What’s Going to Happen With All the Rental Debt?
Credit: @jd_alon
Many landlords and tenants alike are facing serious financial strain. While moratoriums have extended due to the COVID-19 pandemic, many are still watching their rental debt increase with every passing month. While aid has been established to help the situation, there are certainly shortcomings that exist, and ones that will reveal themselves when moratoriums begin to lift across the country.
Over eight million rental properties across the country are behind on rent by an average of about $5,600 according to census data. As if this wasn’t bad enough, roughly 50% of property owners are what the government considers small landlords.
While steps have been taken to address rent shortages, they fall far short of fixing it. For example, there are many who got help once unemployment kicked in for them, but they may have since lost it and have unstable income currently, or unemployment wasn’t enough to cover the back rent from earlier months in the pandemic. There is also the issue of people not seeking rental assistance, unemployment, or other public assistance to help alleviate rental debt, whether the reason is lack of awareness/capability, or by choice. I’m truthfully unsure what, if anything, can or will be done to fix this particular issue.
In the meantime, landlords are and will continue finding themselves in situations where there is significant rental debt, even with the availability of public assistance. From the renter’s perspective, they are under extreme pressure because of the pandemic like many others, and the rental debt accumulation compared to the reality of most folks’ earnings is very troubling. If we continue to treat this as a debt that tenants are solely responsible for, we will be setting ourselves up for failure. Likewise, the government has not done enough to help landlords or force the mortgage companies to work with them better. Certainly, at a government level, there is much that could be done to help get us out of this mess. However, waiting on the government to sort it out may not do anyone much good.
So, what should tenants and landlords do? Many on both sides of the issue are becoming desperate. Some landlords are facing foreclosure, and cutting corners on repairs and maintenance, both to save money and perhaps also to inspire non-paying tenants to move out. Some tenants are deciding not to pay rent at all because of the moratorium. Neither of these methods are even advisable or real problem solvers—particularly in California for landlords.
More sensible tenants are trying to work with their landlords and recognize that having a potential judgment against them for non-payment of rent is a serious problem to be avoided. And more sensible landlords are trying to weigh the option of evicting some tenants and keeping some others, or selling. With inventory and interest rates so low, this is a very tempting option. However, it is not without complications to sell the home, particularly if there are non-paying tenants and no cash flow. One thing is for certain, neither tenants or landlords want to face the reality of going to court over this issue. For one, both parties should really be represented by an attorney. This can get quite costly. In addition, once the moratoriums end (June 30, 2021 for Los Angeles at of time of publication) there will be a major influx of eviction lawsuits and small claims suits for back rent. This will cause some serious delays in the courts that will become costly in attorney time. And, let’s not forget the results. No one wants judgments against them for anything. This can cause employment background and credit check issues for individuals who end up with one.
Mediation can help landlords and tenants deal with issues in general, and especially with pandemic-related financial/rental issues. In Los Angeles, the courts often use mediators for evictions. Not only is mediation the best and in many cases the only way to save a lot of time, money, and energy, it also allows everyone to come up with their own solutions to the problem. The process really allows each party to understand their own position better to make the best decisions for themselves. As soon as the parties reach an agreement, they can be on their way! Lawsuits can be dismissed if there are any, but regardless the parties can walk away knowing what to expect. The creativity landlords and tenants can use to work out a solution are virtually endless. Just know that these freedoms don’t really exist in court, and it is almost undoubtedly a much less cost effective and happy route. Make smart choices out there!