By Stephen K. Cooper

Law360 (June 16, 2020, 7:14 PM EDT ) Thousands of cash-strapped apartment dwellers are bracing for a wave of evictions next month that could worsen the national affordable housing shortage, placing pressure on owners of housing tax credit properties seeking to maintain financial solvency during the COVID-19 pandemic.

A federal moratorium on home evictions put in place in March by the Coronavirus Aid, Relief and Economic Security Act  expires in July even as state governors have moved ahead with plans to relax their stay-at-home quarantines and reopened courthouses that process home evictions.

More than 40 million Americans have been laid off since March as businesses closed their doors and the economy slowed amid the outbreak of the novel coronavirus, which causes COVID-19, a respiratory disease. Housing experts said many of these unemployed Americans live in federal subsidized housing units and paid their rents with help from one-time $1,200 economic impact payments and the extension of federal unemployment benefits that expires in July.

Congressional legislation to provide $100 billion in emergency rental assistance passed the House in June but is now stalled in the Senate, where Republicans say funding from the CARES Act could address the problems facing the U.S. economy.

The CARES Act set a four-month moratorium on evictions, fees and penalties for tenants living in multifamily units receiving federal assistance or homeowners with government-backed mortgages. It also provided the Department of Housing and Urban Development with $12.4 billion in funding to address housing needs during the pandemic.

Jennifer Schwartz, director of tax and housing advocacy for the National Council of State Housing Agencies, told Law360 that owners and investors in low-income housing tax credit properties are concerned about the fate of tenants who can't pay rent.

"What's going to happen once the unemployment insurance and [stimulus payments] go away?" she asked.  

Owners will try to keep tenants in their housing while still meeting program requirements to maintain financial solvency and keeping their properties operating efficiently, Schwartz said.

"If we do see a real dropoff in rent payments ... owners may be forced to draw on reserves," which typically aren't large enough to last very long, she said.

Emily Cadik, executive director of the Affordable Housing Tax Credit Coalition — a national trade group representing syndicators, lenders and developers, among others — said that many low-income-housing tax credit property owners are already starting to take action as tenant incomes and rental payments begin to fall.

"We're finding that a lot of owners are getting much farther into reserves than expected or having to defer maintenance so that they can address these new costs and gaps in rental income that are already arising," Cadik told Law360.

Housing tax credit owners generally operate on lean margins with lower levels of cash reserves than market-rate properties because state housing agencies don't want to over-subsidize affordable housing developments, Cadik explained. An eviction moratorium affects a property's cash flow, and if allowed to continue it will affect the properties' financial viability, she said.

Many of the tenants of affordable housing properties work in retail, restaurant and hospitality industries, which typically pay low wages. Smaller paychecks make these workers eligible to live in housing tax credit developments that limit tenant income levels to generally no more than 60% of area median income. Rents are generally set at 30% of that limit to make the units affordable.

"The people who need the housing assistance the most are probably the most vulnerable," Schwartz said. "Housing is so critical to their ability to succeed, help keep their children safe, and it's so important to public health."

On Capitol Hill, lawmakers are aware of the problem facing renters but don't agree on the solution.

Rep. Suzan DelBene, D-Wash., said lawmakers included the eviction moratorium in the CARES Act in order to protect struggling, low-income workers and their families. Congress, she said, should provide more relief, to keep people from losing their homes during the public health crisis, by passing the Health and Economic Recovery Omnibus Emergency Solutions Act. That $3 trillion measure, backed by Democrats, was approved by a divided House on May 15.

"Unfortunately, this pandemic will be with us for longer than we all had hoped, and that underscores the need to continue to provide protections," DelBene told Law360. "Housing needs to be a bigger part of the conversation when Congress talks about COVID-19 relief."

DelBene, a member of the House Ways and Means Committee, is pushing for passage of her Affordable Housing Credit Improvement Act, H.R. 3077, as part of infrastructure reform legislation under consideration in the House. That bill would revise the low-income housing tax credit by enacting a minimum 4% housing credit rate, among other changes.

Under federal tax credit rules as determined by state and local law, housing tax credit properties are prohibited from evicting tenants without a good cause, such as not paying rent, damaging the property or creating a public nuisance.

During a hearing of the Senate Committee on Banking, Housing and Urban Affairs last week, Sen. Jack Reed, D-R.I., said that once the moratorium expires, landlords and mortgage holders will have the legal right to "walk in the next day as the next payment isn't made ... and say you haven't paid and you're out."

Reed suggested that Congress provide money to individual mortgage holders and renters so they can make monthly payments, thereby removing financial pressure from landlords and banks.

In response, Mark A. Calabria, director of the Federal Housing Finance Agency, testified that the fundamental problem facing renters and mortgage holders is a lack of employment income. He noted that payments due under federally insured home mortgages would be rescheduled to the end of the loan period so borrowers wouldn't have to pay a lump sum when the moratorium ends.

Some congressional Republicans want to adopt a wait-and-see approach to the pandemic before Congress takes further action.

The House Ways and Means Committee's ranking member, Rep. Kevin Brady, R-Texas, has said that demand for housing assistance has been especially high and that some states and local governments have used CARES Act funding to respond aggressively to residents' needs.

Rather than deciding whether to institute another eviction moratorium, federal lawmakers should continue to watch as communities reopen and measure where those challenges will be occurring in the future, Brady has told reporters.

Cadik, of the Affordable Housing Tax Credit Coalition, said housing tax credit property owners are already looking to state and local governments for additional funding to help curb tenant evictions. Other strategies include deferring property maintenance, providing tenant counseling services and setting up rental payment plans.

"I don't think we have a sense, across the board, for what's going to happen when the eviction moratorium is up, and we'll see what Congress does," she said. "The concern is that there just won't be an ability to catch up at some point."

--Editing by John Oudens and Joyce Laskowski. 

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