Recent Government Actions in Response to the Coronavirus and their Impact on Lenders and Landlords

Andrew Lishko


Federal, state, and local governments are increasingly taking steps to ease the public health and economic problems caused by the COVID-19 pandemic. Some of these orders and announcements directly affect the businesses of landlords, property owners, and lending institutions. On March 17, 2020, Arizona Attorney General Mark Brnovich issued a letter to lending institutions requesting forbearance of payments due to economic hardships (the “Letter to Lenders”). On March 24, 2020, Arizona Governor Doug Ducey issued Executive Order 2020-14 (the “Residential Tenant Executive Order”) which prevents landlords or property owners from evicting residential tenants who can demonstrate factors related to COVID-19. On April 6, 2020, the Governor took this a step further and issued Executive Order 2020-21 which bars landlords from locking out or evicting Small Business Tenant owners for COVID-19 related reasons (the “Small Business Tenant Executive Order”).

A summary and practical impacts of the Letter to Lenders and the two Executive Orders are discussed below.

The Letter to Lenders

The Letter to Lenders is not an order, but a request to lenders, and it is far broader in scope.  The Attorney General requests that, for those debtors that can demonstrate economic hardship:

  • all mortgage servicers and lenders, auto lenders, and finance companies waive payments for 90 days, and put them on the back end of the loan as three additional payments;
  • all foreclosures, evictions, and auto repossessions stop for the next 90 days;
  • all lending institutions cease charging late fees and default interest for late payments for 90 days; and
  • all lending institutions cease negative reporting to credit bureaus for any late payments in the next 90 days.

Unlike the Executive Orders, the Letter to Lenders has questionable binding legal authority. Nevertheless, a “request” from the Attorney General should not be taken lightly, and debtors may seek to use the Letter to Lenders as a basis for deferring payments.

Consistent with and building upon the foregoing, a group of lending institutions has agreed to voluntarily forbear on initiating foreclosures and evictions for Small Business tenants for the next 60 days. Along with this, these institutions have come up with payment deferral programs. See Governor Ducey Announces New Steps To Protect Families And Small Business Tenants From Foreclosure, available at https://azgovernor.gov/governor/news/2020/03/governor-ducey-announces-new-steps-protect-families-and-small-businesses

The Residential Tenant Executive Order

The Residential Tenant Executive Order stays the enforcement of evictions for residential tenants if the tenant provides the landlord or owner evidence that 1) the tenant has COVID-19; 2) the tenant or someone they live with has been ordered to be quarantined because of COVID-19 symptoms; 3) the person has a health condition that puts them at greater risk of getting COVID-19; or 4) the tenant has faced a “substantial loss of income” for loss of job, reduction in hours, closure of business, or “other pertinent factors.” The tenant is required to notify the landlord of one of the previous factors, support it with documentation, and acknowledge the lease remains in effect. The landlord is also forbidden to terminate the lease citing COVID-19 as a health risk.

The tenant is not relieved from paying rent, so that obligation still accrues, but the tenant also cannot be evicted for the 120 days the Order is in effect. Unless renewed, the Residential Tenant Executive Order will remain in effect until July 22, 2020.

The Residential Tenant Executive Order does not prevent a landlord from sending demand letters or even obtaining judgments, it only prevents the enforcement of evictions. Lenders should continue to send demand letters, because the Residential Tenant Executive Order puts the burden on the tenant to show one of the above mitigating factors to forestall eviction. A copy of the Residential Tenant Executive Order may be found here: https://azgovernor.gov/sites/default/files/eo_2020-14_0.pdf.

The Small Business Tenant Executive Order

The Small Business Tenant Executive Order stays the enforcement of evictions, lockouts, or “any other attempt to inhibit the operations of a business” until May 31, 2020. Eligible “small businesses” generally include those businesses with less than 500 employees. The tenant remains liable for outstanding rent, and must pay some portion of owed rent if the Small Business Tenant receives loans or grants from public assistance programs. However, the landlord cannot demand a certain percentage of the loan or grant, and the Order does not say how much a tenant must pay from the loan or grant.

Like the Residential Tenant Executive Order, it is the responsibility of the tenant to notify the landlord “in writing as soon as practicable” of the financial difficulty and need for a decrease in rent or rent deferral. The tenant must also affirm the contractual terms of the lease remain in effect. For those landlords with a commercial mortgage, the Order “encourages” mortgage lenders to “provide an opportunity for forbearance” if the landlord is complying with the Order. A copy of the Small Business Tenant Executive Order may be found here: https://azgovernor.gov/sites/default/files/eo_2020-21_prohibiting_small_business_evictions.pdf.

The impact of the Letter to Lenders, the Residential and Small Business Executive Orders on your business or rental property requires advice appropriately tailored to your needs. And with the legal landscape changing daily as governments act to minimize the impact of the pandemic, its necessary to have experienced legal counsel who can advise you in these issues.

This article is not legal advice and is intended for general informational purposes. You should consult with legal counsel to determine how the information provided herein affects you.

About the Author: Andrew Lishko is an associate with the Firm who is experienced in helping banks, credit unions, lending institutions, and property owners/landlords in addressing evictions, trustee sales, employment issues, and commercial disputes. He can be reached at alishko@maypotenza.com.

MPBG provides its clients with a broad range of legal services related to commercial activities, including: commercial lease negotiation and enforcement; commercial real estate transactions; loan work outs and enforcement; forbearance agreements; liquidation of secured collateral; real and personal property foreclosures; Chapter 11 bankruptcy reorganizations; equipment leases; secured loan financing; insolvency; and, receiverships.