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Archive for the ‘pandemic relief payments’ tag

New Federal Eviction Moratorium

September 7th, 2020 at 7:00 am

The Centers for Disease Control and Prevention (CDC) just asserted its COVID-fighting power to stop most residential evictions through 2020. 

 

On Friday, September 4, 2020, a federal order went into effect temporarily stopping certain residential evictions throughout the country. Issued by the Centers for Disease Control and Prevention (“CDC”), it’s titled “Temporary Halt in Residential Evictions To Prevent the Further Spread of COVID-19.”  The legal basis and purpose of the Order is “to temporarily halt residential evictions to prevent the further spread of COVID-19.”

It covers residential rentals, NOT home mortgage foreclosures.

The Renters Covered by this Order

The CDC Order states that any “landlord… shall not evict any covered person from any residential property… during the effective period of the Order.”

Most residential renters unable to pay their rent likely qualify as a “covered person.” To be a “covered person” an individual must meet a number of conditions:

  • Either “(i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) [under] the CARES Act.”
  • Has “used best efforts to obtain all available governmental assistance for rent or housing.”
  • Is “unable to pay the full rent” because of one or more of the following:
    • a “substantial loss of household income
    • a reduction in “hours of work or wages”
    • lay-off
    • “extraordinary [unreimbursed] out-of-pocket medical expenses” (exceeding 7.5% of adjusted annual income)
  • Eviction would likely result in either homelessness “or force the individual to move into and live in close quarters in a new congregate or shared living setting—because the individual has no other available housing options.”

Covers All “Residential Property” through the End of 2020

The Order is very broad, including “any property leased for residential purposes.” This explicitly includes “any house, building, mobile home or land in a mobile home park, or similar dwelling leased for residential purposes… .”  Because this list is inclusive it MAY include other types of rental circumstances not listed (such as a rented houseboat?). “Residential property” does NOT include “any hotel, motel, or other guest house rented to a temporary guest or seasonal tenant.”

The Order is effective from September 7 through December 31, 2020. It could possibly be “extended, modified, or rescinded” at any time.

Renters’ Declaration to Qualify for the Protection

The procedure to take advantage of the eviction moratorium seems to be straightforward. The tenant reviews, signs, and gives the landlord a two-page declaration form. Here is the Declaration as provided by the CDC.

It starts with a quick explanation for how to use the Declaration. It then lists the qualifying conditions listed above (and a couple others discussed below).

Each adult renter included on “the lease, rental agreement, or housing contract should complete” it. Deliver a copy to your landlord, property owner, or whoever has the right to evict.

It must be signed under penalty of perjury. Meaning “you can be prosecuted, go to jail, or pay a fine if you lie, mislead, or omit important information.”

Major Potential Penalties for Noncomplying Landlords

The Order includes serious criminal penalties for landlords which don’t comply. Potential fines range from up to $100,000 and/or a year in jail for individual violators and $200,000 for business violators. If a violation “results in death,” the potential fines are two and a half times higher.

Significant Limitations of the Order

The most important practical problem with this Order is that tenants must still pay the missed rental payments later. Immediately after December 31, 2020 the landlord “may require payment in full for all payments not made.” These include payments missed both before and during the moratorium period. The amount due can also include all “fees, penalties, or interest for not paying rent” allowed under your rental agreement.

Furthermore, even during the moratorium period the tenant must make partial rent payments “as close to full payment as the individual’s circumstances permit.”

Also, careful: evictions can continue during the moratorium for reasons other than nonpayment of rent. Specifically the Order does not stop evictions for:

“(1) Engaging in criminal activity while on the premises;

(2) threatening the health or safety of other residents;

(3) damaging or posing an immediate and significant risk of damage to property;

(4) violating any applicable building code, health ordinance, or similar regulation relating to health and safety; or

(5) violating any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).”

Note: the Order does not stop any state or locality from creating a stricter moratorium on residential evictions.

Last thing: the Order does nothing for landlords who need tenant rental payments to pay their own mortgages. Because of prior state and local eviction moratoria, many landlords have already not been receiving rental income for months. The Order essentially passes the economic pain temporarily from tenants to landlords.

This impact on landlords, and the short-term relief for tenants, puts pressure on Congress for a better solution.

 

Trump’s $400 Weekly Unemployment Benefits Extension

August 17th, 2020 at 7:00 am

Trump’s Memorandum Providing $400 Weekly Unemployment Benefits from August to December Is Complicated.

 

A Quick History

The CARES Act’s $600 per week additional federal unemployment benefits expired on July 31, 2020. Section 2104 of the CARES Act.  Back in May the U.S. House of Representatives had passed the HEROES Act extending these $600 benefits through January 31, 2021. Section 50001 of the HEROES Act. Then on July 27 the Senate announced its HEALS Act; it reduced the additional federal benefit to $200 per week. (This was to last through September, and then transition into a total unemployment amount of 70% of lost wages.) The Senate bill did not come up for a vote in the Senate.  Intense efforts to reconcile the House of Representatives’ HEROES Act and the Senate’s HEALS Act have so far gone nowhere.

Trump’s Memorandum on Authorizing the Other Needs Assistance Program

 Then on August 8, 2020, President Trump signed a “Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019.”

This Memorandum creates an “Assistance Program for Lost Wages.” This potentially provides for a weekly “lost wages assistance” of $400 per week. Theoretically it would cover the period from August 1 through December 6, 2020. See Sections 4—6 of the Memorandum.

But there are a series of practical challenges.

Can the President Act without Congress on This?

The Constitution gives Congress the power of the purse: to make laws about collecting and spending tax money. U.S. Constitution, Article 1, Section 8. Not the President. The Memorandum is clearly about spending billions of dollars of tax money. So how does Trump get around this?

He uses a law passed by Congress, the Disaster Mitigation Act of 2000. This law mostly pertains to federal housing assistance after a major disaster. But it also allows the president to provide for “Financial Assistance to Address Other Needs.” Specifically, the law allows for “financial assistance… to address… other necessary expenses or serious needs resulting from the major disaster.” 42 U.S.C Section 5174(e)(2).

This law empowers “the President, in consultation with the Governor of a State,… [to] provide [the] financial assistance… to individuals and households… .” 42 U.S.C Section 5174(a)(1).

So there’s at least a sensible argument that Trump can spend money to extend unemployment benefits needed from the pandemic.

But Where Does the Money Come From?

Under the Memorandum the new unemployment money comes from two sources.

First, the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund “has more than $70 billion in emergency assistance funding available.” The Memorandum directs “up to $44 billion” of this money to go towards the unemployment benefits. The remaining “at least $25 billion” in to be “set aside” for “ongoing… and potential 2020 disaster costs.” 75% of the $400 weekly benefits are to come from this $44 billion from the Disaster Relief Fund.

Second, the Memorandum says that the remaining 25% to fund the extended benefits is to come from the states. It references the CARES Act’s $150 billion earmarked to states and some other local governments for COVID-related costs. The Memorandum asserts that “more than $80 billion [of these] dollars remain available.”

Are These Sources of Money Actually Available?

Start with the 75% federal share. To keep it simple here, assume that above-mentioned Disaster Mitigation Act contemplates supplemental unemployment benefits to be a “serious need” for people unemployed during the pandemic.  Let’s put aside the wisdom of dedicating nearly 2/3rds of this natural disaster fund for this purpose.

One bit of reality is that the $44 billion the Memorandum earmarks for this purpose is only enough to cover 4 or 5 weeks of benefits. That barely makes a dent in the August to December period referenced.

How about the States’ Share?

As for the states’ 25% share, this provision comes with a bunch of practical challenges.

First, many states vehemently disagree with the Memorandum’s assertion that “more than $80 billion remain available” from the CARES Act. The states counter that this money is necessary for other absolutely critical pandemic purposes. In many cases already been explicitly earmarked for those purposes.

Second, beyond these CARES funds, the Memorandum has states use “other State funding,” to pay its 25% share. But states are in dire financial straits. Tax collection is significantly down and expenses are significantly up because of the pandemic. This includes huge increases in state unemployment benefit payouts, which continue at historic highs. State legislatures are going into emergency sessions to address the severe shortfall. Unlike the federal government, states must balance their budgets every year. They simply do not have money to pay for this new program.

Third, the Memorandum also says that “States should also identify funds to be spent without a federal match” if the federal money runs out. So after 5 weeks of the federal government paying 75%, the states are supposed to pay for the entire program. If there’s no money for 25%, there certainly isn’t money for 100% of the cost.

So Where Does This Now Stand?

Arguably the Memorandum was mostly meant as leverage to get Congress to agree on some kind of unemployment benefits extension. It’s been more than a week (as of this writing on August 17) but there’s been no progress there.

If you had been kept afloat by the $600 weekly federal unemployment benefits, this is an intensely frustrating time.

 

Protecting Your Pandemic Relief Payment from Your Bank

May 4th, 2020 at 7:00 am

If you owe money to the bank or credit union where your $1,200 relief payment is being deposited, can it take that money to pay itself first?

 

Our last blog post was about whether your creditors can seize the $1,200 (or so) pandemic relief payments. Today’s is about one specific class of creditors: your own bank or credit union. What if you have a debt to the financial institution where your relief money is being direct-deposited? Can it pay itself to cover your debt instead of paying you? Would you only get whatever’s left, if any?

The Banker’s Powerful Right of Setoff

To force payment from your bank account, most creditors must sue and get a judgment against you first. So the big focus in last week’s blog post was on determining whether you had a judgment against you, and a resulting garnishment order on the bank account where your coronavirus relief payment was arriving. If no judgment, than no garnishment, and the relief payment is safe from creditors.

But the bank where you have your account is different. (All references to banks in this blog post also include credit unions and other financial institutions.) Banks have a right of setoff.

The basic idea is that money you have in a checking or savings account is money the bank owes you. It can set off its debt to you against your debt to it. It zeros out its debt to you (by taking the money in your account) and lowers your debt to it by the same amount. The practical effect is that money comes out of your checking/savings account to pay off or pay towards your debt.

This right is put into likely every contract you enter into with your bank governing your deposit accounts. For example, here’s the pertinent language from a recent 64-page Wells Fargo Bank Deposit Account Agreement:

[W]e have the right to apply funds in your accounts to any debt you owe us. This is known as setoff. When we setoff a debt you owe us, we reduce the funds in your accounts by the amount of the debt. We are not required to give you any prior notice to exercise our right of setoff.

A debt includes any amount you owe individually or together with someone else both now or in the future. It includes any overdrafts and our fees. We may setoff for any debt you owe us that is due or past due as allowed by the laws governing your account. If your account is a joint account, we may setoff funds in it to pay the debt of any joint owner.

So, in general a bank can take the relief money as it arrives into your account. It uses the money to pay any debt you owe the bank. That debt may be on the account itself—such as an overdraft fee—or any other debt you owe it.

Special Credit Card Law

This right of setoff usually does not apply to unsecured consumer credit card debts. Under Federal law

A card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer…   .

15 U.S.C. Section 1666h(a). For more details see the related regulations at 12 C.F.R. § 1026.12(d).

So, if you owe your bank on a credit card, it can’t take your relief payment to pay that debt. (This assumes the bank hasn’t sued you and gotten a judgment and garnishment on that account.)

Special Closed Account Rule

What if you had an account at a bank but either you’ve closed it or the bank has done so? In particular, what if the relief payment is slated to come to that closed account? That’s what would happen if you had the IRS send last year’s tax refund to that account (while still open).

In this situation the bank can’t take your relief payment to pay a debt you owe to the bank. Its right to setoff is cut off when either you or the bank close the account. 31 C.F.R. § 210.4(c)(3).

This means that the bank has to return the payment to the IRS (actually the U.S. Treasury). Then you should receive the payment by paper check through the mail. How long before you’d receive that check? The lower your income the quicker the IRS is mailing the paper checks. Here’s a recent article listing the mailing dates based on your adjusted gross income.

Therefore, in some circumstances it may make sense to close your account to prevent a setoff. The delay in receiving the payment may be worth avoiding losing some or all of it through a setoff. Then of course when you receive the check, cash or deposit it at a different financial institution.

If this is your situation you’d likely benefit from talking with a bankruptcy lawyer about this, and about your overall financial options.

Important Exception to the Closed Account Rule

Be careful about one important twist. If you believe your bank closed your account because of unpaid fees, it may not actually be closed. The bank may have charged off the account with a negative balance but not legally closed that account. Then this closed-account exception would not apply. The bank could pay the unpaid fees with your relief payment when it hits your account. It could also set off any other debts you may owe to the bank (other than credit cards). Again, this is a situation to discuss with a lawyer.

Local Pandemic Collection Protections May Apply

Last week we gave a list of state emergency orders preventing seizure of the relief payments to pay ordinary creditors. Most of these addressed creditor garnishment of bank accounts. Most did not directly address the separate question of setoffs by the banks themselves. However, some of those orders did so, including:

 This situation is constantly changing so it’s worth seeing whether your state has created similar setoff protections.

Some Banks’ Voluntary Policies

Some individual banks have announced that they’re not exercising their setoff rights specifically regarding relief payments. These include JP Morgan Chase, Citibank, Bank of America, USAA, and Wells Fargo, and likely others.

Because these are voluntary, and temporary, the exact details will vary at each bank, and may change. They may even vary customer by customer. So be careful, and find out whatever details you can before relying on these voluntary policies.

 

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