How should we lease with the federal Moratorium?

Question

Being fully bound from being able to do evictions for nearly any lease violation, I am concerned on the future of how this will play out. I'm looking for any loopholes or ideas with current leases or future leases that will give us (landlords) some ground so we are not fully at the mercy of the tenant.

If there are any lawyers out there, would it be legal if I "lend" tenants money for rent on a different note aside from their lease that is than enforceable if not paid on? Or at least I could send it to collections? Trying to get creative!

Thanks!

Dan H. · Answer

Rent to tenants that have a good credit score.  Even if they are impacted from the virus 1) their credit score demonstrates that they know how to meet their commitments.  They will cut back appropriately in attempt to meet their commitments  2) If they truly cannot make the rent (I personally would not evict such a tenant even if evictions were permitted), they are more likely to make good on the rent in the future because their credit score will take the hit (they have something to loose) and because their credit score shows they are responsible individuals.

BTW cash for keys is a terrible practice.  It may be simple, but 1) It encourages the exact behavior that the LL does not desire 2) It does not show up in any screening.  This implies no matter how thoroughly you screen, you have no way to know that they are a terrible tenant that has received cash for keys multiple times (i.e. it does not show up as an eviction or in their credit report) 3) What goes around comes around.  If you are a LL and cash for keys is a common practice, it is just a matter of time before you get one of those tenants that knows about cash for keys.  This goes back to #1, why would a tenant who has received cash for keys not repeat the issue?

I had a tenant suggest cash for keys (a good indication that they had done it before) when I gave them their notice because they were not taking appropriate care of the place.  I indicated we do not do cash for keys.  She indicated she would not pay the last 2 months' rent.  I indicated we would ding her credit and that the only reason she was able to rent our place is because she had pretty good credit and no missed rent on her credit report.  I told her the vacancy rate in our market was real low and that she should consider what sort of place she will be able to rent with a rent blemish on her credit report.  She should also consider the impact to any future loans and her credit card rate.  She paid all the rent, but left the place in need of a lot of work.  We kept all her deposit which was not quite sufficient, but close enough to not pursue the difference.  She was not expecting any deposit back and did not provide her forwarding address so to pursue the extra money would have required a little effort which we would have done if the difference was substantial.

John Underwood · Answer

I'm not an attorney.  That doesn't sound like a good idea.

I would screen applicants and find best one you can. Then either get as big of a deposit as possible or get first, last and deposit.

A really good tenant would be someone that works in essential service field such as a nurse, firefighter, cop etc.

I have been converting as many properties over to section 8 as possible for that government guaranteed rent.

Bjorn Ahlblad · Answer

I have upped my screening and raised the minimums to 700 CS, and 3.5 times rent to income. MTM leases and 2x security deposit for most. We now do 1st, last and 2x deposit. Tenants need to be classified as work from home, health care, unionized or gov't employees. We look for a trait that demonstrates 'action creates consequence'.

Sean Wilkinson · Answer

Thanks @Charles Carillo and @Ujwal Velagapudi. Completely agree. I have a pretty rigorous application process so thankfully we have not run into major problems yet... I just foresee as it becomes more and more apparent to tenants that we literally have zero recourse, this will be very taken advantage of as it already is for many other property owners. Crazy time to be a landlord.

Joe Splitrock · Answer

@Sean Wilkinson lending someone money to pay you rent isn't solving any problem. The eviction moratorium doesn't relieve the tenants debt obligation, so either way they owe you money. I don't think federal or state government has the legal power to forgive debt between private parties, if that is what your concern is. The only mechanism is bankruptcy.

Michelle Fenn · Answer

My recommendation to create month to month leases, that will allow 30 day termination of tenancy.    Even with eviction moratoriums a landlord can evict for holdover.    Ask for larger deposits.    Where are you finding good section 8 tenants.   I have a 5 bedroom for which the owner will accept a voucher and I have been been unable to find an applicant the meets our minimum 550 credit score.   Finally if the home is a SFH there is always the option to sell to an owner occupant.   I have been on and off my soap box explaining the unintended consequences of long standing moratoriums will be to reduce the availablity of affordable housing and make tenants less secure not more.    The activists and politicians in my area keep making new rules for landlords but are disinclined to even speak to us.

Russell Brazil · Answer

Just place an emphasis on getting high quality tenants. 2020 my collection rate was higher than ever because I get high quality tenants.

Sean Wilkinson · Answer

Thanks to everyone in this thread up to this point! To briefly highlight a couple of your responses, @Dan Heuschele I really liked your point on the cash for keys. This has never been a practice of mine more from a pride standpoint and not bribing for poor behavior, however I had not thought of the ramifications of it for future landlords and how that effects us all negatively. Also your point on credit is very important (especially now!).

And @Stephanie F., you have many great points that would be interesting to take a deeper look at implementing in the screening process.

To @Russell Brazil, @Sean McKee, @John Underwood and @Jennifer Donley, I completely agree that the screening process is more important than ever. Thanks for your comments!

Stephanie F. · Answer

@Sean Wilkinson

I’m not a lawyer, but according to https://www.cdc.gov/coronavirus/2019-ncov/downloads/eviction-moratoria-order-faqs.pdf there are requirements for qualifying.

1) they have to try to obtain gov assistant

2)they can expect to make no more than 99k (198k for joint return )

3) loss of wages or medical bills

4) making best effort to pay rent or partial payments that are close to full rent as possible

5) eviction would render them homeless as they have no other options

(Consult your legal council on the following because I cannot give legal advice and I’m not a lawyer)

You could put a minimum income on your pre-screening that exceed qualification thresholds if that makes sense for your property.

Have them sign a form stating they have fallback friend or family housing in the event of job loss and inability to pay rent. Maybe even get that friend/family member to sign with a notary present.

You could prescreen for multiple forms of income which each individual stream covering expenses (I’ve heard of this, but it sounds unrealistic to me)

Remember they can be evicted for violating any terms of the lease, other than paying rent, so you may have some room there. Put some formal communication requirements in the lease (not via text message) for example, they most communicate within X hours of losing income and/or they must provide some evidence of applying for government aid within X days of income loss. Not only does this help you, but it also helps them stay focused on the issue at hand. Job loss is hard and many seem to get lost for a days or weeks as waste important time when they should be lining up their ducks. Require proof of income loss.

Month to month leases sound like a good idea, but the laws around this vary by state/city/county.

And finally, communicate communicate. The goal isn’t to be heartless, but you also don’t want to be taken advantage of. I think any responsible renter would want to pay as much as they can to be even with their debts, and move out ASAP to stop bleeding. Have your lawyer craft letters explaining what will happen in the event they don’t pay all the back rent.

I think the bad situation occurs when you have a tenant that thinks they will live rent free with zero consequences.

Jennifer Donley · Answer

I think Section 8 is a great way to go, moratorium or not.  The tenants have a reason to follow the rules and pay their portion of rent, even if they get behind.  And at least you're getting some of the rent if a tenant gets behind.

P.S. I'm with @Russell Brazil, I have good tenants so do not have collections issues generally, even with a portfolio of only Section 8 properties.

How should we lease with the federal Moratorium?

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