Fair and Equal Housing Guarantee via Surety Bonds

By Peter Vickery, Esq., Legislative Affairs Counsel

At MassLandlords we have a solution to a problem that coronavirus created and the Legislature and Governor exacerbated. First, before presenting the solution, let me describe the problem.

Fair and Equal Housing Guarantee via Surety Bonds bill text

A Fair and Equal Housing Guarantee via Surety Bonds would fund the COVID-19 eviction moratorium. CC SA Fcb981 MassLandlords.

Problem: Unfunded mandate

The eviction moratorium prevents landlords from enforcing rent collection, but we are still forced to provide and maintain housing.

Imagine if the Commonwealth required you to go work for your employer every day, but did not let you ask for the money or take them to court if they failed to pay you!

Or imagine that the Legislature passed a law requiring every municipality to build and operate a 5-star hotel (replete with spa) solely for state representatives and senators to stay in should they happen to be passing through. For the new law to take effect, the Commonwealth would have to provide the funding. Otherwise it would constitute an unfunded mandate, and a town or city could go to court for an order exempting it.

That is similar to the predicament many MassLandlords members find themselves in as a result of Chapter 65, the eviction moratorium. Landlords have to provide a service but without any guarantee of payment. Yes, Chapter 65 says that tenants are supposed to pay rent. But if they do not, the landlord is not allowed to send a notice to quit (or even a request that they vacate), still less go to Housing Court to ask the judge to evict them.

Providing shelter during the COVID-19 pandemic is an essential public service. That was the reason for the eviction moratorium law that the Massachusetts Legislature passed and Governor Charlie Baker signed on April 20. As Senator Brendan Crighton, co-chair of the Joint Committee on Housing, said, “If we’re telling people to stay at home, they need to have a home to stay in.”

That sounds fair enough.

If the government decides that it is in the public interest to keep people housed, then it is fair that nobody should face eviction for nonpayment of rent. But only if the public as a whole picks up the tab. If the burden falls only on the people who provide the housing ­– people who have their own bills to pay – then it’s not fair.

And because of the State government order to close “non-essential” businesses, more than one million people in Massachusetts have been unemployed. As a result, many are unable to afford to pay rent.

Who pays the rent for them? In effect, it is the people who provide the housing, i.e., the landlords.

Chapter 65 requires landlords to provide tenants with housing, but if the tenants can’t pay the rent then it is the landlords who have to absorb the loss. In effect, landlords are both providing a public service (housing) and also paying for it.

And that unfunded mandate is where the current law falls short. It is tantamount to taking private property without compensation, which both the State and Federal Constitutions prohibit. That is the problem.

Solution: Fund the Mandate

The principle behind the MassLandlords solution is simple: fund the mandate by guaranteeing the rent. In other words, provide reasonable compensation for the taking.

We called our proposal the Fair and Equal Housing Guarantee to highlight the fact that the current law is unfair and unequal.

Chapter 65 treats one group of people (tenants) fairly, and another group (landlords) unfairly. It guarantees some people a place to live without guaranteeing anything to the people who own and pay for that place. And although according to our Constitution we are all equal in the eyes of the law and entitled to its equal protection, Chapter 65 denies landlords equal protection; it expressly prohibits them from taking tenants to court for nonpayment. But renters can take landlords to court for not maintaining a clean and sanitary dwelling.

In contrast, our rent guarantee would treat tenants and landlords fairly and equally. It would have the Commonwealth underwrite a bond and thereby stand as surety for renters who cannot afford to pay rent.

We are not talking about municipal or treasury bonds here, by the way. This kind of bond has nothing to do with the stock market. A surety bond is an industry standard practice to guarantee rental agreements. Think about it like insurance for unpaid rent.

A surety bond is a guarantee that if one party to a contract does not perform its obligations (e.g., a tenant fails to make timely payments) an outsider will do so. In this way, the other party to the contract (the landlord) does not lose out. We propose that private companies, licensed and approved by the Commonwealth, would offer bonds for landlords to purchase by paying a premium. The Commonwealth would reimburse the landlord for the price of the premium. If the tenant defaults, and the landlord is not able to obtain judgment or enforce the judgment (because of an ongoing eviction moratorium, for example) the company pays the landlord a sum of money equal to the unpaid rent. Then the Commonwealth reimburses the company.

Conclusion

The current law is a one-sided unfunded mandate. Under Chapter 65, landlords must provide housing but must not go to court to enforce the obligation to pay rent. With our Fair and Equal Housing Guarantee, landlords would continue to provide the public service and get paid. Landlords would provide something that the Commonwealth has deemed essential public good, namely stable housing, and the Commonwealth, i.e., the taxpayers as a whole, would both promise to pay if the tenants do not.

That’s treating both landlords and tenants fairly and equally, don’t you agree?