Rent Defaults, UD’s and COVID-19

The economic impact of Coronavirus/COVID-19 is now felt throughout much of the nation with record numbers of unemployment benefit filings. The current crisis has created another problem for investors of residential multi-family properties.

The Judicial Council for the State of California has issued Emergency Rules relating to crisis that remain in effect for a period of 90 days after the Governor lifts the state of emergency. Short of a public health or safety issue, a summons on an unlawful detainer complaint cannot be issued nor can the court enter a default judgment.

The City of Los Angeles enacted Ordinance 186585, that gives tenants up to 12 months to repay past due rent. The state has banned evictions for at least 3 months and many local municipalities have similar ordinances.

The question many investors have relates to how to deal with a tenant occupying a dwelling where they have not paid rent. State and most local governments have placed a moratorium on evictions for residential and some commercial properties, and there is the looming threat of AB 828-Rent Reduction Bill which would among other things force investors to reduce tenant’s rent amounts.

Most real estate professionals and investors agree that once the State of Emergency and eviction moratorium are lifted the potential backlog of cases being filed would be tremendous, which could lead to estimated delays of up to 6 additional months. Even cases filed prior to the State of Emergency will not have trial dates on calendar prior to 60 days of the initial filing.

Investors must now look to strategies that identify phony claims of a tenant’s ability to pay rent, which will better prepare those who do seek to go to trial when the crisis is stabilized. It may be a good idea to check to see if a resident was having trouble paying the rent prior to the crisis. Ask for proof of the hardship which include medical documentation and/or an employer’s notice of layoff. Some tenants may claim economic hardship when they receive government issued checks like Social Security.

The California Association of REALTORS® has developed a new form, Coronavirus Rent Payment Delay and Repayment Agreement (C.A.R. Form RPD) which provides information on the tenant’s notification of non-payment to the investor, the reason for the delay in rent payment, and a requirement for the tenant to provide proof of their inability to pay the rent. It also accounts for a repayment plan on dates that can be entered on the form.

If the tenant says their inability to pay the rent is due to the virus and provides no evidence some legal experts recommend it may be in the investor’s best interest to file a complaint (potential backlog or not).

In the event the tenant’s default is not related to the virus and the investor files a complaint, the courts will issue a case number. No summons will be served; however, the complaint will be sent to the tenant with a letter stating a lawsuit was filed and that the tenant should contact the investor to possibly settle the matter to avoid litigation as there will be no rent forgiveness.

Some eviction attorneys have indicated that the courts will issue a trial date prior to lifting of the State of Emergency if the tenant files an answer. The fact that the investor has a case number is important because the case will have priority over the flood of UD actions that will no doubt be filed after the end of the crisis.

As always, it is in the investor’s best interest to seek legal counsel on these matters. We can refer a good UD attorney for any investors or property owners in need of legal counsel. If you’re a property owner in need of assistance with C.A.R. Form RPD, our office will be more than happy to prepare one for you free of charge, please feel free to contact us at (310) 538-6884.