With the onslaught of the COVID-19 pandemic, you might be among the millions of Americans who find themselves in dire financial straits and unable to pay their rent. So what should you do if you think you won’t be able to make your next rent payment?
Do you expect to a tax refund? Do you have a savings account, assets you can sell, or a retirement account you can dip into to pay your rent? While most financial gurus don’t recommend touching your retirement account until you reach retirement age, the Internal Revenue Service (IRS) does allow you to make an early hardship withdrawal from your 401K to prevent eviction.
If you’re still employed, but have been laid off or had your hours restricted due to the pandemic, you might be able to take out a 401K loan if your employer’s plan allows for it. You won’t incur IRS early withdrawal penalties or taxes on the loan and you typically have up to five years to repay it through withholdings from your wages once your job starts up again.
The U.S. Department of Housing and Urban Development (HUD) has suspended all evictions and foreclosures on HUD-owned properties until the end of April, and the U.S. Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to do the same for properties backed by their mortgages for a minimum of 60 days. Find out if there is a temporary eviction ban in your area—many states, cities, counties, and courts have issued moratoriums on evictions in light of the pandemic. Find out whether there’s a moratorium on evictions in your jurisdiction and how long it’s expected to stay in place. Keep in mind that any such eviction ban is a temporary measure that will end at some point.
Even if your jurisdiction has a moratorium on evictions, your landlord might still be able to charge you late fees and other penalties under the lease for breaching the agreement. Plus, if you’re behind on your rent payments and you haven’t reached an agreement with your landlord about paying what you owe, your landlord will probably file eviction proceedings as soon as the moratorium ends.
Some leases have hardship clauses that allow you to end the tenancy early in times of financial difficulty. Although such a clause won’t allow you to defer or skip a rent payment, it will allow you to find a more affordable place to live and move out—in some cases penalty free—depending upon the language. Of course, if you’re under a stay at home order, you’ll need to check the exact language of the order to find out if you are allowed to move residences while the order is still in place. Also, keep in mind that you probably won’t get a great rental recommendation from your landlord if you take advantage of the hardship clause, so be prepared to offer your new landlord other references.
Once you’ve come to the conclusion that you are going to have a hard time paying rent due to hardships caused by COVID-19, contact your landlord. Tell your landlord about your situation, and try to come up with an agreement that will work for both of you. If you’ve been a good tenant, your landlord will probably appreciate your reaching out sooner rather than later, and will likely work with you in an effort to mitigate the loss of rental income.
For example, if you’re temporarily out of work but expect to get a job or an influx of cash soon, consider proposing the following:
Whatever you work out with your landlord, be sure to get it in writing to protect yourself in the event your landlord decides to later file for an eviction.
If none of the above options are available, don’t lose hope.
Look Into Rental Assistance Programs. You might be able to tap into a local, state, or national rental assistance programs. Check HUD's coronavirus website for advice and resources. Also, visit your state’s website and see if your state is offering any rental assistance programs during this emergency. State & Local Government on the Net is a great directory that can help you find your state and local government websites. You might also find other assistance programs by searching the Internet for “emergency rental assistance” and the name of your city, county, and state.
Look Into Obtaining Other Assistance. If you’ve been terminated or laid off from your job because of the COVID-19 outbreak, you can apply for unemployment compensation benefits. If you’re a small business owner who was forced to close your doors by order of a governmental entity, and you have two or more employees, you can apply for a Small Business Association (SBA) loan. You might also qualify for a bank loan, a grant, or other financial assistance from programs created by private companies to assist those affected by the pandemic. Many governmental agencies are posting COVID-19 emergency assistance information online—for example, your state, your governor, and your local governments (such as your city or county) might have posted a special resource section on their websites.
Find Ways to Free Up Money for Rent. It almost goes without saying that shelter and food should be your top priorities during this crisis. Do what you can to pay for these essentials first, and then see what you can negotiate with respect to your other obligations. Your landlord is likely to be more flexible in if you can offer at least a partial rent payment. To that end, a number of banks, utility companies and other companies are offering relief as a result of the pandemic, ranging from waiving late fees to allowing you to skip or defer payments without penalties. Do a search for relief available from credit card issuers, insurance companies, utility companies, cell phone service providers, etc. Even small discounts or fee waivers can help free up funds you can put toward your rent.
The important thing is to do what you can to get in front of this issue now—before it becomes a personal crisis that could result in your losing your rental. Don’t wait until your rent is due to get started. Take action now.