5 Things You Can Do as a Landlord When Your Tenants Can't Pay Rent

There are options for landlords when your tenants cannot pay rent — and they may enable you to avoid evicting tenants who are likely facing their own financial struggles.
Last updated May 13, 2021 | By Christy Rakoczy
Things You Can Do as a Landlord When Your Tenants Can't Pay Rent

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Investing in real estate always comes with ups and downs for landlords. But the coronavirus crisis has created an unprecedented economic situation in which landlords may be faced with many tenants at one time who can't pay rent.

Unfortunately, even the most well-prepared landlords may be among the businesses impacted by coronavirus and not be equipped to cope with the unusual circumstances resulting from the COVID-19 pandemic. We're here to help during this difficult time, and we've reached out to some experts to get some real-world advice for you.

Keep reading to learn about your immediate options as a landlord when your tenants can't pay their rent.

In this article

Eviction may not be an option (for a few reasons)

Normally, when tenants aren't able to pay rent, it's possible for landlords to pursue eviction. This involves going to court, getting an order to evict, and getting a sheriff to remove the tenant if they don't leave voluntarily.

However, as from the fact that you may have mixed emotions about evictions right now, the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) also precludes landlords with government-backed loans or who receive certain housing vouchers from evicting tenants or imposing late payment or nonpayment fees to tenants for 120 days beginning on March 27, 2020. And many state and local areas have also imposed a moratorium on evictions that applies to properties not covered under the CARES Act.

"Generally speaking, landlords are not allowed to evict tenants who are unable to pay rent due to the coronavirus," says Paul Mankin, founding attorney at the Law Office of L. Paul Mankin. "This could apply to tenants who are ill; their immediate family members who are ill; and tenants who have lost their jobs as a result of company closures due to the coronavirus."

This doesn't mean all evictions are prohibited in every area or every situation, though. "There may still be ways to evict a tenant if it does not deal with nonpayment of rent due to COVID-19," says Louis Lopez, an attorney and director of business litigation at Fennemore Craig Attorneys. "The moratorium only appears to be COVID-19-related."

Lopez also explained that it's possible to sue a tenant for past-due rent without terminating possession, so you could still try to collect even if your local area has stopped evictions temporarily. Unfortunately, as many housing courts are closed due to stay-at-home orders, you may have to wait even to pursue these types of claims.

You may also simply feel uncomfortable evicting tenants during these troubled times, and thankfully there are a number of other options that both you and your tenant may find helpful.

1. Work with your tenant to find a solution

Most tenants want to pay their rent but income reductions are making it impossible for them as they may have lost a job and can’t pay bills in general. Although expanded unemployment benefits and government stimulus money could give these tenants the funds they need, stimulus checks provided for in the CARES Act are expected to take about three weeks to arrive from the time of the act's March 27 passage. And many unemployment offices are inundated with applications so it may take time to get funds.

Your tenants may be struggling to know how much money they’ll receive from these sources, as well, as a recent FinanceBuzz survey revealed that 55% of American who are expecting a stimulus check don't know how much money they'll get.

Lopez suggested making arrangements with your tenants to temporarily pause rent payments if they are applying for government assistance to get their rent paid. If you don't need to collect the full amount of rent immediately, you could also work with your tenants to find other options that make sense for both of you.

"Landlords may partially forgive or accept reduced rent, or may tack the rent onto the end of the lease so the tenant can pay more on the back end," says Matthew Fornaro, a business law attorney at Fornaro Legal in Florida. "The parties may also agree to modify the lease and change the terms, perhaps extending the lease if the tenant agrees to pay more later on when they're able to."

2. Apply for forbearance or deferment

If you want to help your tenants during these troubled times, you could pursue solutions that allow you to pause your own mortgage payments so you can give your tenants a little more leeway. Your options depend on the type of mortgage you have as well as who your loan servicer is.

Fannie Mae and Freddie Mac are both offering up to 12 months of forbearance as well as waiving late fees and other penalties for owners of single-family residences. If you have a multi-family property, Fannie and Freddie also provide the option to defer loan payments for up to 90 days if you can show you're experiencing hardship due to COVID-19. If you accept this help, you'll need to agree not to evict tenants for non-payment of rent during the forbearance period.

The Federal Housing Finance Agency has also directed the Federal Housing Authority (FHA) to suspend evictions and foreclosures on single-family homes for at least 60 days beginning March 18, 2020.

Many private banks are also choosing to defer payments and work with borrowers, including Bank of America, Ally, and SunTrust. If you suspect you'll have trouble making payments, reach out to your loan servicer as soon as possible to find out what relief is available to you.

3. Take advantage of a HELOC

Landlords often have other costs to pay beyond a mortgage — or may not be eligible for mortgage relief that's available. If you need money to pay your expenses, consider a home equity line of credit (HELOC).

These loans allow you to tap into the equity in your property. You can apply for a HELOC through banks, credit unions, or online lenders that will determine how much you can borrow based on what your property is worth and your financial credentials. If approved, you'll be extended a line of credit so you can borrow up to a certain maximum limit, similar to the way you use a credit card.

HELOCs typically have variable interest rates, which are generally well below what you'd pay in credit card interest. They can also be quicker and easier to qualify for than a mortgage refinance loan and can give you flexibility so you can borrow only as much as you need when you need it.

4. Get set up with rent assurance

Some third-party services that collect rent for landlords also offer you the option to sign up for rent assurance to make sure you get the money due to you even if your tenants don't pay rent on time. For example, with Rent Assure from NestEgg, you pay $49 per unit per month for rent collection services and are protected against tenant default for up to four months of lost rent (as of April 7, 2020). If a tenant stops paying, NestEgg coordinates with you during the eviction process by providing documentation of eviction notices and payment history.

Rent default insurance can also protect you from nonpayment when tenants default. Most policies provide reimbursement for several months of lost rent if a tenant skips out on the lease or is evicted. Sometimes the insurance will also cover legal fees and court costs if you have to pursue a legal claim against a tenant.

Before signing up for any of these programs, though, you need to read the fine print as you typically won't be protected if tenants have already missed rent payments before you became covered.

5. Look into SBA Loans

Because of the widespread economic damage the coronavirus pandemic has caused, the Small Business Administration is making ample funding available for business owners in the form of small business loans — and the eligible small businesses include landlords with real estate investments.

"Landlords can qualify for SBA disaster loans," Mankin says. "These are great loans that offer quick approval timelines to help with mortgage payments."

Disaster loans offer up to $2 million in funding at a 3.75% rate for up to a 30-year loan term. You can obtain up to $25,000 in funding with no collateral and can get a $10,000 advance on the loan within three days of submitting a successful application.

"I would encourage any business to contact the SBA to see how they can help and what programs are available," Fornaro says.

Bottom line for landlords

As you can see, there are options for landlords when their tenants cannot pay rent — and many of those options enable them to avoid evicting tenants who are likely facing their own serious financial struggles due to the economic disruption caused by COVID-19.

So while it's natural to be worried about your financial situation, as most people are these days, don't be discouraged if your tenants can't pay. Take advantage of the help that's available and trust that getting through these difficult times is possible.

In the meantime, take some time to learn more about how to invest money, and specifically how to invest in real estate, so when the crisis is over you'll have a plan for getting back on your feet.

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Author Details

Christy Rakoczy Christy Rakoczy has a Juris Doctorate from UCLA Law School with a focus in Business Law, and a Certificate in Business Marketing with an English Degree from The University of Rochester. As a full-time personal finance writer, she writes about all things money-related but her special areas of focus are credit cards, personal loans, student loans, mortgages, smart debt payoff strategies, and retirement and Social Security. Her work has been featured by USA Today, MSN Money, CNN Money and more, and you can learn more at her LinkedIn profile.