The Eviction/Foreclosure Moratorium Will Eventually End . . . Then What?

March 10, 2021

Attorneys are often referred to as counselors. It is an especially appropriate title in today’s world, as many of the messages and calls I receive are from people needing just that – counsel. When it comes to one of my primary practice areas, real estate law, such counsel often includes clarifying a critically important misconception people have about New York’s moratorium on evictions and foreclosures.

A surprising number of people, including residential and commercial tenants, and even some landlords, mistakenly believe that the eviction moratorium forgives past due rent.  To be clear, it does not.

If a tenant can attest to a Covid-based “hardship” they cannot be evicted while the moratorium is in effect, absent unique circumstances.  Such circumstances include “persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others.”

However, and this is the important part, the meter keeps ticking. For example, a tenant owing $1,000 per month for rent, who has received a year of eviction protection under the moratorium, will still owe the landlord $12,000 when the moratorium is eventually lifted. The problem is, in all likelihood, many of tenants will struggle to pay back rent on top of current obligations when the time comes.

While there has been speculation about prospective legislation “forgiving” owed amounts, nothing is in place yet.  This means landlords need to have a plan in place to avoid a catastrophic event when things return to normal.  One imperfect option may be contacting their lender(s) to toll or delay mortgage payments.  The issues with this are that lenders are not likely required to provide this type of accommodation and that interest will continue to accrue on the unpaid amounts.

While the future in this area is filled with uncertainty, some potential short-term options for landlords can include:

• Filing Suit in Small Claims or Supreme Court. Just because you cannot physically evict, does not mean you can’t seek and potentially secure a judgment against a tenant for the money owed. However, this can be a fairly risky proposition. A tenant who is sued and loses, has very little incentive to take care of your property between the time of the lawsuit and when you can actually remove them from the property.   Additionally, obtaining a judgment does not put money in your pocket.  The hurdles associated with collection costs and the ability to collect can be significant.

• “Negotiate” with the tenant. Take the bird in the hand approach. If they can’t pay the $750 monthly rent, can they swing $400 for now? Landlords need cash flow, and it can be better to have some cash flowing now versus a bunch of money on a ledger that you may never collect.  Alternatively, perhaps they will agree to vacate before the moratorium ends if the landlord agrees not to pursue all or some of the rent or other amounts owed.

• Review whether unique circumstances exist that may allow a court to evaluate a landlord-tenant situation during the moratorium.  First, a few points of caution/guidance. This availability appears to differ from court to court, meaning one municipality may permit an Order to Show Cause to be filed which can get parties in front of a judge, while other courts will not. Second, this cannot be started for common issues such as non-payment of rent, and landlords will need to present facts relating to extenuating circumstances like a threat to public safety.

• Wait-and-see. By my very nature as an attorney I am not a proponent of waiting to see what happens, but in this case it can be an option. Will the government step in and offer some sort of permanent rent relief to tenants and forgiveness to mortgage holders? It is possible, and some clients are opting to do their best to keep afloat.

With any of these options, the key for landlords is to make sure your business interests are protected as well as possible. Whether you own one duplex or a multi-million dollar portfolio of investment or commercial property, you do not want the banks to declare a mortgage default or commence foreclosure proceedings (if permitted based on the type of property).

For our firm, COVID-19 hasn’t really changed our approach to working with commercial real estate clients. We have always taken a proactive approach to addressing potential pitfalls before they happen, and the same is true when it comes to this moratorium.

From commercial real estate practice to banking and business law, we collaborate to make sure you are in the strongest possible position now, and in the foreseeable future. If you have concerns, give me a call and let’s discuss how we can help.

Nicholas J. Ingrassia is an attorney and shareholder of Gross Shuman P.C. He concentrates his law practice in the areas of Real Estate & Development, Banking & Finance, and Business & Corporate Law. Mr. Ingrassia also has extensive experience assisting clients with Estate Planning & Administration, and Canada-U. S. Cross Border legal issues. He is admitted to practice in New York State and as a Foreign Legal Consultant in Ontario, Canada. He can be reached at 716.854.4300 ext. 285 or [email protected].