The Real Estate Investing Authority®

Evictions During A Pandemic: Is Banning Them Really The Best Answer?

RI House Bill #5309 and RI Senate Bill No. 183 - Property Owners and Tenants At Risk Of Financial Ruin, What Is The Best Solution?

 

The first COVID case in the United States occurred over a year ago and more than half a million Americans have died. Federal and state legislatures, emboldened by November’s election results, are ramping up their related efforts as increased vaccination capability creates greater optimism throughout communities. But optimism is in short supply for those in the real estate world. For months, evictions across the country have been put on hold, indicative of the dire straits so many tenants find themselves in. But where are we now that so many rental property owners have been without rental income for this extended period? What solutions are being brought forward to protect the housing market from thousands upon thousands of potential foreclosures as lawmakers continue to enact eviction moratoria? With over 90 million Americans having already received vaccines, it is true that the tension around health and safety is deflating...but the rental property economy seems about ready to pop.

 

In Rhode Island, lawmakers at the state level have recently proposed legislation aimed at stopping all evictions, stop executions, and terminations of tenancy during States of Emergency. House Bill #5309 (and its companion Senate Bill No. 183) are making their way through committee and many in the local real estate community are fearful. At Nexus Property Management®, we pride ourselves on thinking and advising clients in terms of long term outcomes. The question at hand is whether or not local legislators are on the same page. Are we creating bandaids today at the expense of greater trauma down the road?

 

Several local property owners think so:

 

Manny Aniceto, a retiree who resides in East Providence and owns over 30 units locally, is worried about his tenants, who need resources and options first and foremost. Rather than a moratorium, which is really only going to stave off payment for a certain amount of time, he’d love to see the state offer direct funding to tenants falling short instead. Eric DaRosa, another local real estate investor, works tirelessly 7 days a week to overcome the losses he accrues due to nonpayment from tenants. To Manny’s point above, Eric praised third parties like the United Way, who have provided tenants with financial support. Without that financial intervention he’d be underwater.

 

 


Unlike Rhode Island, other states have enacted laws that do indeed address the financial issue closer to home (don’t mind the real estate pun). Pennsylvania, for one, aims to keep citizens in their homes by providing legal and financial help and providing financial aid to mom-and-pop landlords. Arizona has committed over $10 million to their Rental Property Owner Preservation Fund, a measure specifically designed to protect against foreclosures. New York, Ohio, Delaware, and Montana are just some of the other states that also provide direct relief measures rather than relying on eviction bans to solve their housing crises.

 

Rhode Island’s solution appears to be a moratorium along with creating a Residential Eviction Diversion Program. With that program, landlords would need to participate in conciliation conferences with state “housing mediators” (positions that do not currently exist) in the hopes of coming up with an agreement outside of court rather than having the option to evict. The goal is to have both sides come to a mutually agreeable settlement that will then be enforced by the state. However, one has to question the likelihood of “mutual agreement” if a tenant is already in a situation that results in non-payment due to the State of Emergency. Without financial assistance property owners are still at extremely high risk of ending up in arrears.

 

The proposed bills do “protect” property owners by barring mortgagors from imposing late fees for non-payment of mortgages related to the State of Emergency. At first glance, this should provide some comfort to landlords. But the same short term vs. long term principle that Nexus hangs its hat on applies: If we’re simply allowing for postponing payments (whether it be tenants and their rents or owners and their mortgages), eventually that money is going to be due...then what? We can’t keep kicking the can down the road. The endgame could be catastrophic for the state.

 

 

 

 

Real estate investor Jesse Mayo speaks to the potential for financial disaster. Previously working in retail, he recently threw all of his cards into real estate after careful risk analysis. He obviously didn’t have a months long eviction moratorium on his radar. I’ve got to “ride this through as best I can...don’t know how I’ll be able to pay my bills”. Mayo says he understands that the state is trying to prevent people from becoming homeless but he also feels they need to do what they can to avoid foreclosures, which have the potential to destroy the Rhode Island economy. He fears that foreclosures will have huge ramifications on essential services such as police, fire, and schools as property values plummet. This will lead to further unemployment and the cycle will continue. Furthermore, banks who end up with foreclosed units will be left in the same situation (inheriting those nonpaying tenants). Even before the foreclosures start piling up he envisions property value and quality of life dropping precipitously as property owners defer maintenance not knowing if they’ll have necessary income down the road. In the words of local property owner Josh Hennessy, “the ripple effect is devastating”.

 

 

 

 

The other big fear is that these regulations will be abused. Every property owner Nexus heard from expressed their concern for the well-being of their tenants and an understanding that homelessness needs to be avoided whenever possible. It was Kendra and Mike of Tiverton who epitomized the fears of so many when they spoke of how their situation has already devolved into “predatory tenancy”. Kendra, a nurse, and Mike, a disabled veteran, recently bought a two family property with their life savings. In the interest of investment, they occupy the smaller unit and since November their tenant has been unresponsive. She refuses to communicate and refuses to let the property owners enter the home. She is fully employed and they feel very confident that the tenant is taking full advantage of the system. Some of the fears that Jesse and others have expressed are a reality for Kendra and Mike. They cannot afford to pay their mortgage and they have no financial support or options. Landlords are between a rock and a hard place and the proposed legislation does nothing to remedy that; instead it increases risk. MyAmerican dream is going to be yanked out from beneath my feet before I get started”.

 

WHAT NEXT?

 

Nexus Property Management® encourages all readers to continue to do their homework and to use their voices. Elections are the backbone of our democratic process but it takes more than a backbone to create effective change. If you are a local property owner or real estate professional please reach out to Greg Rice for more information and background. Whether you oppose or support RI House Bill #5309 and RI Senate Bill No. 183, we encourage your active engagement in this process. You can begin by sharing your thoughts with your elected officials.

 

Mick Lefort is the Vice President of Operations for Nexus Property Management®. A National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

 

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