With the changes brought about by the COVID-19 pandemic, families have struggled more than ever – and this is evidenced in the strain put onto the housing industry. We live in a state where many maintain surmountable income through investment properties, taking advantage of a thriving rental market bolstered by tourism. It all works very well on a good day but consider the sudden halt many businesses and staple jobs have come to, and you have a market that for many cannot make ends meet.

Luckily on March 18^th, measures were taken to begin to try and help the situation. A moratorium was placed that could legally protect effected renters from being evicted. This moratorium, and its consequent extensions have created a murky environment where many do not understand what applies to them, what the end-goal is, and what they will be responsible for when the moratorium is over. In this article, we want to take a deep and current dive into the state of foreclosures, evictions, and the extended moratorium so that you have a better understanding of how we are moving forward together.

The Extensions Continue

As of the writing of this article, the current extension to the moratorium on foreclosures and eviction processes will run until the end of the year, December 31st. Its purpose is to assist homeowners and renters that have undergone financial hardship because of job loss due to COVID-19. From a legal perspective, whenever we see language like this, we are always thinking of the word proof. Pay stubs and any written evidence that can back and prove that you lost your job due specifically to the pandemic will help strengthen your argument. As one would expect, there will be those looking to game the system, so hiring a lawyer to help you through the process is absolutely be a good idea.

In the lending world The Department of Housing and Urban Development (HUD), the Department of Veterans’ Affairs, and the Department of Agriculture have all extended their foreclosure moratoriums on guaranteed or insured loans covered under the CARES Act until December 31^st. Fannie Mac and Freddie Mac also have extended their moratorium on foreclosures for enterprise-backed, single-family mortgages. All of this has one main goal, to help stave off sudden, major deterioration of the housing market. Protecting those who are paying rent alongside those who are paying loans off will hopefully allow for time to adjust, catch up, and recalibrate.

Payments Will Be Due

It is vital to understand the implications of these laws. Payments are not being waived. As a matter of fact, the true definition of moratorium is a temporary prohibition of any activity. It, essentially, is a legal pause button, extending but not absolving the money that you owe. If your finances have been impacted by the pandemic, then pivoting will be essential. For those who are impacted in a way that substantially cripples their finances, bankruptcy will have to be a consideration, and that is where hiring a lawyer could work to your benefit. Sophia Dean, legal attorney with The Orlando Law Group, notices a degree of similarity between now and when she helped individuals through the housing crash of 2008.

“When I would consult individuals who were facing immense financial strife, I would encourage them by helping them understand that they were beginning a journey, and that it would take time to get back to where they needed to be. Honestly, many nights I would lay awake with the weight of their situations on my heart, thinking of creative ways for us to build back a foundation.

My advice is do not wait. People make the mistake of thinking that a lawyer will charge you for every second you spend on the phone or in a zoom when the truth is quite the contrary. My consultations are free. A conversation with me is free, and I encourage those struggling to have that conversation and call me immediately. The most important action we will do during this time is make informed decisions.”

Sophia Dean, Attorney at The Orlando Law Group

The Impact On The Real Estate Market

It is a different time for those working in the field of Real Estate, given the changes brought to what was a market with a steady flow of inventory. With less families and individuals putting their property up for sale, prices have gone up. When inventory is low, the power goes to the seller. Lower interest rates have encouraged buyers to enter the market, and we anticipate buyer competition to be fierce, even throughout the pandemic. For an analysis of how COVID-19 has affected the market, we asked Michael Curtin, Commercial Broker of HIVE Commercial Realty his interpretation of the Real Estate Market.

“We’ve seen inventory go down on the residential side, but many commercial opportunities are still growing. With hardship always comes a shift in the market, and this will be no different. I anticipate that we will see many find difficulty making ends meet, and therefore are forced to turn over their real estate portfolios or alter their plans to accommodate the changes brought about by the pandemic.

My biggest recommendation right now – stay flexible with your goals and expectations. If you can grow your business in a creative way to accommodate social distancing, now’s the time to do it. Elevate your marketing and work hard to innovate. Learn the market so that when it begins to change, you can change with it.”

Michael Curtin, Commercial Broker at Hive Commercial Realty

Our Key Takeaways

We are beginning to circle back around to one year since protections were enacted for individuals impacted by the pandemic. With the extensions stretching to December 31^st, owners experiencing financial hardship due to COVID-19 may pause, suspend, or reduce mortgage payments for 180 days. If that owner receives forbearance and decides to apply for a second delay, the maximum number of days they can receive forbearance is 360 days total.

This all hints at an unavoidable, eventual elephant in the room. When the eventual resumption occurs, there will be hardship. Many will struggle to make up the money owed, and there will be situations without easy answers. That is why hiring a lawyer and working with a law firm that has experience will be vital. We are poised and ready to help, to lay away at night coming up with options because we care for our clients. We see ourselves in them. We know they live in a complicated world that seldom takes into consideration their concerns. That is why you have us to help you navigate, no matter how murky the waters may seem.

Courts have been slow to reopen and deal with eviction issues. Commercial lease evictions are able to continue, but practically they will still take time to get through the courts, so now is the time to try to work things out if possible to save time, money, and stress. Some considerations to think about with your commercial lease are as follows: 

Considering How Shopping Center Commercial Leases are Unique  

The fact that shopping center leases have co-tenancy provisions makes them unique and could grant tenants more options in court. The goal of this co-tenancy is to ensure that stores do not miss out on opportunities because other stores are closing and causing a continual downswing in foot traffic. In terms of the battle between landlords and tenants, tenants may have a potential argument that the landlord has not fulfilled its co-tenancy obligation. 

It is important to note that one of the factors that many tenants’ arguments will stand upon is whether COVID-19 indeed prevented them from paying their rent. One of the considerations that many landlords are taking is the potential to fill the spot that would be left vacant.

Factors that will affect such decisions include supply and demand as well as how desirable the location is. It may even be more advantageous for landlords to settle disputes out of court, but we are certain once the moratoriums subside, the courts will see an influx.   

What Exactly Is Co-tenancy and How Could It Apply?  

When more than one entity has an interest in a property, co-tenancy agreements usually apply. In commercial property, many times increased traffic will cause businesses to be more successful over time. The inverse is true as well, with businesses that are forced to shut down causing damage to the potential of the stores that are left.

Many times, to assist with the finances of these stores, landlords will lessen the rent of the co-tenants. It is all up to the landlord and the documents that the businesses signed when they first decided to become situated in that location.

Complicating matters more is the fact that PPP Assistance may give a business the appearance of operating at a standard level when foot traffic is drastically lowered because of rising positive COVID-19 tests.  

With a lack of pandemic provisions written into leases, landlords and tenants are having to get creative with the options that they are afforded. Co-tenancy has often been used to help businesses that are suffering due to the lack of success from an adjacent commercial listing.

However, what happens when an external factor is causing many of the businesses to suffer? It may just be that a battle is looming on the horizon between landlords and tenants, and every month we get a little bit closer to that battle becoming our reality.  

What Options do Landlords Have? 

Although landlords are in a predicament when it comes to shouldering tenants that are not paying rent, there are many points to take into consideration before filing for eviction.

For the high-end shopping centers, they may have the footing to stand on, mainly because filling the empty location will not be as difficult. For areas with less foot-traffic, landlords may be encouraged to work with their tenants.  

Depending on the language found in the contracts signed between the owner and the occupant, some owners have been able to offer concessions to assist their tenants during this time; however, many are not going to be able to make such offerings.

Some have speculated that eventually, owners may turn to lenders to try and gain permission to offer concessions. The fact remains that all three parties are in a mode of cautious speculation over what options they may have to maintain some semblance of the bottom line when it comes to their businesses.

Although insurance does not usually cover pandemics, that could change down the line. Lenders are looking at options that involve insurance that would help landlords and, in turn, help their tenants through difficulties that are out of their control, such as a pandemic.  

An important factor is assistance afforded by the PPP loans from the Cares Act. Even with an extension and another assistance check, the potential ending point could be early August when the program is set to expire.

We could be looking at many agreements being modified and tensions rising between landlords and their tenants as that time approaches. Once the PPP loans expire, we will be seeing an entirely different operating pattern for landlords and the businesses they rent to. That dreaded conflict could create many vacancies and fluctuations in the commercial market. We must be ready.   

A Wave of Litigation on The Horizon  

We believe that, although you can stave off conflict, many times it is only buying time that will eventually run out. With difficulties being placed on both sides, we certainly predict a wave of litigation concerning these issues.

Our recommendation is to cross these bridges before they are at your feet. One of the best practices you can have with the businesses you work with is to have open lines of communication. Of course, when relationships become too contentious to resolve certain complications, it becomes necessary to have a legal professional help.  

Being situated where we are, The Orlando Law Group is keeping our focus on what we can do to help commercial businesses and their landlords through this difficult time. It could be the simple act of looking at your documents to have a deeper understanding of the potential you will have when facing mounting litigation. 

When there is no easy answer, the law is there for us to rely upon, and we are remaining cautiously hopeful for the future. Businesses will have to adapt as well as their landlords, and as we go through this change, we will find new ways to protect the financial future of our endeavors.