Facing Crisis: How Landlords Are Managing Rent Arrears During COVID-19

In an ideal world, as most landlords will tell you, tenants would never be late with the rent. In fact, when choosing your tenants the key fundamental rule is you select the applicant most likely to be able to pay rent in full and on time each month. However, what COVID-19 has highlighted for many landlords is that occasionally there are legitimate reasons for late payments.

No landlord wants to go through an eviction. It’s a time-consuming, stressful, and expensive process that is harrowing for both landlord and tenant. Under normal circumstances though it may become necessary. When a tenant is unable, or unwilling to pay the rent a landlord typically follows a process that encourages tenants to pay the rent on time and discourages them from falling into rent arrears again. Only if the tenant still refuses to pay would they then begin the eviction process.

But what does a landlord do if the tenant’s late payment is legitimate, or they’re in a situation where they can’t evict their tenant?

Evictions and Landlord during COVID-19

Many cities and states around the nation have called for moratoriums on evictions in response to the COVID-19 pandemic. On March 18, President Trump ordered the Department of Housing and Urban Development (HUD) to suspend evictions and foreclosures through April for homeowners with federally-backed mortgages.

One key piece of relief for some landlords is that The Federal Housing Finance Agency is offering mortgage forbearance to multifamily property owners on the condition they suspend all evictions due to the impact of Coronavirus.

With many tenants either losing their jobs or having their hours cut there will likely be an increase of tenants unable to afford their rent during this crisis. However, evictions at this time are suspended in many states and it’s important right now for everyone to practice social distancing – meaning your tenants need to stay put.

Because of a lack of clear federal guidance, it falls to landlords as individuals to work with their tenants to find a solution that works for both parties and in this way mitigate the damage that may be caused by those tenants unable to pay rent due to COVID-19.

What Can Be Done to Mitigate the Damage of Rent Arrears?

Late rent is dangerous for landlords. They have their own bills to pay: mortgages, utilities, insurance, and if something breaks it still needs to be fixed. Hopefully, as a landlord, you have had a few good years and built up a bit of a slush fund to see you through this crisis. For those, though that are either new landlords or heavily leveraged any back-up cash held in reserve for the likes of unexpected maintenance could disappear quickly.

Landlord Relief During COVID-19

The Federal Housing Administration has implemented a foreclosure and eviction moratorium for single-family homeowners with FHA-insured mortgages for the next 60 days.

On top of that, to keep renters in multifamily properties in their homes and to support multifamily property owners during the Coronavirus pandemic, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of Coronavirus.

The eviction suspensions are in place for the entire duration of time that a property owner remains in forbearance. The forbearance is available to all multifamily properties with an Enterprise-backed performing multifamily mortgage negatively affected by the Coronavirus national emergency.

More information at FHFA.gov.

Impacted landlords can also apply for a line of credit or a Small Business Administration (SBA) Disaster Loan. Banks are providing credit line increases, waiving fees, and offering deferral programs for customers, and the SBA is providing low-interest disaster loans to help businesses and homeowners during the COVID-19 pandemic.

Apply for your disaster relief loan at covid19relief.sba.gov

Know What Aid Is Offered to Tenants

• Several federal, state, and local programs have suspended COVID-19-related evictions for anywhere from 30 to 90 days.
• Rent forbearance is available through some of the same programs that have suspended evictions.
• Additional rent assistance is offered by various social service agencies as well as state and local programs.
• Pending legislation in the form of a $2 trillion stimulus bill may offer indirect help via $1,200 checks for many adult U.S. citizens.

Check local and state government websites for more information about COVID-19 related eviction moratoriums, rent forbearance, or rent assistance.

For free access to core business documents and an Ask a Lawyer service visit our partner Rocket Lawyer’s Covid Response Center.

Communication With Tenants

The first thing that landlords need to do is open communications with their tenants. Make sure residents know what is happening on their property and what options are available for them in terms of funding or loans.

A moratorium is not a green light to simply stop paying rent, rent is still due, it simply means evictions cannot be actioned until the emergency is over.

If your tenant has historically been good at paying their rent, but find themselves out of work or having reduced hours at this point, then they need to communicate this to you so that you can work out a plan together that doesn’t a) leave them homeless, and b) leave you unable to pay your bills.

Whatever actions you choose to take make sure you communicate your policy clearly with your tenants and are open and flexible with them to find a solution that works.

Reduce the Pressure Where You Can

Everyone’s situation is different. There are several tenants who will be able to continue paying rent as they move to work full-time from home during this pandemic. There are though, those that will be going without employment for the foreseeable future because of this crisis.

It’s important to work with those tenants directly affected by the COVID-19 who can prove that it is the Coronavirus which has caused them to lose their employment or have reduced hours.

Here are six ways landlords are helping reduce the pressure and stress for their tenants during this time.

1. Alternative Rent Payment Options

Some have suggested using the last month’s rent if it was collected upfront to cover some of or all of the current rent, others suggest using the security deposit to cover rent owed. It’s important to note that many states have strict laws about how deposits can be used so check your local state laws before taking this particular course of action.

These are only good options if your tenants have historically been timely when paying their rent in the past and they will only work for one month so you will need to think about a second strategy if you think that their inability to pay rent might extend beyond that single month

2. Temporary rent reduction

Not all landlords can afford this, but for those that can ease the burden of rent, it may just help your tenants actually pay. And it will certainly help them keep food on the table for them and their families.

3. Accepting Partial Payments

Generally, as we outline in this article, most landlords don’t accept partial rent payments. This though is a unique scenario and it’s important to work with your tenants. Collecting some rent now and the rest at a later date could be a good solution to help your tenant get back on their feet. This leads us to our next point.

4. Set up A Rent Deferment Plan

Just because evictions are off the table during this crisis doesn’t mean tenants no longer need to pay rent. Instead, landlords and tenants need to work out a payment plan together that works for both parties.

5. Waive Late Rent Fees

Companies are currently waiving late fees on all kinds of payments, and landlords are following suit so tenants don’t become overburdened. Be sure to detail and clearly communicate your policy on late rent fees during COVID-19 to your tenants.

6. Change Move-Out Rules

If a tenant is unable to pay rent and chooses to move, waiving move-out fees or fees to break the lease will help both you and them. Note that at this moment in time, it is recommended that tenants stay indoors and socially distance to limit exposure and interaction with others.

Managing Rent Arrears with Landlord Studio

Whilst having late rent isn’t something a landlord should ever have to deal with, and can wildly throw off a landlord’s cash flow if this pandemic has taught us anything it’s that there are occasionally legitimate reasons for this.

Understanding your cash flow is vital in this scenario as it allows you to better understand how much flex your business has, where you can cut expenses, and where you need to increase income. This makes this scenario one of the most important times to accurately track all income and expenses.

Below we outline three key features of Landlord Studio designed to help landlords manage and understand irregular cashflow like rent arrears.

Logging partial payments in Landlord Studio

You can enter partial payments into the system and the system will automatically work out the rent remaining. If no more rent is expected from that period mark the payment period as complete which will then move the system on to the next month.

To enter a partial payment:

1. Navigate to the relevant property via the left-hand menu bar.
2. Tap on the log payment button.
3. Edit the amount of rent to show the actual amount collected.
4. Make sure you select the relevant payment period.
5. Hit Save and the system will work out how much is still owing and show the rent as late.

Or

6. Toggle on the payment period complete. This will show the partial payment as the full amount of rent collected and the system will move onto the next month’s payment period.

You can add notes to any payment to stipulate why this payment was only a partial payment for your records.

How to skip payments if you don’t want to charge a tenant

If, for whatever reason you choose to forgo the rent for one month, for example, the property requires maintenance work to make it habitable, or in the face of a national emergency you choose to support your tenant(s), then you can mark the payment period as skipped. This will then show up as $0 logged for the specified month but won’t show as any rent owing by the tenant.

Overdue rent report will show the rent as well as a dashboard to show the current amount

You can gain a precise and accurate overview of rent owed and cashflow through our advanced reports and the software dashboard.

If you’re dealing with deferred payments from tenants, the rent owed report will show which properties have rent owing and exactly how much is left to be paid.

You can also view your payment history to determine which payment periods the tenant still owes rent for.

Mortgage & Small Business Information for Landlord

1. SBA Disaster Assistance in Response to the Coronavirus
2. Date: March 18, 2020 Mortgagee Letter 2020-04 To: All FHA Approved Mortgagees All Direct Endorsement Underwriters All FHA Roster
3. Bankrate State-By-State Mortgage Assistance Information
4. FHFA Mortgage Help for Homeowners Impacted by the Coronavirus
5. How to Get Mortgage Relief
6. Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans