Month: September 2020

Texas Supreme Court Interprets CDC Order

Texas Supreme Court Interprets CDC Order

  • The Texas Supreme Court issued an emergency order explaining the requirements for Texas landlords and JP Courts in response to the CDC order.
  • The Supreme Court apparently wants to ensure that defendants are fully aware of the opportunity to provide a CDC declaration and potentially halt the eviction.
  • Property owners, however, apparently have an opportunity to challenge a defendant’s declaration.

On Thursday, September 17, the Texas Supreme Court issued the emergency order we expected it would. The Supreme Court’s order (the “Order”) interprets the CDC’s order that put a moratorium on evictions nationwide.

The Order explains what property owners are required to do to comply with the CDC order and when Courts can let an eviction go through to the next step. In the paragraphs below, we explain what the Order requires.

New Requirements for Eviction Petition

The Order first explains what is required to be included in ANY petition for eviction in Texas. Under Texas Property Code Chapter 24 and Texas Rules of Civil Procedure 510.3, a property owner wishing to gain possession of his property from a tenant has to file a sworn petition describing the facts for eviction. Under the Order, that petition must now state whether or not:

  • The property is a “covered dwelling” subject to Section 4024 of the CARES Act;

  • The plaintiff is a “multifamily borrower” under forbearance subject to Section 4023 of the CARES Act;

  • The plaintiff has provided the defendant with 30 days’ notice to vacate under Sections 4024(c) and 4023(e) of the CARES Act; and

  • The defendant has provided the plaintiff with a declaration under the CDC’s order confirming the requirements of that declaration.

So while the requirements of the CARES Act have expired, the Texas Supreme Court, through this Order, are apparently still requiring affected property owners to adhere to it.

Citation will Explain CDC Order

Under the TRCP, once a plaintiff files a petition, the Court then issues a citation. In the Order, the Supreme Court now requires that citation to explain that the CDC issued an order potentially staying the eviction. And to get that eviction stayed, the tenant must file a declaration, like the one in the CDC’s order. The citation will also contain a copy of that declaration.

During the eviction hearing, the Court can question whether the defendant is aware of the CDC order and has had time to fill out the declaration. Its difficult to see how the defendant would not be aware if it is included in the citation, but the Order allows the JP court to question this. Which means that the defendant is going to have every opportunity to submit a declaration. And if he or she does, the Order requires the JP court to stop the eviction process.

Plaintiff can Question Defendant

While a JP court is instructed to halt an eviction if there is a declaration, it appears that the Texas Supreme Court is allowing plaintiffs to challenge the veracity of the defendant’s declaration. Specifically, an eviction can proceed if:

  • The plaintiff contests the defendant’s declaration or the CDC Order*;

  • The judge holds a hearing to determine whether the action should proceed; and

  • Determines that it should proceed.

So it appears from the Order that a plaintiff is allowed to contest the veracity of a declaration. Its not clear how that process will work. I guess we will have to see as it develops.

If you have any questions or need more information, please call us at 512-614-0335.

*I have no idea what it means to contest the CDC order. Or, at least, what the Supreme Court envisioned there.

Are Multifamily Assets COVID-Proof

Are Multifamily Assets COVID-Proof?

  • The Federal Government’s increased unemployment benefits have likely helped multifamily assets maintain through COVID.
  • Those unemployment benefits are ending for many states – including Texas.
  • While there are some rental assistance programs available, the immediate future for multifamily assets is precarious.

Its not news to say that COVID-19 has had a very significant negative effect on the United States’s – and Texas’s – economy. Many businesses have had to, at least temporarily, shut down. And even when they are open, people have been reluctant to leave their homes.

Commercial real estate has not been immune to this downturn. As people avoid restaurants and bars and retail shops and hotels – the tenants that rent space from commercial property owners are having great difficulty paying their rent. And, as a result, many property owners are having difficulty paying their mortgage.

Multifamily has Mostly Held Steady So Far

But despite the hit to the economy, thus far multifamily seems to have weathered the storm. There is no doubt that delinquencies have risen some and rental rates have decreased somefor the first time in a while in some areas. But this decline has so far been relatively contained and multifamily has mostly held steady.

The theory is that increased unemployment benefits have helped to reduce delinquencies at apartment communities. As you likely know, when COVID first hit, Congress passed the CARES Act that increased maximum weekly unemployment benefits to $600 per week. When Congress could not reach an agreement on an extension of the CARES Act, those increased unemployment benefits expired on July 31. Shortly thereafter, President Trump issued an executive order increasing unemployment benefits to a max of $300 per week. But now these unemployment benefits are coming to an end here in Texas. FEMA has decided to end the program – capping it at six weeks. As a result, many Texas tenants who are out of work will see their monthly income decrease significantly.

How will this affect Texas apartment communities? Will we see delinquencies increase significantly?

Since Mid-March, 3.4 million Texans have filed for unemployment relief. In July, the unemployment rate fell to 8% statewide. We can assume that the August unemployment rate was a little below that. While that is below the nationwide levels, it is still significantly above what it was in 2019. That high unemployment rate, combined with the lack of increased unemployment benefits, could mean multifamily property owners are facing precarious times ahead. We may start to see the effect of those changes starting in October.

Help for Renters is Available

Recognizing this potential crisis, some cities are providing help for renters. We could – and have – talked extensively about the misguided eviction moratoriums. But cities are also providing some help to renters:

In addition, many non-profits in these cities have their own rental assistance programs.

Unclear what Federal Government Will Do Next

With President Trump’s executive order increasing unemployment benefits expiring for many states, its unclear what the federal government will do next – if anything. Congress does not appear to be any closer to a new COVID-19 aid package. And the President has not – as of yet – indicated that he will extend his executive order.

I think, rather than increasing unemployment benefits, it would make more sense to provide housing vouchers of some kind for tenants that are out of work. This could take the form of direct payments to landlords to cover the tenant’s rent.

But there is no indication that this, or any, relief is coming soon. As a result, multifamily property owners may face a difficult immediate future.

The CDC Did What

The CDC Did What?!

  • On Friday, September 4, the Center for Disease Control (“CDC”) issued an emergency order that puts a moratorium on many evictions throughout the United States.
  • If a tenant provides a declaration that he or she cannot pay rent because of COVID and make less than $99,000 then the landlord cannot evict them.
  • The order went into effect on September 4 and lasts through December 31.
  • Penalties for violating this Order are severe.

On September 4, 2020, the CDC issued an order (the “Order”) under Section 361 of the Public Health Service Act to temporarily halt residential evictions to prevent the further spread of COVID-19. The CDC stated that it needed to make this order now because any delay in the action “would be impracticable and contrary to the public health” given how easily the virus is spread and how many people have been infected.

The order is effective immediately (as of September 4) and lasts through December 31, 2020. In this article, I will spend most of the time explaining what the new rules are and what this means for landlords. And then I will discuss a little at the end what challenges should be made to this order.

IMPORTANT – The CDC’s order does not supersede local rules that are more stringent. So, for example, the City of Austin has additional eviction rules that we have discussed elsewhere in this blog and on our website (CITE). Those local rules must still be followed also.

Summary of the Order

A residential landlord can still start an eviction proceeding against a non-paying tenant. The tenant then has the burden of presenting a renter’s declaration (“Declaration”) to the landlord to invoke the Order. For the Declaration to be valid, there are five (5) statements that must be included which are outlined below. Once presented with a Declaration, we strongly recommend landlords halt all notice and eviction proceedings immediately.

Responsibility is on Tenant to Provide Declaration

Under the Order, a landlord is not allowed to evict a tenant who has provided a Declaration to the landlord that states the following:

  1. The individual used their best efforts to obtain all available government assistance for rent or housing;

  2. The individual either (i) will not earn more than $99,000 for 2020 (or $198,000 if filing jointly), (ii) was not required to report income for 2019, OR (iii) received a stimulus check pursuant to the CARES Act;

  3. The individual is unable to pay rent due to substantial loss of income, loss of compensable hours of work, a lay-off, or extraordinary out-of-pocket medical expenses;

  4. The individual is using their best efforts to make timely partial payments that are as close to the full payment as circumstances allow; AND

  5. Eviction would likely render the individual homeless or force them to live in a close shared-quarters.

If the tenant provides this Declaration, the Landlord should IMMEDIATELY cease all notice and eviction activity against the tenant.

What the Order Does Not Do

The Order does not relieve any obligation to pay rent or comply with other obligations under the lease. Nothing in the Order precludes the charging/collecting of fees or penalties because of the failure to pay rent.

Furthermore, nothing in the Order precludes evictions based: (1) criminal activity; (2) threatening health and safety of others; (3) damaging/posing immediate risk of damage to property; (4) violating building code or health ordinance; or (5) violating any other contractual obligation, other than timely payment of rent.

If a state or local authority has requirements providing the same or greater level of public-health protection than those provided for in the Order, the state’s or local authority’s requirements will apply.

Problems with the Order

There are many questions and issues with the order. It was drafted inartfully – most likely because the CDC does not know anything about residential real estate. Its completely out of its element on this issue.

For example, its not clear from the order whether a landlord can provide a notice of eviction or notice to vacate to a tenant who has given the landlord a Declaration. The language of the Order is vague. In addition, its also not clear whether a landlord can challenge the assertions a tenant makes in his or her Declaration. So there are many questions that still need to be answered. But…

Penalties for Violating the Order are SEVERE

The penalties for violating the Order are severe and costly. It is very important to let your regional manager know if a Declaration is received by a tenant to avoid any penalties or fines.

An organization violating the order may be subject to a fine of no more than $200,000 per event if the violation does not result in death or $500,000 per event if the violation results in death or as otherwise provided by law.

This is why we STRONGLY recommend stopping all eviction and notices IMMEDIATELY once you receive a Declaration from a tenant. If courts allow you to challenge that Declaration in the future, then we will set up a process for that. But until then, its not worth the risk.

Challenging the Order

On Friday, a number of lawyers around the country had a zoom call with the National Apartment Association. We all strongly encouraged the NAA to challenge this Order. It does not clear to me at all that the CDC has the power to do this. I also do not think the Order is constitutional. And, of course, this does not even address whether an eviction moratorium is necessary, good policy, or incredibly damaging to property owners.

The NAA said it is looking into all of its legal options and will have a response shortly. It also put out a statement condemning the Order. Hopefully its response further includes quickly filing a lawsuit challenging the Order. I will keep you updated if and when it does.