A compromise to prevent feared eviction tsunami passes Legislature with little time to spare.
California renters financially impacted by the coronavirus pandemic will be protected from eviction until at least next February, while small landlords will be offered some foreclosure protections, under a measure approved by lawmakers and signed by Gov. Gavin Newsom late Monday night.
The deal was passed by supermajorities in both state legislative chambers, with both Democrats and a handful of Republican lawmakers supporting the bill while pleading for additional federal intervention.
A two-thirds vote of lawmakers was necessary for it to become law immediately upon being signed by the governor. A pause on California eviction court proceedings, put in place by the state Judicial Council, was set to expire Sept. 2.
“California is stepping up to protect those most at-risk because of COVID-related nonpayment, but it’s just a bridge to a more permanent solution once the federal government recognizes its role in stabilizing the housing market,” Newsom said in a statement.
The emergency measure, which Newsom and other backers have framed as a stopgap to buy time until the federal government steps in with more direct financial assistance, is the product of contentious negotiations between tenant groups, landlord interests, and bankers over who will be left bearing the financial brunt of missed rent payments precipitated by the pandemic. Nearly one million Californian renter households have had a member suffer a job loss since the pandemic struck according to a recent UC Berkeley analysis, leading to worries of a possible “tidal wave” of evictions.
But while tenants, landlord and banking groups all urged lawmakers to approve the bill, the compromise’s specifics have left some parties severely disappointed. Several prominent tenant groups are already demanding Newsom issue a new executive order to stop evictions for renters not financially impacted by the virus — evictions that could begin Wednesday.
Here’s how tenants, landlords and bankers made out in the deal.
What’s in it: Renters can’t be evicted for payments they missed from March, when the pandemic first struck, through Aug. 31. From September through Jan. 31, if renters come up with 25% of the rent they owe, they will also be protected from eviction. Renters can pay that 25% at any time before Jan. 31.
Starting Feb. 1, eviction rules go back to normal. Miss your Feb. 1 rent? You can be evicted, even if you got laid off because of COVID-19. Unable to come up with that 25% of missed rent between September and January? You can also be evicted.
“(This bill) needs to pass. At the same time it is not nearly enough.”Anya Lawler, advocate on behalf of Western Center on Law and Poverty
How can renters prove they’ve been financially impacted by COVID-19? For renters below 130% of area median income, they have to fill out legal paperwork under penalty of perjury that says they’ve suffered a decline in earnings or increased expenditures because of the virus. That paperwork must be provided by landlords when they serve initial eviction papers to renters, and renters have 15 days to fill it out.
No actual documentation of the decreased income or increased spending is required. Renters making above 130% AMI will need to provide some documentation for their financial hardship. Statewide median household income is around $87,000.
Any evictions that occurred between March 2020 and February 2021 will not be made public, to protect renters’ ability to find new homes. Any rental debt accrued because COVID-related financial hardship won’t show up on tenants’ credit reports.
What’s not: Tenant groups really don’t have a ton of leverage in state politics. They don’t donate much to campaigns, and perhaps more importantly, renters simply don’t vote as reliably as homeowners do. Despite renters comprising roughly 40% of the state, pro-tenant bills have had a tough time getting through the Legislature.
Tenant groups are most upset that evictions unrelated to financial hardship from coronavirus will be allowed to resume in the next few days. They worry landlords will use any lease violation — people living in the apartment not on a lease, or creating a nuisance for neighbors — as a pretext to get rid of tenants who have fallen behind on their rent. In court, the burden will be on tenants to prove landlords are using these lease violations in bad faith. The vast majority of tenants in eviction courts do not have legal representation.
“(This bill) needs to pass. At the same time it is not nearly enough,” said Anya Lawler, who advocated for the bill on behalf of the Western Center on Law and Poverty. “This is not a complete solution to the looming eviction crisis, nor is it a long term solution to the very real financial impact the pandemic has had on tenants, small landlords, and affordable housing providers.”
Rent forgiveness or cancellation is also missing in the bill, and tenants don’t have much time to pay back what they owe. While some missed rent may not be used as the basis for evictions in February, renters will have to pay back everything they owe by March, 2021. That’s when landlords can begin pursuing missed rent payments in small claims court. One earlier legislative proposal gave renters until 2024 to pay back rent, and forgave debts for lower-income renters.
The law could produce an awkward circumstance for tenants who meet the bare minimum of rent payments to keep a roof over their head, but can’t make the rest of their required payments. It is possible that a renter owing thousands of dollars to their landlord could legally stay in their unit while being sued by their landlord for missed rents.
What’s in it: Landlord groups pushed back hard against prohibiting evictions unrelated to virus-induced financial hardship. They cite cases in which, under the current eviction moratorium, landlords could not remove renters who they claimed were damaging property or causing a nuisance to neighbors.
Small landlords who own between one to four units will receive some additional foreclosure protections. The proposal extends the 2013 “California Homeowner Bill of Rights,” passed in the wake of the late 2000’s foreclosure crisis, to small, non-corporate landlords who own up to 4 units. Those “rights” include specific guidelines mortgage servicers must obey in notifying and communicating with borrowers, as well as a prohibition against “dual track” foreclosures where lenders are allowed to pursue foreclosures while simultaneously negotiating loan modifications.
What’s not: The California Apartment Association, which supports the compromise, is one of the more powerful interest groups in the Capitol, and donates heavily to Democratic and Republican candidates. The looming expiration of the court system’s moratorium on eviction cases also gave landlords considerable political leverage — if the state did nothing, evictions could resume and landlords could kick out non-paying tenants. Trying to get a controversial eviction bill through the Legislature without buy-in from landlords and other real estate interest would be fraught with uncertainty.
But the political power landlords wield still couldn’t deliver what they say would make this problem much easier to solve: Money.
There’s an intuitive solution to preventing the eviction crisis: Have the state or federal government pay landlords for missed rent, so they can meet their mortgage bills and other obligations. Unfortunately for both landlords and tenants, the state has been hamstrung by a recently patched $54 billion budget deficit. There’s not much money to go around, and a second stimulus round from Congress that would provide states with more resources has not yet materialized.
A proposal backed by Senate leader Toni Atkins, a Democrat from San Diego, tried to work around the state’s depleted coffers by offering sellable tax credits to landlords for the amount of rent they missed. Landlords tentatively supported the proposal, but no such compensation was included in the final bill.
Without money coming from the state, small landlords may wonder how they expect to meet their mortgage payments if they can’t evict renters and re-rent apartments until next year. An earlier proposal embraced by tenants, from Assemblymember David Chiu, a Democrat from San Francisco, would have forced banks to offer mortgage forbearance options to struggling small landlords. Those provisions also weren’t included in the final bill (more on that below).
What’s in it: As previously mentioned, some additional requirements when lenders are preparing to foreclose on a property. The bill also would force lenders to provide an explanation as to why they denied a forbearance request.
“What we wanted to make sure we could do was come to a compromise with all stakeholders that were involved in this process and get a measure through that actually will provide significant relief for borrowers and tenants struggling at this time,” said Beth Mills, spokesperson for the California Bankers Association.
What’s not: Banks and credit unions are also a powerful force in the Capitol. But their leverage on the eviction issue in particular was amplified by the constitutional limits of state law, and the threat of legal action.
Both landlord and banking groups were skeptical that any type of compulsory mortgage forbearance would survive legal challenge. Both the state and federal constitutions have “contract clauses” that limit government interference with private contracts like mortgages.
California is also preempted from regulating certain banking activities in the federal government’s purview. Banking groups argued that any state incursion along the lines of mandatory mortgage forbearance for distressed small landlords could be dismantled in court.
Some lawmakers voiced frustration that banking groups did not offer more in the spirit of compromise, considering the concessions made by tenants and landlords.
“The banks and the mortgage holders are not doing a thing,” said Sen. Hannah-Beth Jackson, Democrat from Santa Barbara. “And I can’t tell you how disappointed I am that they have not been willing to step up.”
Mills, the California Bankers Association spokesperson, declined to say whether the banking industry would have sued to overturn compulsory mortgage forbearance provisions.
This story was updated at 12:55 AM September 1 to reflect Gov. Newsom had signed the bill into law.