pandemic, and that is great and very important. But it simply delays the problem; it does not solve it.
If the debt is still outstanding when the emergency period ends, the tenant or mortgagee will still have to pay the money. For those who still cannot pay because they have no source of income, we will see a tsunami of evictions.
Are there any possible solutions? When it comes to mortgages, the CARES ACT took two steps:
- Many federally or Government Sponsored Enterprise (GSE)-backed loans cannot begin any judicial foreclosures until at least December 31, 2020.
- Mortgagees who experienced financial hardship as a result of the COVID-19 pandemic can petition for a forbearance for up to 180 days. They will also have the right to request and obtain a mortgage repayment extension for up to another 180 days, for a total of up to 360 days).
Again, no amount is forgiven; the mortgage payments are simply postponed and will be repaid over time when the forbearance period ends. The economic rationale here is clear: As long as the economy returns to a normal trajectory, the mortgage payments can resume and will eventually be paid in full.
We can long debate if a sense of economic normalcy will return, but at least here there is a path forward. However, when it comes to rent, things are not so clear.
Rental leases are usually short-term. Postponing rent payments in this case means that when the emergency is over, we will have on our hands countless renters stuck with huge rent bills and not enough income to pay the amount in arrears in addition to their continuing monthly rents.
So what are the options in that case? The federal moratorium does not answer that question; it simply delays the problem.
Have other jurisdictions taken action on this? If we look at New York state again, the Safe Harbor Act mentioned earlier takes eviction off the table for back rent owed due to financial hardship resulting from the pandemic.
But it still allows landlords to commence nonpayment proceedings and seek monetary judgments for rent due during the emergency period. In other words, landlords will need to sue and incur expenses for back rent and tenants will end up with judgments against them and bad credit scores.
What Happens to the Commercial Real Estate Market when the Pandemic Ends?
The commercial real estate side of things is up in the air, too. The Empire State has been ahead of the game for obvious reasons; namely, it is one of the biggest and most complex real estate markets in the world.
There is a moratorium on commercial evictions, but what will happen when the state of emergency ends? Businesses will be stuck with back rent and the need to renegotiate new leases.
Take, for example, restaurants in New York City. Inside dining is now permitted, but at only 25% capacity. Restauranteurs’ leases will not be reduced to 25% of the pre-pandemic levels, so we need to expect many businesses will shut down with the accompanying higher rates of unemployment.
So what can we expect? In a nutshell, a big mess. There are many variables here and things can develop in so many different ways. It would not surprise anyone who follows the housing market to see pockets of mass evictions in major urban centers in both the commercial and residential sectors.
Such a trend will send an extremely dangerous signal to the macro economy. The real estate market is not going to be a safe harbor in this new economy. Let the buyer beware.
About the Author
Ilan Fuchs is a scholar of international law and legal history. He holds a B.A. in Humanities and Social Science from The Open University of Israel and an M.A. in Jewish history from Bar-Ilan University. Ilan’s other degrees include an LL.B. in Law, an LL.B. in Law and a Ph.D. in Law from Bar-Ilan University.
He has published a book and 17 articles to date in leading scholarly journals. At APU, Ilan teaches courses on international law while maintaining a law practice in several jurisdictions.
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