CARES Act Contains 120-Day Moratorium on Evictions from Affordable Rental Housing

The CARES Act imposes a 120-day moratorium on tenant eviction filings and charging late fees for almost all of the nation’s affordable housing properties. For rental property owners, managers, investors, and lenders, seeking to interpret the effect of the provision on a particular property, the CARES Act raises three sequential questions: is the property covered by the moratorium provision, what the moratorium means for a property, and how the moratorium will be enforced.

Covered Properties

The first question is, which developments fall under the moratorium provision? Section 4024(a) of the act applies the moratorium to properties either

(1) with a federally backed mortgage loan or

(2) that “participate in” a “covered housing program” as defined in the Violence Against Women Act (VAWA).

Federally backed mortgage loans are those

• made, insured, guaranteed, supplemented, or assisted in any way, by any officer or agency of the federal government, or
• purchased or securitized by the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae).

Under VAWA, covered programs include:

• the low-income housing tax credit (LIHTC),
• public housing,
• Section 8 Housing Choice Voucher program,
• project-based Section 8 housing,
• Section 202 supportive housing for the elderly,
• Section 811 supportive housing for persons with disabilities,
• Section 236 multifamily rental housing,
• Section 221(d)(3) Below Market Interest Rate housing,
• HOME Investment Partnerships,
• Housing Opportunities for Persons with AIDS,
• McKinney-Vento Act programs, and
• USDA Rural Development.

The definitions above include almost all of the nation’s affordable rental properties.

Restricted Actions

The next question is what does the new law prohibit?  Between March 27 and July 24, 2020 (the 120-day period), owners of properties participating in covered housing programs may not

(1) make, or cause to be made, any filing to recover possession from the tenant for nonpayment of rent or other fees/charges; or

(2) charge fees, penalties, or other charges to the tenant related to such nonpayment of rent.

Owners also may not require tenants to vacate sooner than 30 days after providing notice or issue a notice to vacate until after July 24, 2020.

The starting effective date means it does not affect evictions filed before the emergency declaration. (Some jurisdictions have suspended police/sheriff implementation of dispossession.) Also note there is no prohibition on declaring a lease default for nonpayment. What this means considering the new restriction on remedies will depend on the specific lease terms and state landlord-tenant law.

Another consideration is properties may be covered by an additional constraint:

• Many state and local governments have adopted similar or even more restrictive limitations.
• Some owners will voluntarily agree to not take certain actions as a condition of loan forbearance.

Enforcement

The last question is, what is the enforcement mechanism? Upon learning of a violation (attempted or actual eviction, charging fees), what actions are administrators of the covered housing programs supposed to take (if any)? For example, would a LIHTC allocating agency issue a Form 8823? Or is the purpose of the moratorium to provide tenants a defense in proceedings against the landlord? At the time of this writing, the answers are not known.

A related issue some may raise is the extent of Congressional authority to impose the mandate. In other words, what are the limits of federal power over what owners are able to do under their contracts with tenants and funding agencies? The answers to those questions are beyond the scope of this blog, but could be important.

Conclusion

The only certainty is legal advice from a knowledgeable attorney will be crucial.