California Enacts Legislation Preventing Residential Evictions and Granting Protection From Foreclosure as a Result of Hardship Due to COVID-19

By David Rao, Lyndsey A. Torp, Michele Sabo Assayag and Eric S. Pezold

On August 31, 2020, California Governor Gavin Newsom signed into law AB 3088 (the "Bill"), extending a statewide stoppage of evictions for unpaid rent due to the COVID-19 pandemic and granting protection from foreclosure to small property owners through January 31, 2021.

The Bill pauses all unlawful detainer actions against residential tenants for nonpayment of rent due to COVID-19-related financial distress (including loss of income, increased expenses, or additional caregiving responsibilities) through January 31, 2021. If a tenant has already missed one or more rental payments for the period between March 1, 2020 and August 31, 2020, the landlord must provide notice to the tenant of the rights contained in the Bill by September 30, 2020. The landlord may demand payment of rent, and the tenant has 15 days from receipt of the notice to provide a signed declaration of COVID-19-related financial distress that prevents the tenant from paying rent.

If a tenant is unable to pay rent due between September 1, 2020 and January 31, 2021, the tenant cannot be evicted if the tenant pays at least 25 percent of the missed payments during that time period on or before January 31, 2021. The tenant must provide a signed declaration informing the landlord of their inability to pay. Tenants that earn either (i) at least $100,000 in household income, or (ii) at least 130 percent of median household income, whichever is higher, must provide documentation of their financial hardship to support their declaration upon a landlord’s request.

The Bill does not eliminate outstanding rent owed by a tenant to a landlord, and landlords may begin recovering this debt on March 1, 2021 in small claims court. If a tenant provides a landlord with a declaration of financial distress, and the landlord attempts self-help (defined under Cal. Civ. Code 789.3) in order to regain possession, the landlord shall be liable for damages of between $1,000 and $2,500. 

Additionally, the Bill preempts the creation or renewal of any local county or city ordinances preventing evictions for nonpayment of rent for tenants (the Bill does not specify whether this includes both residential and commercial tenants) until January 31, 2021. However, all existing local ordinances may remain until they expire.

The Bill also requires mortgage servicers to provide written notice to a borrower if the mortgage servicer denies a request for forbearance explaining why the servicer denied the request as long as the borrower (i) was current on payments as of February 1, 2020, and (ii) is experiencing a financial hardship as a result of COVID-19. Mortgage servicers must comply with any applicable federal guidance regarding borrower options following a forbearance. The Bill also creates a cause of action for injunctive relief, damages, restitution or other remedies for borrowers who are harmed by a material violation of the law.