Many states and local jurisdictions have imposed eviction prohibitions on landlords. In some locations, landlords cannot evict even if the tenant was far behind on rent before the COVID lockdowns and has an income as an essential worker. In some locations, the owner cannot evict if the tenant is a destroying the property. These prohibitions give a good indication of how different jurisdictions view the concept of private property–whether it is something an owner really owns or something that the state can treat as government social housing.
These restrictions turn what was once positive cash flow real estate into negative cash flow real estate, alligators that eat the owners alive. After the restrictions are lifted, there will be a flood of eviction actions. Judges will be overwhelmed and will want to punt some cases down the road. In the jurisdictions that have these prohibitions, the courts may frown on evictions if the landlord did not offer a “reasonable” payment plan. A tenant who is still unemployed will not be able to pay more than 0. What is reasonable tends to be different in different jurisdictions. Landlords who went months without rent may end up having to wait even longer for rent. Meanwhile, property taxes, insurance, and mortgages are still due. This is not an ideal situation for positive cash flow.
There has also been a prohibition on foreclosures. The government logic is that if a landlord has a non-paying tenant, the landlord can just stop making mortgage payments. The problem with this logic (besides the fact that taxes, insurance, repairs, and some utilities still need to be paid) is that the landlord’s credit record will show that they are in forbearance even if their credit score doesn’t change. This means they will not be able to obtain new financing or to even refinance to increase liquidity so they can continue to pay for taxes, insurance, water and sewer. After the forbearance period is over, landlords will be expected to pay interest on the money that they didn’t pay monthly. Tenants, on the other hand, will typically not be expected to pay late fees. Tenants may have no assets or savings and landlords will simply have to lose out forever on the lost rents that the tenant agreed by contract to pay. These prohibitions are probably an unconstitutional taking. Many landlords are small landlords and don’t have the money to litigate.
Landlords are usually reasonable with good tenants. A tenant who has been a good tenant for years, following the rules, not bothering other tenants, not damaging the property, and paying on time, would usually be able to negotiate some payment plan with the landlord without this heavy handed government meddling. Instead, this kind of legislation encourages rent strikes and puts tenants and landlords in adversarial positions. Landlords will want to evict as soon as possible after the lockdown ends.
Money tends to go where it is treated best whether governments like it or not. Expect some investors to sell properties located in the most landlord-unfriendly jurisdictions (e.g., NV, MN, WA, OR, IA, WI, IL, MI, KY, NY, PA, NH, MA, RI, CT, DE, SC), and buy elsewhere (e.g., ID, WY, ND, SD, CO, MO, OK, AR, LA, VA, and GA), particularly if positive cash flow real estate can be found, after the lockdowns are over. Or they may just sell as soon as the non-paying tenant is out. Money tends to go where it is treated best. This will result in housing shortages in the jurisdictions that had the strongest eviction protections. While the governors may have been well meaning, there are often unintended consequences. Those jurisdictions should start building some social housing for the people who will be unable to find work and stop expecting private properties to do their job.
In Washington State, Governor Inslee has extended the moratorium five times. It is now scheduled to expire at the end of March, 2021 but may be extended again, as the Governor has made clear that he has little respect for private property rights and is happy to shift part of the burden of the pandemic to property owners. There is bill pending in Washington State to extend this prohibition on evictions for two years after the emergency ends!
Any landlords considering buying new properties in Washington State should expect that if tenants stop paying rent, they may have little recourse beyond selling their investment. The same is true for other jurisdictions having long eviction freezes. Expect rental houses to be converted to owner-occupant properties.
https://www.theolympian.com/news/state/article248078905.html
The Biden administration is planning on extending the federal prohibition on evictions through March but this also may be extended, of course.
The following are articles indicating which jurisdictions had eviction freezes, as real estate investors will want to avoid investing in these places:
https://antievictionmappingproject.github.io/covid-19-map/#close
https://www.thedailybeast.com/during-coronavirus-do-i-have-to-pay-my-rent-or-mortgage