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California SB91: What Residential Lenders Should Know

by | Feb 11, 2021 | Blog

What Residential Lenders Should Know

At ReProp Financial, we offer practical solutions for borrowers in the commercial real estate marketplace. While our loans are not generally affected by the passage and implementation of SB 91, we are aware of the issues facing landlords and lenders in the current pandemic. Below are the facts of the bill and some insights for landlords, tenants, and lenders.

California SB91: What Residential Lenders Should Know

Details: California SB 91 was signed into law by Governor Gavin Newsom on January 29, 2021, and went into effect immediately on that date. This new law will extend the protections of the 2020 COVID-19 Tenant Relief Act for five additional months through June 30, 2021. SB 91 also acts to create a new structure within the California government for paying landlords as much as 80 percent of the past-due rents they have failed to receive from tenants during the COVID-19 pandemic. This new bill could provide a glimmer of hope for residential real estate investors while continuing to create a diminished outlook for profits and revenues in this sector of the investment marketplace.

An Extension of the COVID-19 Tenant Relief Act of 2020

For tenants, SB 91 will generally result in more of the same. The COVID-19 Tenant Relief Act prevented evictions for tenants for non-payment of rent beginning on September 1, 2020, and extending this protection through January 31, 2021. Tenants who provided evidence of a hardship related to COVID-19 that occurred between March 4 and August 31, 2020, were exempt from eviction until February 1, 2021. Those who experienced a COVID-19 hardship between September 1, 2020, and January 31, 2021, were required to pay at least 25 percent of their rent each month as part of the provisions of this act. To qualify, renters must meet stringent income restrictions as well as demonstrating their hardship to their landlords.
An Extension of the COVID-19 Tenant Relief Act of 2020
Under SB 91, those protections are extended through June 30, 2021. The new law allows for the use of funding from the federal government to provide compensation for landlords who have experienced the loss of revenues from their rental properties as a consequence of the COVID-19 pandemic and the failure of tenants to pay all of their rent in a timely way. This could represent a lifeline for landlords and residential real estate investors who may have sustained serious financial losses caused by failure to receive the rents they are owed. By accessing these funds, investors can potentially defray some of the losses sustained because of the moratorium on evictions for unpaid rent during the pandemic.

Understanding the Issues for Investors

While the extension does seem to be good news for tenants, it also requires a balloon payment of the remaining amount owed on June 30, 2021. The government structure put in place will allow for some compensation for landlords who may not expect the full amount of repayment on June 30. Landlords can apply for and receive 80 percent of past-due rental amounts if they agree to forgive the 20 percent still possibly owed by their tenants. They may also be eligible for foreclosure relief on properties they own and rent out for revenues.
Understanding the Issues for Investors

Ongoing Issues for Residential Lenders

The real financial impact of SB 91 will probably be felt by residential lenders. These financial institutions are essentially prevented from evicting people from the properties they have financed until the end of the pandemic. For many of these lending companies, the losses sustained will significantly reduce their ability to issue mortgages for residential property buyers in the future. Residential real estate lenders have been largely overlooked in terms of relief from the state of California and the federal government’s response to COVID-19.
Ongoing Issues for Residential Lenders
At ReProp Financial, we offer practical solutions for borrowers in the commercial real estate marketplace. If you need assistance in obtaining a commercial real estate loan, give us a call at 1-800-444-2948.
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