A Closer Look at California’s AB 3088

In the final week of the legislative session in California, the governor and legislative leaders struck a deal on eviction relief for residential renters and foreclosure protections for small landlords financially impacted by the COVID-19 pandemic. California Assembly Bill (AB) 3088, known as the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020 (the Act), received legislative approval before the midnight deadline on Monday, August 31, and Governor Newsom signed the bill shortly thereafter. The new law, effective immediately, allows the state to delay the anticipated resumption on September 1, 2020 of unlawful detainer actions by California courts. Assembly Member David Chiu, the author of the Act, explained that AB 3088 is a temporary solution meant to provide some level of certainty to renters, modest protections for small landlords and time for the state to determine what additional relief may be needed in the future. Notably absent from the bill are any protections for commercial real estate tenants and landlords.

 For residential tenants, however, the Act provides protection against unlawful detainer actions for unpaid rent for the period from March 1, 2020 to August 31, 2020 due to COVID-19-related financial distress. For the period from September 1 to January 31, 2021, a COVID-19-impacted tenant will be responsible for at least 25 percent of the rents due for that period in order to receive such eviction protection. The Act doesn’t waive unpaid rent but instead converts that amount to consumer debt, collectible in small claims court as of March 1, 2021. Further, to the extent a COVID-19-impacted tenant is not able to meet that 25 percent minimum, AB 3088 would provide eviction protection only until February 1, 2021. Importantly, a landlord who resorts to extrajudicial self-help, such as shutting off utilities, to force a tenant to vacate will be liable for new penalties of $1,000 to $2,500.

 In order to qualify for the bill’s protections, most tenants will merely need to sign a declaration that they’ve been financially impacted as a result of the pandemic. The Act includes a range of impacts within the concept of “COVID-19-related financial distress,” including increased expenses due to health impacts, increased childcare or eldercare responsibilities, and loss of income. In contrast, higher-income tenants (those with household income of over $100,000 or with over 130 percent of median household income) may be required to provide specific documentation regarding proof of financial loss. AB 3088 also permits lawful evictions unrelated to unpaid rent to proceed as early as September 2, 2020 and allows evictions for unpaid rent unrelated to the pandemic to proceed beginning October 5, 2020. 

 The Act does not protect landlords against foreclosure or require banks to provide them forbearance. Instead, it extends the protections set forth in the existing Homeowners’ Bill of Rights to small landlords (which means owning residential property with up to four dwelling units). It requires mortgage servicers to contact borrowers before pursuing foreclosure proceedings in order to provide potential forbearance options. The Act prohibits dual tracking, where a servicer initiates foreclosure proceedings while considering loan modifications with the borrower. And finally, where a small landlord is denied a forbearance, the Act requires the mortgage servicer to provide a written explanation of the decision. The anti-foreclosure protections for small landlords are in effect until January 1, 2023.

 Legislative leaders are still holding out hope for additional federal action on COVID-19 relief that might help address issues in the residential markets. But the framework provided by AB 3088 allows the state to avoid a dramatic increase in residential evictions through the early part of next year.

Grace Winters and Dina Tecimer are Manatt Real Estate partners, and Delilah Clay is a legislative advisor in Manatt’s government and regulatory practice.