Defaults During a Global Pandemic

April 1 closes out one of the longest months Americans have felt in a while, and with it comes another big financial difficulty facing the country: Rent. Landlords and lenders alike will find themselves in the unsettling reality that many of their renters and borrowers cannot stay current during this pandemic. Only a few months ago, studies found that the average American did not have the savings to endure a $1,000 emergency[1] —this during a period when the financial market indices were running on historic highs.

Now that the global economy is coming to a standstill and shelter-in-place orders have caused millions to lose jobs and seek unemployment, emergency savings will quickly be exhausted. And when faced with payment deadlines, the reality is harshly simple: many individuals and small businesses will default. This devastating reality will have far-reaching effects throughout the real-estate and banking industries. To echo a real estate executive recently quoted in the Los Angeles Daily News: “If tenants stop paying rent, then at some point landlords can’t pay utilities. Then Municipalities don’t get their property taxes or mortgages aren’t paid and the banks get a spike in defaulting loans.”[2]

While many local Illinois and Missouri counties have placed temporary bans on evictions (at least for residential property), the reality is that rent is still due. Mortgage payments are still due. And by not meeting these deadlines, contractual obligations will be breached. Despite these breaches and not being paid, landlords (especially commercial landlords) will also be faced with the simultaneous reality that finding replacement tenants may be particularly challenging for months (if not longer).

With the first of the month here (and another one coming just 30 days away), too many renters, landlords and lenders will find themselves in this precarious landscape with many tough decisions to make. But options are available. With the recent enactment of the Coronavirus Aid, Relief and Economic Security (CARES) Act, individuals and businesses will gain access to new tools that may help in softening the financial impact currently being felt. [3]

If you need help navigating your options, HeplerBroom’s attorneys are working diligently in these troubling times to consult with individuals and businesses to help them develop plans to navigate this global pandemic.

[1] https://www.cnbc.com/2019/01/23/most-americans-dont-have-the-savings-to-cover-a-1000-emergency.html

[2] https://www.dailynews.com/2020/03/30/coronavirus-fallout-what-will-happen-when-rents-come-due-april-1/

[3] The full text of the CARES Act is available here: https://www.documentcloud.org/documents/6819239-FINAL-FINAL-CARES-ACT.html

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Kerri Forsythe

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