The Impact of New COVID-19 Laws on the California Real Estate Market

By April 16, 2020 May 13th, 2020 Anthony Dispoto, Real Estate Blog

Anthony Dispoto

COVID-19 has resulted in a myriad of new orders and emergency rules that have impacted the California real estate market.  Below is a quick summary of the most important changes that have occurred over the past several weeks:

Presidential Executive Orders

On March 18, 2020, President Trump directed the Department of Housing and Urban Development (HUD) to suspend evictions and foreclosures through April due to the vast detrimental effects COVID-19 has had on the economy. The effect of this directive fell short of helping many Americans as the order only affects households with an FHA-insured mortgage by delaying all foreclosure and eviction proceedings for 60 days.

Federal Housing Finance Agency

Additional action was undertaken by the Federal Housing Finance Agency, which ordered a freeze on all Fannie Mae and Freddie Mac-backed mortgages. As a result, nearly 28 million homeowners are protected from defaulting in the event of income loss. Furthermore, these actions look to protect landlords by freezing mortgage payments on sublet properties, but only if those landlords agree not to evict any of their tenants.

Governor Newsom’s Executive Orders

On March 16, 2020 Governor Newsom granted local governments the authority to place a moratorium on evictions until May 31, 2020. Newsom provided flexibility to local governments by allowing them to independently decide what is best for their jurisdiction. However, Newsom’s actions were criticized for failing to act in this time of crisis. Due to the increasing criticism and spread of the coronavirus, Newsom supplemented his March 16th order on March 27th by banning the enforcement of commercial and residential evictions until May 31, 2020. The outcome of the Executive Order still leaves many Californians unaware that they may still be subject to evictions, since Newsom’s order only grants a temporary reprieve from evictions, instead of a moratorium, and results in a mere delay in landlords’ right to evict tenants.

Judicial Counsel Emergency Rules

Perhaps the strongest defense for tenants arising from the COVID-19 pandemic would be the temporary emergency rules approved by the California Judicial Counsel. The emergency rules provide as follows:

  1. Courts will not issue summons for unlawful detainers, except in limited circumstances;
  2. Courts will not enter defaults or default judgments for restitution in unlawful detainer actions, except in limited circumstances;
  3. Trials shall be delayed for 60 days, or if a trial date has not been set then the court shall not set trial dates for at least 60 days;
  4. These rules shall remain in effect until 90 days after the state of emergency related to COVID-19 has been lifted, amended or until the Judicial Counsel has repealed these rules.

This causes a substantial disruption to the otherwise accelerated unlawful detainer process. If a court is unable to issue a summons for any new action, or is forced to continue the actions for 60 days, or is unable to issue a trial date for at least 60 days, then bad-faith tenants have the ability to take advantage of their landlords by choosing not to pay rent for months, whether or not they are working. Ostensibly, the Judicial Counsel had good intentions in drafting and implementing these emergency rules. However, these rules are ripe for tenants to take advantage of the current situation.

IRS Deadline Extensions

The Internal Revenue Service (IRS) has added to the list of relief measures by granting a deadline extension until July 15, 2020 for taxpayers, including, individuals, trusts, estates, and corporations with deadlines between April 1 through July 15. This will have a substantial impact for those with 1031 or qualified opportunity zone deadlines, which may have found difficulty in identifying replacement properties or closing such transactions due to the COVID-19 pandemic.

Where does this leave us?

Ultimately these actions leave us wanting more – more protections for landlords with defaulting tenants taking advantage of the situation, more financial incentives in the commercial market to keep businesses afloat and generating revenue, and more technological innovation in the public and private sector to prevent fallout in the real estate market during times of crisis. While regulators’ actions leave us wanting more, these emergency regulations will hopefully act as a building block allowing the California real estate market to thrive during future times of crisis.

If you would like to have a discussion or consultation on the comments made in this article, please reach out to adispoto@cwlawyers.com to set up a time to discuss.