CLARK BARS UPDATE - MAY 24TH 2021
Clark & Walker, P.C. - Attorneys at Law
Date: May 24, 2021
COVID-19 - Expiration of CARES Act - Changes to Non-Payment of Rent Notice
by: Christopher R. Walker, Esq.
On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law (hereinafter “Act”). The Act includes important, immediate protections for tenants and homeowners. The federal eviction moratorium for tenants living in certain types of housing is summarized below.
The eviction moratorium applies to “covered dwellings,” which includes those dwellings on or in “covered properties.” See Sec. 4024(a). The Act defines a “covered property” as a property that: (1) participates in a “covered housing program” as defined by the Violence Against Women Act (VAWA); (2) participates in the “rural housing voucher program under section 542 of the Housing Act of 1949”; (3) has a federally backed mortgage loan; or (4) has a federally backed multifamily mortgage loan. See Sec. 4024(a)(2). Category 4 is the most common of the categories that has resulted in a landlord’s inability to commence an eviction proceeding for non-payment of rent.
Section 4024(c) of the Act prohibits a landlord of a covered property from issuing a non-payment of rent notice prior to the expiration of the Act. Further, Section 4024(c) requires that any notice to vacate issued after the expiration of the Act must not demand the tenant vacate the dwelling unit for at least thirty (30) days following the issuance of the notice.
On April 26, 2021 HUD updated its HUD’s Q&A for Office of Multifamily Housing Stakeholders. In this update they inserted Question 25. Question 25 sought clarification as to whether the 30-day non-payment of rent notice requirement remained in effect for CARES Act covered properties. HUD answered in the affirmative, stating that any property that was covered by the CARES Act is required to issue 30-day notices for non-payment of rent. The guidance did not make any statement as to the period of time related to the balance owed. To the contrary, a blanket statement that covered properties must still use the 30-day notice was made in this answer. The issue remains unaddressed by the Arizona Supreme Court and the guidance offered by HUD is generally considered non-binding. With that said, courts can still consider the guidance and may, at their discretion, deny cases were CARES Act covered properties do not issue the recommended 30-day notice.
RECOMMENDATIONS
With the recent HUD guidance, we have formulated the following recommendations with respect to the notice to use for non-payment of rent if you are a CARES Act covered property.
If you are not a CARES Act covered property you are free to use the normal state notice for non-payment of rent (i.e. the 5-day non-payment of rent notice).
Option 1. A landlord of a covered property should issue a 30-day notice of non-payment of rent for any balance owed, regardless of whether or not the balance relates to the time period that the CARES Act prohibited evictions (i.e. March 27, 2020 through July 25, 2020) or not. If, at the expiration of the 30-day notice, rent is not paid in full, the landlord may proceed with the eviction action. This is the preferred course of action that the Firm recommends.
Option 2. This is a hybrid of Option 1. Consistent with prior guidance from the Maricopa County Justice Courts, properties that were covered by the CARES Act would issue a 30-day notice
provided the balance at issue relates to the time period of
March 27, 2020 through July 25, 2020. The tenant would have 30 days to pay the outstanding balance and late fees to avoid the filing of an eviction action. If you don’t have a balance related to the time period above, you would use the regular 5-day non-payment of rent notice per earlier guidance from the Maricopa County Justice Courts. As this has not been commented on by the Arizona Supreme Court it remains unknown if the Supreme Court will agree with the Justice Court or side with HUD and its guidance.
Option 3. Under this option, a covered property would simply use a 5-day non-payment of rent notice regardless of whether the balance is from the CARES Act period or not.
This approach is not recommended. The CARES Act did not have an express expiration date and NAA has been actively working to address this with Congress. Taking this approach is likely very risky and, with the Courts being somewhat aware of this issue, issuing a regular 5-day may likely result in the dismissal of your case.
CONCLUSION
Please know, we are equally alarmed and frustrated with HUD’s new guidance. Unfortunately, this is the legal landscape that we find ourselves in. We are optimistic that the tide will turn and we will be able to resort back to following Arizona law without federal interference. For now, we recommend operators and owners follow Option 1 if they are a CARES Act covered property. Landlords of covered properties should make these changes effective June 1, 2021 and, per prior guidance from the justice courts, not have to re-issue notices for pending cases.
If you have any doubt as to whether or not your property is covered by the CARES Act we highly recommend that you contact your lender to get official and written confirmation as to the loan type and status. If you are not a CARES Act covered property it is probably in your best interest to secure this letter now as you may be asked to justify your selection of the non-payment of rent notice type in future legal proceedings to enforce your lease agreements.
If you have any questions or concerns regarding the recommendations made in this memorandum please feel free to contact the office at (602) 957-7877 or on my direct line at (480) 605-1911.
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