While we are squabbling whether it is safe for kids to return to classrooms a number of students may soon be evicted from their current remote classrooms.
A ban on evictions during the pandemic is coming to an end on Sept. 1.
The California Legislature has toyed with some fairly creative solutions since March but as usual they can’t come up with a workable plan.
It is clear that any attempt by Gov. Gavin Newsom to simply extend the moratorium for more months will be aggressively challenged in court.
But whether it would be wise for Newsom to even attempt to do so is a point that even the governor likely sees as a horrible move.
That’s because the impact essentially of free rent for five months is doing irreparable monetary damage to landlords, most of whom have one to 10 rentals, and driving them closer to the financial abyss as they have bills and mortgages to pay. Even bigger players that carry debt are getting the squeeze.
An example of a “little guy” is Karen Clark who owns a triplex near the University of Southern California campus. She rents the other two units to families for $2,400 a month. That’s below market rates for the area but it is a choice she made as she preferred to rent to families that were more stable tenants than college students.
One of her tenants lost his job in March due to the pandemic. Even though she was fortunate enough to still be working at City National Bank, the loss of $10,000 in rent has forced her to dip into her savings to not just pay the mortgage but also the power bill and municipal services for the unit. A couple more months without rent and she’ll have the mortgage lender knocking on her door. She could lose everything including her home because the state forced her to have a tenant living rent free because he lost his job to COVID-19 orders put in place by the state.
The end result is you could have not just tenants homeless but landlords as well. Worse yet big time investors and mega-companies would start snapping up foreclosed rental properties leading to problems exacerbated by absentee landlords.
This is not a small problem. There are 4.9 million households that rent in California
Despite the moratorium, CALMatters — nonprofit, non-partisan journalism endeavor that covers state issues — reports there have been 1,400 evictions statewide since March.
They determined that number based on information from 40 counties that responded to their public records requests regarding sheriff department evictions. Most involved either a “loophole” of sorts given tenants owed for back rent before the pandemic hit or they were in counties where the sheriff and legal counsel did not believe Newsom had the legal authority to tell a sheriff what laws they can enforce even under the Emergency Services Act.
The number of evictions is likely significantly higher given 14 counties — including Los Angeles with 10 million residents — did not respond. The CALMatters number also does not include civil or voluntary evictions.
Newsom’s original eviction moratorium order in mid-March authorized local governments to prohibit evictions due to pandemic financial hardships. Then on March 27 he prohibited law enforcement or courts from conducting such evidence evictions through May 31.
The California Judicial Council, to temporarily sidetrack legal challenges, ordered a halt to eviction hearings and foreclosure proceedings on April 6. That directive from the rule making body for courts expires Sept. 1. The council was going to rescind the rule on Friday but legislative members lobbied the council for an extension to Sept. 1.
The council has signaled they don’t have the stomach for another extension while noting the California Legislature has had five months to get its act together.
There are two proposals to continue a halt to pandemic financial related evictions. Both focus on the damage continuing the moratorium would inflict on landlords.
The Assembly favors a measure that would protect property owners from foreclosure. The State Senate wants to offer tax credits for rent not paid that could be used to lower what they owe in state taxes starting in 2024. If property owners needed cash immediately they could sell the tax credits for money.
Let’s start with the tax credit proposal first. A tax credit is not the same as a tax deduction. If you are given a $1 tax credit for each $1 in rent you are owed, it can only be used to reduce your taxes you owe and not your taxable income. This is not a small point. In Clark’s case — the woman who may lose her triplex and therefore her own home as well due to a tenant that doesn’t have to pay rent due to pandemic orders from Sacramento — would receive $10,000 in tax credits. Given her income is already being reduced significantly due to non-payment of rent her tax liability will be reduced greatly. Worst yet even if you factored in what she would have paid in taxes had she gotten the rental income the net effect is she will still be receiving less than the actual rent.
And if she decided to sell the tax credits, it is highly unlikely she will be able to do that directly given they aren’t large enough to have a big fish that could benefit deal directly with her. That means a brokerage or exchange would have to be developed and employed. Besides ultimate buyer is unlikely to pay $1 for the $1 tax credit as that would offer them no financial reason for making the transaction, the holder of the tax credits would have to sell them for reduced value as well as brokerage fees. The end result is the landlord still takes a big financial hit.
As for stopping foreclosure against the landlord caught up in the state’s free rent answer to the economic chaos their COVID-19 orders have created, that doesn’t relieve them of the debt or the interest payments that keep accruing because they are being denied by the state the legal ability to evict a tenant — essentially a taking of property by the state — and replace them with someone who can pay the rent.
This all circles back to the wisdom of shutting down the economy. Rental housing is just one of many segments of the economy that are cratering due to stay at home orders.
The danger of tightening up lockdowns or even keeping some of the restrictions now in place on what businesses can and can’t reopen even with COVID-19 protocols is creating a massive economic destruction as well as growing homelessness and other mental and physical health related issues that will do far more lasting damage to Californians than the coronavirus.