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What Happens if You Can’t Pay Your Rent or Mortgage During the COVID-19 Shutdown?

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Wednesday, April 1 arrived. The rent was due.

Jim Iacono had already made a deal with his Playa Del Rey gift shop’s landlord. He planned to pay half what he owed, although he hadn’t done so through mid-afternoon. His shop is closed and empty. Without customers and income, he laid off three employees. 

"I’m shell shocked as to what just happened," Iacono said. "All of a sudden we've had to close and nobody’s around and we have no money coming in. And I don’t know what I am going to do. It’s frightening."

Christine Saleebey’s child care business is closed. She’s still trying to pay her employees without laying them off, but her home’s mortgage came due. Without income, she and her husband called her bank. The wait time was 8 to 12 hours, so, after a second try and a hang up after 35 minutes on hold, they visited a local branch.

"Nobody has any firm answers as to what we are supposed to do," Saleebey said.

Kayla Thomas lost her job a few weeks ago at a San Francisco clothing company as the coronavirus crisis and shutdown began. 

"I'm feeling OK for the month of April, but I know if this extends any further, it’s going to be difficult to pay utilities, pay rent,"  she said.

Saleebey, Iacono and Thomas are just three Californians trying to steer their way through the unknown. Each financially affected by the COVID-19 outbreak represents others trying to tread water through the crisis, hoping not to drown, lose their homes and businesses, and end up owing months of rent or mortgage payments. 

So far, politicians have instituted some moratoriums on rent and mortgage payments, as well as stopping evictions related to the COVID-19 pandemic, but at some time in the future, the money will be due following weeks or months without income.

"Initially when I got the first notice that I was being laid off, I was scared," Thomas said. "I realized that there's not a lot of places hiring right now, especially in this time... But as the days go on, I'm starting to calm down a little bit because I know a lot of people are in the same place and there's some efforts going into making sure that everyone is kind of secure during this unemployment time."

Still, everyone’s situation is different and the government's attempts at stimulus packages, small business loans, aid to citizens and moratoriums on rent and mortgage payments and evictions are complicated and difficult to understand. Concrete answers are difficult to get.

"We are all in this together," Saleebey said. "It gives us some small peace knowing that each of us is navigating this with different issues. Some are still able to work, but they are home alone. Some of us are here with our families but we are trying to figure out the financial part of it. We are definitely all in it together."

The answers aren’t easy to come by. California has established a website that offers some tips on what might be available to residents financially affected by the COVID-19 crisis. This includes eligibility for unemployment insurance, paid family leave and disability insurance.

In addition, Gov. Gavin Newsom and many county and city officials statewide have enacted moratoriums on evictions and elicited support from banks to help those unable to pay rent and mortgages.

Here are some key questions affecting renters and homeowners.

Can my landlord evict me if I can’t pay the rent?

The simple answer is not right now, but perhaps down the road if you don’t pay when the moratorium ends.

California has imposed a statewide moratorium on residential evictions through May 31, as long as the renter’s inability to pay is related to COVID-19 related economic hardships. That includes losing a job or having to care for children not in school. So, if you just don’t pay for other reasons, you probably are violating the goodwill of the moratorium and at some point, a judge. The eviction process, however, takes months.

The California website advises renters to have a conversation with their landlords to explain their financial situations and pay as much as they can. Renters should also save financial documents. 

At some point when this crisis is over, the rent will be due and Newsom’s executive order at this time doesn’t let you know what will happen when June arrives.

Renters also should check with the rules in their own cities, as many have enacted moratoriums on evictions. Los Angeles, for example, enacted its own measure installing a ban on evictions as well as requirements that landlords and tenants work out payment plans. No fault evictions were also put on hold.

Will I eventually have to pay up?

Of course. In Los Angeles, the city’s ordinance gives a tenant up to 12 months following the expiration of the local emergency order to pay what’s due.

Who do the eviction protections apply to?

Renters of both residential and commercial properties should check in their individual cities. In Los Angeles, at least, the moratorium applies to both residential and commercial evictions

Is money available for those who can’t pay the rent?

The city of Los Angeles says it's currently looking into that, but the answer is no. President Donald Trump recently signed into law a stimulus package that will soon send checks for about $1,200 to residents. Small business loans also will be made available, although those will have to be paid back.

Are all landlords nasty?

Of course not, but they have bills and mortgages to pay, too. The California Apartment Association, however, issued a statement on its website that encourages landlords to "act with compassion and work with residents who face COVID-19 related hardships."

"The last thing Californians need when they are struggling to maintain stability is to lose the safe place they call home," the site says.

The CAA asked its members to commit through May 31 to freezing rents; halting evictions on renters affected by COVID-19; waiving fees for late rent payments; offering payment plans for tenants who can’t pay by the due date; directing residents to resources for food, health and financial assistance; and to communicating with tenants proactively to "work with them to ensure they remain housed."

"The challenge before us is one like we have never endured," the association says. "But as a community of responsible housing providers, it’s our opportunity to help our communities heal."

What if I can’t pay my mortgage?

The key here is calling your lender, and not all of them are participating in the Newsom’s mortgage plan. Last week, Newsom secured support from Wells Fargo, Citigroup, JPMorgan Chase, U.S. Bank and nearly 200 state-chartered banks, credit unions and servicers to provide relief for Californians who might have difficulty paying a mortgage because of COVID-19.

According to Newsom’s office, Californians should contact their financial institution to see if they are eligible for a 90-day grace period for mortgage payments; a streamlined process to request a forbearance; and to confirm approval of and terms of the delay program. You’ll have to fill out some papers and offer documentation to show how you are affected.

Will my credit rating go down if I don’t pay the mortgage on time?

Not according to Newsom. A statement from his office said financial institutions will not be allowed to report "derogatory tradelines" – a phrase for late payments -- to credit reporting agencies for borrowers taking advantage of COVID-19-related relief.

What about evictions and foreclosures related to mortgages?

For at least 60 days, financial institutions will not initiate foreclosure sales or evictions, "consistent with applicable guidelines," the governor’s office said.

What about fees and charges related to my mortgage?

For 90 days or possibly more, financial institutions will waive or refund mortgage-related fees and other fees, such as those for early CD withdrawals. 

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