CDC announces COVID eviction moratorium through the end of 2020

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On Tuesday, September 1, the CDC announced a temporary eviction moratorium through December 31, 2020. The order applies to all rental units nationwide and goes into effect immediately. Treasury Secretary Steven Mnuchin said that the order applies to around 40 million renters.

The CDC announced the action was needed to stop the spread of the coronavirus and to avoid having renters wind up in shelters or other crowded living conditions. This order goes further than the eviction ban under the CARES Act which covered around 12.3 million renters in apartment complexes of single-family homes financed with federally backed mortgages.

The Order, entitled, “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19, does not suspend mortgage foreclosures. To take advantage of the suspension, the tenant must sign a declaration form alleging:

  1. The individual has used best efforts to obtain all available government assistance for rent or housing;
  2. The individual either (i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) pursuant to Section 2201 of the CARES Act;
  3. The individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;
  4. The individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses; and
  5. Eviction would likely render the individual homeless— or force the individual to move into and live in close quarters in a new congregate or shared living setting— because the individual has no other available housing options.

The order specifically does not excuse rent, it just delays eviction. There is a substantial body of depression -era caselaw that holds this type of governmental action is permissible because it does not impair the contract, it only delays the remedy, and it is not a taking because the rent is still due. Lawsuits are likely to follow regardless of this old caselaw.

Many would argue that a temporary ban on eviction for non-payment burdens landlords with the cost of rental delay. Many landlords are individuals or small businesses that cannot spread the losses and cannot pay maintenance costs, mortgages and property taxes without the benefit of rental income.

The housing industry is crying Bah! Humbug!

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Congress may eliminate mortgage interest deduction

Mike Goodwin, the “Bow Tie Comedian” based here in Columbia, mike-goodwin-bowtie-comedianentertained us during lunch at our recent Chicago Title seminar. A joke that bubbled up through his very funny presentation was a line his mother used to keep him on the straight and narrow during his childhood, “what you NOT gonna do is…..”

For example, she would say, what you NOT gonna do is to stand there and hold that refrigerator door open while you try to decide what you want to eat. During one lull in the laughter, Mike said to us, “what you NOT gonna do is sit there and not laugh at my jokes.” (So we laughed.)

While some of us believe America is about to be made great again, some of us might like to borrow Mike’s line to deliver a Bah! Humbug! message to Congress:  What you NOT gonna do is to eliminate, or effectively reduce the effectiveness of, the mortgage interest deduction. Many homebuilders, lenders and real estate agents (and South Carolina dirt lawyers) believe that’s one thing we don’t need 2017.

The mortgage interest deduction is a major driver of the housing market. One reason American dreamers strive for home ownership is to take advantage of this tax break. That, along with the property tax deduction, the points deduction, the PMI deduction and the home office deduction, make owning a home a wise move from a tax standpoint. Eliminating or reducing the effectiveness of the home interest deduction, which many consider as American as apple pie, might put a damper on the improved economy we have been experiencing in 2016.

But that approach is definitely going to be under consideration by Congress, and players in the housing industry are preparing to defend the deduction. The plan under consideration involves not a direct elimination of the deduction, but an indirect attack via an increase of the standardized deductions, now at $6,300 for a single taxpayer and $12,600 for married taxpayers filing jointly. By doubling these standard deductions, many taxpayers would have no need to take the mortgage interest deduction.

The mortgage interest deduction is the largest deduction currently available to homeowners, allowing a write-off of interest from up to a $500,000 loan for a single taxpayer and up to a $1 million loan for joint filers. The deduction is especially important during the early years of a mortgage when the majority of payments are applied to interest rather than principal.

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“Congress … what you NOT gonna do is … “

If a single taxpayer pays mortgage interest of $8,000 in the first of home ownership, for example, that amount exceeds the current standard deduction of $6,300, and that taxpayer would itemize to claim a better tax break. If the standardized deduction is doubled, itemization is much less likely.

President-Elect Trump’s nominee for Secretary of the Treasury, Steven Mnuchin, has stated that the administration is planning to create the largest tax change since Reagan. Simplifying the tax code is one of the stated objectives, and a larger standard deduction is one method of simplification. In addition to the mortgage interest deduction, the charitable deduction would be affected in a similar manner.  Some say that as the standard deduction goes up, the incentive to give is reduced.

Any step that would reduce incentives for homeownership would likely encourage renting rather than buying. Home values might suffer, and the housing industry might suffer as well.

All Americans are interested in the changes that are about to happen, and those of us in the housing industry may be more interested than most! I have already seen prognosticators reducing their optimism about 2017, but I just got off the phone with a local wise man. He said that I should relax. 2017 is going to be a banner year, he said, because America is going to be great again. I hope he’s right!