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What Topples First? NYC Eviction Moratorium Has Created A House Of Cards

New York is facing down a reckoning that could roil real estate and financial institutions or leave thousands of renters homeless.

The city’s current eviction moratorium allows tenants who can’t meet rent payments due to the coronavirus to stay in their homes, but it also means landlords who might barely have been breaking even financially before the crisis now have no legal recourse to replace nonpaying tenants. Eviction filings have been piling up in New York’s courts and will be at a standstill until at least Aug. 20.


While renters’ and landlords’ financial health is being propped up by supplemental unemployment benefits for the moment, the situation could come crashing down as soon as those funds run out, as they are set to at the end of July.

“We haven’t seen the effects of the moratorium yet, but when they set in, we’ll be going off a cliff very quickly,” said Michael Carr, an attorney focused on landlord-tenant disputes at Rosenberg & Estis. “Things are going to have to break. The question is: What breaks first, and how hard does it break?”

In the best-case scenario, Carr said, the federal government could issue new stimulus funds that would be able to keep both renters and landlords afloat until a recovery takes hold.

But the scenario that is more likely is also bleaker: first, a wave of foreclosures as small landlords aren’t able to make their debt payments; then banks repossess apartment assets across the city and sell them to larger institutional landlords; then a wave of evictions and homelessness as the courts reopen.

Landlords Underwater

Through an evolving series of court stays and executive orders, eviction proceedings in New York have largely been on hold since the middle of March. While landlords are now allowed to file new eviction proceedings, Carr said that the stream of new filings is just a trickle, as many landlords don’t see a point in making new filings that will have to wait until the end of August.

However, Carr said, there is a considerable backlog of eviction cases waiting to be approved in the city courts. The city should expect a wave of new filings when it becomes clear that the moratorium will lift. In the meantime, the divide between what renters owe and what they’ve paid continues to grow. An estimated 25% of New Yorkers failed to pay rent in June. 

In order to recoup unpaid rent, landlords have to file a separate legal action for each tenant. As the proportion of nonpaying tenants grows and unpaid rent accumulates, landlords are growing less confident that they will ever see that rent get paid.

“They can keep the beast at bay for as long as they want, but it’s just going to get bigger and bigger,” Carr said. “It’s going to be a lot harder for landlords to recover two years of rent than three months of rent. When you think of the opportunity cost of undertaking a separate action for each tenant who is in arrears, that could be hundreds of millions of debt that becomes uncollectible.”

Some landlords have tried to provide a measure of relief with their tenants by providing discounts or temporarily reducing rent. There is an issue with that strategy, though, Carr said. Because of the rent stabilization legislation passed last June, if landlords with regulated units offer relief now, they may not be legally allowed to raise rents again on those units when the economy begins to recover. 

“The Housing Stability and Tenant Protection Act was passed when New York was in a boom, and it couldn’t anticipate an economic crash or recession,” Carr said. “Landlords already felt betrayed, now they feel they’re bearing the whole cost of the current recession.”

The result is that fewer landlords are offering any kind of financial break to their tenants in this time of crisis. That means more tenants are falling behind on payments, and when the eviction moratorium ends, more tenants may find themselves being served with eviction notices.

Meanwhile, while rent collections have been dwindling, the costs of operating a building in New York have stayed steady. By and large, lenders have not offered relief for landlords’ mortgages, Carr said, and property taxes are not likely to budge. The result could be mass foreclosures across the city.

Since banks don’t have much use for multifamily assets, Carr said, it is likely that they will try to sell the buildings quickly. The apartments may end up in the hands of larger institutional building owners.

“What you’re going to see is a centralization of power as the smaller landlords sell and the bigger landlords swoop in,” Carr said. “Where there might have been 1,000 landlords in New York, you could go down to 300.”

The irony was not lost on Carr that the eviction moratorium, a piece of legislation intended to protect tenants from powerful landlords, might concentrate even more power within the highest ranks of the real estate world.

Renters Under Scrutiny

Eviction, Carr said, is only ever a tool to mitigate financial losses, not to drive profits, and landlords are now questioning what they would even do with vacant apartments in the current economic climate. With the eviction moratorium in place, Carr said many landlords are hesitant to bring on new tenants, for fear that the new occupant could pay the first month’s rent and the security deposit, then live in the apartment without paying another cent, protected by the eviction moratorium.

“An eviction moratorium paints with a broad brush,” Carr said. “It probably doesn’t help everyone who is in need, and it could let some bad actors who haven’t seen any financial distress go rent-free in apartments that they could absolutely afford.”

Carr expects landlords to become far more stringent in terms of their new tenants’ financial health, with the result being that lower-income tenants will find it harder and harder to rent space across the city.

“Due diligence on tenants is going to be much more invasive,” Carr said. “As a landlord, I might have been looking for my tenants to have a net worth around $100K, now maybe I won’t rent to someone with a worth below half a million.”

Hanging over every discussion about the eviction moratorium is the specter of mass homelessness. No legislator wants to put thousands of New Yorkers on the streets, Carr said, and while there is one proposal in the state legislature to freeze property foreclosure proceedings, most of the legislative proposals have focused solely on protecting tenants. Carr is hoping that whatever solution is settled on to fix the crisis takes a wider view.

“We can’t solely look at how to help landlords, or how to solely help tenants, or how to make sure this doesn’t hurt the banks,” Carr said. “We need a holistic approach. Any other solution is nothing more than a Band-Aid.”

This feature was produced in collaboration between the Bisnow Branded Content Studio and Rosenberg & Estis. Bisnow news staff was not involved in the production of this content.