California small homeowners struggle when tenants stop paying

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At the start of the pandemic, Brandon McCall’s two tenants experienced financial problems. One was operated on and left on disability, which tightened his purse strings. The other, who works in entertainment, was laid off almost immediately and was not entitled to unemployment as a contract worker. With a limited amount of money coming in, McCall said the two had stopped paying rent on his Van Nuys condo in Los Angeles.

McCall looked into mortgage forbearance, but decided to move on when he learned it would affect his credit. He will also have to pay in full after the end of his deferral period. Not knowing when tenants would start paying again, McCall and his wife used their savings to cover the mortgage on their condo even though they were renting elsewhere for work.

“The rights of landlords and the rights of tenants are the same thing,” McCall said. “They often oppose each other, but it’s the same thing. … I want to stay housed. I want to keep my tenants housed. We’re all in the same boat. “

I want to stay housed. I want to keep my tenants housed. We are all in the same boat.

BRANDON MCCALL, LANDLORD WORKING WITH TENANTS ON PAYMENT PLAN

Over the past year, small homeowners like the McCalls have struggled to pay off their mortgages when tenants have become unable to pay. The state plans to provide some relief by using $ 2.6 billion in federal assistance in the form of rent subsidies to pay landlords 80% of the unpaid rent of low-income tenants between April 2020 and March 2021. In exchange, owners must agree to forgive the remaining 20%. in arrears of rent and undertake not to carry out evictions.

State rent relief program won’t help McCall’s tenants, however; they earn too much to qualify. Still, he said, he tried to help, putting them in touch with other relief programs and even putting them in touch with a local council member who might be able to offer assistance. assistance.

He does not consider evicting his tenants, who have since put in place a payment plan and are catching up on their rent, citing his belief in the importance of affordable housing. But a number of small homeowners are in the same boat as McCall: pinched on both sides, and wonder how much longer they’ll be able to float their own lives and their investment properties.

The small owners are fighting

Unlike the housing crisis of 2008, when subprime loans sparked a wave of foreclosures, experts say homeowners have performed surprisingly well during the pandemic. Homeowners, in particular, have been helped by low interest rates and federally mandated mortgage forbearance. Edward S. Gordon, professor of real estate in the finance division of Columbia Business School, Tomasz Piskorski, estimated that about 60 million borrowers absorbed about $ 70 billion in debt during the pandemic.

However, not all small landlords have been able to take advantage of government relief, even though they are absorbing the costs for tenants.

“Some landlords will have a hard time paying their bills because they don’t receive rent from tenants or have vacant units,” Zillow economist Jeff Tucker said. “It’s not like a bigger property management company that can manage units and more importantly get by. For a smaller-scale landlord with only a handful of rental units, they could easily be forced to sell their rental units or be foreclosed if they have a mortgage on it.

According to U.S. Housing Survey 2015Nationally, around retail investors own 22.7 million units, representing just under half of the total number of rentals. Individual investors are more likely to own single family homes or duplexes. About 70% of rentals in LA are five units or less.

In large cities like San Francisco, rentals have seen drops of 8% or 9% year over year. While low-income workers were more likely to be made redundant and relocated to cut costs, wealthier tenants, including record millennials, gave up renting to become first-time homebuyers.

Desperate to lure people in, landlords, many of whom had mortgages on properties they were renting, began offering free months of rent, free gym memberships, and hundreds of dollars in gift cards to new tenants. .

Diane Robertson, founding member of the Coalition of Small Rental Property Owners, a local Los Angeles-based organization that advocates for small owners, is concerned about the future of rentals for small owners. She founded the group after the State spent a moratorium on evictions in 2020.

“There is a misconception about homeowners in general,” said Robertson. “Small independent owners, we are more like our tenants than not. If we have a duplex and one of those tenants doesn’t pay rent, well, that’s half of your rental income. If you have more tenants you can handle a few of those tenants not paying rent, but we don’t.

There is a misconception about homeowners in general. Small independent owners, we are more like our tenants than not.

DIANE ROBERTSON, FOUNDING MEMBER OF THE COALITION OF SMALL RENTAL OWNERS

Protect owners

Noni Richen is chair of the board of directors of the Small Property Owners of San Francisco Institute, a non-profit organization that helps local small owners. Most members are retired and many live in a duplex, renting the other apartment so they can make their mortgage payments or top up their social security.

In December, a San Francisco homeowner wrote Richen asking for help. She had received certified letters from her lender threatening foreclosure.

The woman, who owned and managed two properties for 20 years, skipped three mortgage payments to save on property taxes when a tenant stopped paying her rent and she couldn’t evict them due to the pandemic Richen said.

“Do you know if it is legal for banks to shut down during this pandemic,” she asked Richen. “To your knowledge, is there any relief for the owners? “

Other owners have written to Richen with similar issues.

The threat of foreclosure doesn’t just hurt homeowners, it hurts tenants as well, Richen said. Not only does the landlord face a financial setback, their tenants may not have housing.

When the owner is a tenant

McCall is one of those owners.

In December, he received an email from his owners’ property manager saying their daughter would take over the management of their properties. He asked McCall and his wife to move out within 60 days.

McCall provided a copy of the email to CalMatters and The Salinas Californian. Its owner did not immediately return a request for comment.

With no cause for eviction identified, McCall initially refused to leave the property, though he and his wife are considering moving. Still, he said, he was uncomfortable being on both sides of this situation: potentially threatened with eviction while using his own savings to cover tenants who still haven’t caught up on their payments. of rent.

Robertson said problems like the ones McCall faces are the result of lawmakers ignoring the needs of homeowners, which can be seized. Even though the powerful California Apartment Association has backed the eviction moratorium agreement covering 80% of overdue rents for low-income tenants, Assembly Member Laurie Davies, a Republican from Laguna Niguel, said the owners would always be on the hook for insurance, property taxes and maintenance costs. The deal also does not cover many tenants who were earning living wages before the pandemic.

“I think at the end of the day, landlords aren’t anti-tenants,” Robertson said. “We want solutions that benefit both parties. I think, however, that the owners want to be cured. “

Slide through the cracks

Under the CARES Act’s Pandemic Relief Bill passed in April, federal lenders are required to grant 12-month forbearance to homeowners unable to make their mortgage payments due to COVID-19. Since this would not count as delinquency, it helped keep people housed during the pandemic and kept foreclosures low.

Yet some owners have fallen through the cracks. Because the federal moratorium only applies to federal lenders, state or local lenders, such as local banks or credit unions, have continued to ban homeowners.

Under the Biden administration, California landlords could see an extension of the forbearance provision, which could help some landlords who have lost their rent. Economists say the share of abstaining homes – around 2.5 million – hasn’t declined much since October, indicating that those withholding have continued to renew out of necessity.

Meanwhile, owners like the McCalls hope to avoid forbearance by waiting.

“At this point, we’re only a few months away from the end of their 12 months,” said Tucker, Zillow’s economist. “It’s going to become a major political challenge this spring. Frankly, there is a good chance that the simple solution will be to launch the box in three or six months… but it is a challenge.

This article is part of California Division, a collaboration between newsrooms examining income inequality and economic survival in California.

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