A flicker of hope for housing providers owed COVID-Era rent debt

Remember those eviction moratoriums that forced landlords to provide free housing to tenants because of a global pandemic, whether the tenant had the means to pay rent or not? We do.

Looking back in the rearview mirror, there were multiple reports of tenants who were gainfully employed but asserted a COVID-related hardship, allowing them to live rent-free. Sometimes, the nonpaying tenant would return from work with a shiny new Tesla. The rules and the narrative at the time were that "rent is not waived, it's only deferred."

In other words, the tenants were not off the hook. They still owed the rent debt accrued. Were policy makers so naive to believe that nonpaying tenants would fork over past due rent? And how much COVID-related rent debt was actually collected?

Economists we are not, but how much COVID-related rent debt was recouped by landlords? There are varying numbers, but suffice it to say, based on the statistics and from our own accounts dealing with clients, it is an enormous amount of money that is permanently lost income. Lawmakers were quick to point out that rent owed during the pandemic was not wiped out; it would come due at a later date. The pay day never came, and tragically, many small landlords went out of business.

It's encouraging that a federal appeals court has paved the way for landlord claims for compensation. We don't want to get bogged down in the legal details, but the cerebral types can get more information shared by our industry partners.

Some of our takeaways

We can't predict the future, but we can look to a litany of past cases that were unfavorable for landlords endeavoring to recover rent debt accrued during a global health crisis. Each time an eviction moratorium was challenged, the lawsuits fell flat on their face.

There was nothing good about this.

Housing providers lost a lot of money during the eviction moratoriums. Politicians set up a dysfunctional process for tenants to apply for governmental funds to pay the rent, and oftentimes, it didn't work out so well. The rental housing community was told that funds would be set aside to "make landlords whole," but they shirked on this promise.

We need to recognize that lawsuits challenging laws eat up a lot of money and time. Take, for instance, the successful challenge to San Francisco's "Empty Homes Tax" levied against owners of properties deemed to be vacant. This victory gobbled up a lot of resources. These types of lawsuits can drag on for years.

At Bornstein Law, we are not crusaders to challenge laws, although we know of another firm that is well-equipped to bring up the constitutional rights of property owners. Our office is in the trenches resolving landlord-tenant disputes. We deal with the nitty-gritty of managing rental relationships, not taking on lofty constitutional rights of owners. Nonetheless, we are aware of the legislative landscape.

The case of Darby Development Co. v. United States is intriguing. Here are the brass tacks:

• In a 7-3 decision, a federal appeals court ruled that the U.S. government must face legal claims from housing providers seeking compensation for losses related to the CDC eviction moratorium. The thrust of this litigation is that the moratorium imposed eviction bans amounted to an unlawful taking of private property without compensation.

• Although the case has put the federal eviction moratorium under a microscope, it could make a compelling precedent for tort claims related to California’s COVID-era restrictions on transitioning delinquent tenants out of the unit. The state’s protections from eviction exceeded those put into place by the federal government.

• If reviewed by the U.S. Supreme Court and upheld, this can lead to a windfall payout of billions of dollars in compensation to rental property owners.

Bornstein Law will closely follow the case, but we are not optimistic that COVID-era rent debt will be recovered. Like evaluating a tenant's rental history, we believe that the greatest predictor of the future is past behavior. Using that logic - and we hope we are wrong - there is no reason to believe that landlords will be made whole.

When there is a mountain of debt owed to the landlord, there are certainly other avenues to explore with the goal of transitioning the tenant out of the unit, and our office is happy to explore them with you.