What Should I Do If My Tenant Can’t Pay Rent?

The COVID-19 pandemic and the resulting government-mandated shelter-in-place orders have caused approximately 30 million people in the United States to become unemployed. Unemployment is difficult at anytime, but the pandemic complicated things even more with states unemployment offices being overwhelmed by the influx of unemployment claims. In the end, it leaves many people out of work struggling to pay their bills. Among those bills is rent. If you’re a landlord and your tenant is unable to pay rent, what do you do? Here’s are three suggestions.

1. Don’t begin eviction

Under normal circumstances, if a tenant doesn’t pay rent, you would start the eviction process. In Oregon, that means posting a 72-hour pay or quit notice on the 8th day (where rent is due on the 1st). However, the government has stepped in to prevent evictions during the pandemic. On April 1, 2020, Oregon Governor Kate Brown issued Executive Order 20-13 which placed a temporary moratorium on evictions and termination of rental agreements for reason of non-payment for 90 days (unless extended or terminated by the Governor).  This would disallow even posting notice with the threat of terminating a rental agreement during this moratorium.

Beyond the Governor’s Executive Order, Congress of the United States passed the CARES Act on March 18, 2020, which initiated stimulus payments to Americans, increased unemployment benefits and provided Payroll Protection loans for business. Embedded in the CARES Act was a prohibition that landlords who hold loans with Fannie Mae or Freddie Mac may not charge late fees or execute evictions for 160 days.

Needless to say, beginning the eviction process is not legally binding and only serves to complicate an already stressful time for those who find themselves out of work, out of money and trying to buy groceries.

2. Be understanding

Part of what makes an economy tick is that all the cogs in the machine churning together in sync. Once something jams one of the cogs, it causes a domino effect of disruption through the entire system. This is true with the economic state we’re in now. When 30.7 million people across the country are out of work, money dries up and they are unable to pay bills. When they are unable to pay bills, like rent, then their landlords are unable to pay their bills; like utilities that may be included or a mortgage on the property. As a landlord, it can be frustrating to have a mortgage due and your credit on the line when it is your tenant who isn’t making the rent payment. But try to understand that tenants are not in this situation by any fault of their own. No one wants to lose their job and in this case, it wasn’t that they lost their job because they were irresponsible. Granted, some might say tenant should have an emergency fund for situations such as this. That is probably true, but so should landlords have reserves to pay the mortgage in case rent income stops for an unforeseen event. Sending rude letters, making threats or otherwise being nasty to tenants does not help the situation. Being understanding will increase your chances of the tenant prioritizing rent higher given the limited resources he or she has.

3. Come to an agreement

If your tenant can’t make rent, see if there is an amount they can pay. Come to a forbearance agreement with your tenant which accepts a smaller amount today, pays the rest in installments later. This is the best scenario for a couple of reasons. First, it relieves the tenant of needing to pay all of it right now and they at least pay what they can. This gives you some income which is better than nothing. Second, if the tenant is able to make the forbearance payments later in the year, you are made whole and your property’s financials don’t show a loss of income. On the other hand, if you are unwilling to work with your tenant, they might choose not pay anything at all and wait until the end of the moratorium and then move out. If your tenant takes this route, then your property’s income will have suffered a 4 month loss, or a 33% decrease in income.

It’s important to note that the moratoriums on evictions do not relieve the tenant of their legal obligation to pay. A tenant can still be evicted as soon as the moratorium is lifted if there is a balance overdue, and if no payment agreement is in place. They can still be pursued in small claims court and they can still be turned over to collection agencies.

Bottom line, it’s in everyone’s best interest to work together. It’s not helpful for tenants to dig in and refuse to pay rent, taking advantage of the eviction moratorium. And it’s not helpful for landlords to pressure tenants who just don’t have the resources to pay rent. By working together, we can find a win-win situation and get through this difficult time together.