Sacramento Report — What to do About Rental Debt

What to do About Rental Debt

By ron kingston

For residential rental property owners and managers who have not received rent payments from tenants for several months, where the tenants remain in possession, the laws are scheduled to dramatically change in a matter of months unless the legislature extends tenant protections once again.

The California Department of Financial Protection and Innovation (DFPI), which was formerly known as Department of Business Oversight, will begin to license applicants under the Debt Collection Licensing Act (DCLA). What is notable is the licensees will be required to comply with California’s renter protections associated with COVID-19 rental debt. Under that law, rental debt includes any “unpaid rent or other unpaid financial obligation of a (residential) tenant” that came due between March 1, 2020 and June 30, 2021. There are several protections for tenants that everyone needs to know, including: • The rental debt cannot be sold or assigned to a debt collection entity. • Beginning July 1, 2021, COVID-19 rental debt cannot be sold or assigned if that debt pertains to a person “who would have qualified for rental assistance funder… if the person’s household income is at or below 80 percent of the area wide median income (AMI) for the 2020 calendar year. • Creditors (owners and managers and their agents) cannot charge or attempt to collect late fees for the

COVID-19 rental debt if the renter has submitted a “declaration of

COVID-19 related financial distress.” This form can arguably be submitted at most anytime including the date of a court hearing on the matter at issue.

• In most cases, those collecting

COVID-19 rental debt in court must submit documentation showing that they have made “a good faith effort to investigate whether governmental rental assistance is available to the tenant, seek governmental rental assistance from any governmental entity or other third party.” This, we might add, is a very comprehensive section of law that attempts to restrict how an owner or agent may collect past due rent (see Code of

Civil Procedure §871.10) using any third party to collect COVID-19 rental debt.

• Owners and agents may not start to recover the debt before August 1, 2021 and any action to recover the debt that was pending as of January 29, 2021 is “stayed” until August 1, 2021, unless the legislature extends that deadline.

As a reminder, under the COVID-19 rental assistance program, owners can receive 80 percent of unpaid rent owned from April 1, 2020 through March 31, 2021 from the state or qualifying local governments if they agree to forgive the remaining unpaid rent for that period if the tenant(s) are not earning more than 80 percent of the local AMI. Several webinars and written advisories have been previously provided regarding the process and procedure to follow should an owner believe that the tenants are qualified, remain in possession, and have not paid rent during the time period noted in this article.

The DFPI recently issued an advisory to debt collectors et al. that the federal Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA), which is part of the Dodd Frank Wall Street Reform and Consumer Protection Act, protects consumers from unfair, false, deceptive or misleading representations and harassment or abusive conduct in rental debt collection.

The DCLA was enacted last year to protect consumers and provide the DFPI with licensing and examination authority over debt collectors, which includes debt buyers. DFPI will begin licensing later this year. Unquestionably, owners and agents will want to determine if a debt collector is licensed by DFPI.

Do you know…

AAOC has continually fought and prevailed against Rent Control in Orange County since 1961?

Now for the update regarding the California legislature: • 2,615 — the number of bills that have been introduced this year, to date

• 119 — the number of bills AAOC is tracking pertaining to residential property management. • 60 — the number of AAOC tracked bills that have been designated

“Tier 1” measures.

• 18 — the number of “Tier 1” bills that have been designated as extremely important.

Among the more intriguing bills that have been introduced are those that would:

• Effectively ban rental property owners from going out of business; • Require a comprehensive rent registration form that includes information about each tenant, square footage, and an unbelieveable amount of detailed information about renting each unit, evictions, terminations, amount of rent, number of occupants etc.; • Would impose a special tax for being in the business of rental housing; • Require water consumption to be reduced to 40 gallons per capita per day in residential properties; • Would add homelessness to our discrimination statutes and; • Make it an unlawful practice for a rental housing provider to inquire about an applicants criminal history during the “intial application process.” More to come in the coming months.

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Ron Kingston is President of California Strategic Advisors and Legislative Advocate for the Apartment Association of Orange County. For questions regarding this article, please call AAOC at (714) 245-9500.