Weathering The Storm: Coronavirus And Its Financial Impact on Homeowners
Homeowners can’t completely avoid the fallout from Coronavirus, but there are a few measures that could hopefully soften the blow.
One way or another, future historians will consider the Coronavirus Pandemic among the most noteworthy events of the early 21st Century. Schools and businesses are shut down, and, throughout the country, Americans have been directed to “shelter in place,” remaining at home other than for essential activities. Layoffs and unemployment claims have skyrocketed; economists are already predicting at least a recession, maybe a depression.
The full economic impact on homeowners and their families cannot yet be precisely predicted, but it is likely to be immense. Weathering the storm—both taking the necessary precautions to avoid exposure to the virus and preparing for the financial ramifications—will require prudence, careful planning, and maybe even a little creative thinking. Homeowners can’t completely avoid the fallout from Coronavirus, but there are a few measures that could hopefully soften the blow.
Tightening the Household Budget.
With the American economy all but shut down, a substantial percentage of homeowners will be dealing with a probable reduction in income. It could be due to a temporary (or, Heaven forbid, permanent) closure of a place of employment. Or, an illness may prevent or limit workhours. Government employees and the independently wealthy might not feel as much of Coronavirus’s financial pinch, but the rest of us could be looking at a temporarily reduced standard of living.
Small business owners and independent contractors are particularly likely to be hard-hit. But whether they are self-employed or employees in an affected industry, homeowners with decreased incomes would be wise to trim the household budget and focus on priority expenses.
Glass-half-full types will note that a few regular expenses have already gone down. Crude oil prices are as low as they’ve been in years and, as a result, gas and heating oil costs are down, too. On top of that, you don’t need as much gas when there aren’t as many places to drive to.
Entertainment budgets are another good place to trim. Options will be slim for a while, so cutting entertainment expenses shouldn’t be hard. Movie theatres are closed, and there are no ballgames to attend. Downloadable movie rentals you watch at home are a lot cheaper than visiting the theatre. Or, even better, take advantage of the extra family time with regular game nights; resume an old hobby or take up a new one (there’s no better time to learn a second language, and free aps can help you get started!).
Gardening has become one of the more popular pastimes for homeowners sheltering at home. It’s fairly cheap, relaxing, and results in healthy, fresh, and relatively inexpensive produce before too long. Homeowners in an HOA should check the association’s governing documents before starting a garden, as there may be restrictions on the size and what you can grow. Unfortunately, some associations prohibit them altogether, but board-members might be more receptive to a temporary waiver this year.
Accessing Other Sources of Cash.
With many income sources reduced or eliminated, homeowners will inevitably need to brainstorm other sources of cash to make ends meet. If you have a savings account reserved for emergencies, this could be a good time to consider tapping it. If you’ve lost your income due to coronavirus, visit your state’s unemployment programs and services to find financial help. Older adults can visit benefitscheckup.org to check available state or local benefits. You can also visit the Consumer Financial Protection Bureau for additional financial tips and resources.
Withdrawals from a retirement account like an IRA or 401k should be a last resort. Early withdrawals usually come with a stiff tax penalty, though that might not be the case if the withdrawal is due to the pandemic. Even so, it’s better to leave retirement money alone unless you absolutely have to. Retirement accounts are shielded against most creditors’ claims and can even survive a bankruptcy filing in many states—not to mention, you’re going to need that money for retirement. So, other than in the direst circumstances, early IRA withdrawals are usually a bad idea.
Along the same lines, CDs and similar time-linked investments often come with penalties for early withdrawals. If you need to liquidate assets to make ends meet during the shutdown, try to avoid investments that will have a penalty.
Running up credit cards is a similarly bad financial move due to their high interest rates, though it can sometimes be unavoidable in emergency situations. However, if you have access to a line of credit at a low rate, it could provide the liquidity necessary until the emergency ends and income levels return to normal.
For homeowners with whole life insurance, for instance, the policies usually allow policyholders to borrow against cash value at low rates without surrendering the coverage. Depending upon the situation, paying back a low-interest loan once economic life resumes can be a much better option than selling off other assets or investments while prices are down.
Eligible homeowners whose incomes have been reduced also have the option of applying for unemployment compensation. The unemployment system is designed to protect the incomes of workers out of a job due to no fault of their own. Unemployment usually doesn’t replace 100% of lost income, but even if it only covers half, it may be enough relief to get eligible homeowners through the economic maelstrom caused by Coronavirus.
Communicating with Creditors and the HOA.
Homeowners whose incomes have been reduced and who don’t have the cash resources to meet all expenses will need to prioritize expenditures for necessities. Food, medicine, and other costs necessary for the care of family members have to come first. Creditors providing essential utilities should likewise be priorities. If you have to choose, it’s more important to pay the electric bill and keep the heat on than to keep cable or satellite TV services.
For most homeowners experiencing lost income due to Coronavirus, HOA assessments will probably be lower on the list of priorities. In general, and considering that the entire country is going through the pandemic together, creditors are more likely to be understanding about late payments now than they might otherwise be. Many companies have already instituted leniency policies for the duration of the emergency. There’s a good chance some HOAs will follow suit.
Homeowners unable to pay assessments should communicate with the association about the difficulties. In some cases, the HOA may be willing to defer payments until after the emergency is over. Or the board might be willing to accept unpaid assessments in installments. If an alternative arrangement is reached, the homeowner and HOA should make a written record of the agreement to avoid misunderstandings.
Simply ignoring an assessment statement may lead to late fees, interest, collection costs, an HOA lien on the property, and, in some cases, foreclosure. By communicating with the association and making a good-faith effort to reach a payment arrangement, a homeowner has a significantly improved chance of avoiding those additional costs. Some HOA boards may still take a hardline, and it’s worth noting that associations rely on assessment revenue to meet their obligations, which could have increased due to Coronavirus. All in all, though, HOAs are much more likely to be flexible under the present circumstances.
The importance of communication holds true for other creditors, as well. The odds are that most creditors will have more sympathy for financially struggling individuals now than they would otherwise.
Setting aside finances, homeowners also need to be diligent in communicating with the association about any health and safety concerns in the community. An HOA is responsible for maintaining a subdivision’s common areas, which could include addressing situations that might contribute to the spread of the virus. Homeowners shouldn’t assume that the board is aware of, for example, a stairwell or community bulletin board in need of disinfecting. Raising concerns that could legitimately lead to increased spread of the virus is a service to both your family and the community.
Federal Relief.
Assistance may be on the way for some homeowners in the form of the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted March 18 and March 27, 2020, respectively. FFCRA provides eligible businesses with a payroll tax credit and effective reimbursement for up to 80 hours of paid leave for employees who miss work due to Coronavirus. The reimbursement is designed to ensure that workers who have to miss work due to the pandemic receive up to two weeks’ worth of paid leave.
Along with providing $150 billion to help healthcare providers procure necessary medical equipment, the CARES Act calls for direct relief payments to taxpayers, expanded unemployment benefits, and federal small business loans to hard-hit businesses.
The direct taxpayer payments (labeled the “2020 recovery rebate for individuals”) are expected to go out within three weeks via direct deposit. Individual filers will receive $1,200, doubled for “married filing jointly” filers. Parents’ payments are increased by an additional $500 for each dependent child under 17. Significantly, no direct action is required to receive the CARES Act recovery rebate.
The Act establishes a $75,000 ($150,000 for couples) Adjusted Gross Income threshold. For every $100 in AGI over the threshold, the relief payment will be decreased by $5. Thus, single taxpayers with AGI over $99,000 (or $198,000 for couples with no dependent children) will not be eligible for a payment. The payment is structured as an advance on a tax credit to be applied to the taxpayer’s 2020 return. So, the ultimate amount of the credit may need to be adjusted on the 2020 tax returns of certain taxpayers whose income levels change between 2019 and 2020.
The CARES Act also increases unemployment compensation by up to $600 per week for up to four months. Coverage is extended to self-employed workers and independent contractors, both of whom are not usually eligible for unemployment benefits. For affected small-business owners, CARES provides partially forgivable loans to cover certain operating costs—including payroll and rent—between February 15 and June 30, 2020.
Another potentially big help to homeowners is the CARES Act’s temporary removal of the 10% penalty for early retirement-account withdrawals. If an individual or family member is diagnosed with COVID-19—or suffers economic harm resulting from a Coronavirus-related quarantine, furlough, layoff, or workhour reduction—he or she can withdraw retirement account funds with no penalty. The money is still subject to regular income tax, but the tax liability can be spread over three years.
The CARES Act is a temporary stopgap for many homeowners adversely affected by Coronavirus. The direct payments and increased unemployment benefits should help homeowners continue to make ends meet until the shutdown concludes and work resumes. And, just as importantly, the subsidized small business loans will help many employers avoid layoffs altogether.
While massive federal economic stimulus can’t go on forever, hopefully, the government’s response to coronavirus and relief efforts will make up for enough lost income for homeowners to stay afloat until the pandemic ends and the country can get back to work.
This article should not be interpreted as legal or financial advice relating to any specific matter. If you are in need of legal advice for a specific concern, you should consult with a qualified professional licensed in your state.
Key Homeowner Resources
Centers for Disease Control and Prevention - Official federal information about Covid-19 and resources.
Access your state’s health department for local coronavirus official information.
Federal Housing Finance Agency - Mortgage, foreclosure, and eviction relief for homeowners and renters impacted by the coronavirus.
CareerOneStop - Find employment or unemployment benefits.
Military OneSource - Coronavirus information for the military community.
Consumer Financial Protection Bureau - Information on how consumers can protect themselves financially from the impact of the coronavirus.
Internal Revenue Service (IRS) - Coronavirus tax relief information
Department of Housing and Urban Development (HUD) - Covid-19 information and resources for the housing industry and the public.
National Conference of State Legislatures - State Legislation Responding to COVID-19.
U.S. Department of Labor - Guide to local and regional programs and services by state.
Centers for Medicare & Medicaid Services (CMS) - Coronavirus waivers under the 1135 of the Social Security Act (SSA), allows temporary modifications or waivers of certain Medicare, Medicaid, CHIP, or HIPAA requirements.
