Mortgage Relief in the CARES Act
Title IV of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), provides mortgage relief to homeowners with federally backed mortgage loans. The CARES Act allows eligible borrowers to request forbearance on loan payments for six months, and then request an additional six month forbearance period. The Act also includes a moratorium on foreclosure actions. The applicable provisions are summarized below.
Loans Secured by Property Designed for 1-4 Families
Eligibility: Federally Backed Mortgage + Financial Hardship
Only borrowers holding a “federally backed mortgage loan” are eligible for forbearance. “Federally backed mortgage loans” are loans secured by a lien on real property designed for 1-4 families and which are insured by the FHA, the Department of Veterans Affairs, or the USDA (or made directly by the USDA), and loans purchased or securitized by Fannie Mae and Freddie Mac. Therefore, not all mortgagors will be benefitted by these provisions. Borrowers should note that forbearance is not forgiveness of the debt. Instead, forbearance provides additional time for repaying the debt. During the forbearance period, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time, shall accrue.
According to the National Housing Law Project, approximately 70 percent of single-family mortgages are federally-backed. To determine whether your loan is purchased by Fannie Mae or Freddie Mac, you can search the databases available on their websites. For other information regarding whether your loan is federally backed, you can contact your loan servicer (if you do not know the identity of your loan servicer, you can check the Mortgage Electronic Registration Systems website). Even if your loan is not federally backed, some lenders are offering similar deferral programs for borrowers who are ineligible under the CARES Act.
Additionally, a borrower holding a federally backed mortgage must have experienced “financial hardship” due to COVID-19. To receive forbearance, the borrower must submit a request to the borrower’s servicer attesting financial hardship due to COVID-19. The term, “financial hardship” is not defined in the Act, and loan servicers may not require additional documentation evidencing financial hardship.
The Act does not limit the amount of debt that may be deferred.
Loan forbearance period
Borrowers may request an initial forbearance of up to 180 days and an extension for an additional period of up to 180 days during the “covered period.” The covered period began with the adoption of the CARE Act and will end upon the sooner of: (i) termination of the national COVID-19 emergency, and (ii) December 31, 2020.
Moratorium on Foreclosures
Except with respect to a vacant or abandoned property, a servicer of a federally backed mortgage loan (as defined above) may not initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or sale before May 17, 2020. (See below for a discussion on the temporary freeze on writs of possession, which are required to remove a foreclosed borrower.)
Loans Secured by Multifamily Property (5+ Families)
Eligibility
Section 4023 of the Act provides for forbearance for borrowers holding “federally backed multifamily mortgage loans,” which include loans secured by real property designed for 5 or more families made or insured by the federal government. This specifically includes loans made in connection with HUD and loans purchased by Fannie Mae and Freddie Mac.
Temporary financing, such as construction loans, are not eligible for forbearance. As such, many developers may not be able to take full advantage of these provisions.
Multifamily borrowers may request forbearance by attesting financial hardship due to COVID-19. However, the borrower must have been current on its payments as of February 1, 2020.
Forbearance Period
The initial forbearance period is 30 days from the multifamily borrower’s request. The borrower may extend the forbearance for up to 2 additional 30-day periods, provided the request is submitted at least 15 days prior to the initial forbearance period. (We interpret the 15-day deadline as referring to only the first request for an extension, but the statute is unclear.) All initial and extension requests must be made before the sooner of: (i) termination of the national COVID-19 emergency, and (ii) December 31, 2020.
Renter Protections
During the period that the multifamily borrower receives forbearance, it may not evict a tenant from a unit in the applicable property solely for failure to pay rent, charge late fees or penalties for failure to pay rent, or require a tenant to vacate a unit. Even if a multifamily borrower does not receive forbearance or has stopped receiving forbearance, it may be prohibited from performing the above actions pursuant to the moratorium on evictions described below.
Moratorium on Evictions
Under Section 4024 of the Act, borrowers holding a federally-backed mortgage or multifamily mortgage, may not, before July 25, 2020, evict a tenant from the applicable property solely for failure to pay rent, charge late fees or penalties for failure to pay rent, and require a tenant to vacate a unit. This moratorium applies to all borrowers holding a federally-backed mortgage, regardless of whether they actually apply for or receive forbearance. Even if borrowers are able to bring an eviction action against a tenant, a recent order from the Supreme Court of Florida has potentially delayed their ability to obtain a writ of possession, the final order in an eviction lawsuit used to remove an evicted tenant.
Conclusion
Given the lack of guidance surrounding the definition “financial hardship” and loan servicers’ inability to refute a borrower’s claim of hardship, the number of borrowers eligible for forbearance under the Act is potentially immense. A borrower who is unable to keep mortgage payments current is encouraged to contact the servicer to request forbearance. A borrower should be prepared to describe the financial hardship to the servicer and should follow up to obtain written documentation as to the forbearance.
Our team at Williams Parker is ready to assist individuals, developers, and owners of multifamily property who are considering taking advantage of the loan forbearance provision in the CARES Act. We are monitoring governmental publications and will share any further guidance that is provided as to the circumstances that constitute “financial hardship.”
Partner Terri S. Costa contributed to this post.