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COVID-19: Mortgage Forbearances and Moratoria on Evictions and Foreclosures

April 2, 2020

Due to recent government orders, please see our latest alert for an updated discussion  of these matters.

As referenced in our prior alert on Stimulus and Relief Packages for Property Owners and Businesses, the CARES Act allows certain homeowners with FHA, USDA, VA or other federally-insured mortgages, including those guaranteed by Fannie Mae and Freddie Mac, to request a forbearance on mortgage payments for up to 12 months with no fees, penalties or additional interest, if they experience a financial hardship due, directly or indirectly, to the COVID-19 emergency. A forbearance, during which interest will accrue, may be granted for up to 180 days and may be extended for another 180 days at the borrower’s request so long as it is submitted during the covered period. Further, the CARES Act imposes a 60-day moratorium on foreclosures of homeowners with certain federal and federally-backed mortgages, except for vacant or abandoned property. That means that, during such period, a servicer of such mortgage may not commence any judicial or non-judicial foreclosure process, move for a foreclosure judgment or sale, or execute a foreclosure-related eviction or sale. This provision would appear to have little practical benefit except for the limited event where a borrower was in default and still occupying the property, but had not requested any forbearance.

The CARES Act also provides relief to certain multi-family property owners for real property with mortgage debt backed by Fannie Mae, Freddie Mac or HUD. These mortgagors will be eligible to defer making mortgage payments for up to 90 days if they experience financial hardship caused, directly or indirectly, by the COVID-19 emergency. An initial forbearance is issued for 30 days, which can be extended for two additional 30-day periods provided certain procedures are followed. In return for forbearance, these mortgagors cannot evict nor charge late fees to tenants of the mortgaged property for the duration of the forbearance period. Further, a recipient of a forbearance under this section may not issue a notice to quit possession or vacate until after the expiration of the forbearance, nor may it require a tenant to vacate until 30 days after serving such notice. As is true with the first paragraph of this Alert, financial hardship is evidenced by submitting a request to the borrower’s servicer and simply affirming that the borrower has experienced a financial hardship during the COVID-19 crisis.

The CARES Act prohibits landlords for both single- and multi-family real property, for 120 days from the day of its enactment, to initiate an eviction action for rental units, or charge fees or penalties to the tenant for failure to pay rent, where the landlord’s mortgage is insured, guaranteed, supplemented, protected or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program or the Violence Against Women Act of 1994. A recipient of a forbearance under this section may not issue a notice to vacate until after the expiration of the forbearance, nor may it require a tenant to vacate until 30 days after serving such notice. It appears that this covers all renters living in properties receiving a federal subsidy, such as public housing, properties assisted by Section 8 rental assistance vouchers or subsidies, USDA rental housing assistance or Low Income Housing Tax Credits, or properties with mortgages backed by FHA, USDA, VA, Fannie Mae and Freddie Mac.

Finally, the CARES Act imposes certain reporting requirements on lenders who agree to defer one or more payments, forbear any delinquent amounts, or provide any other relief to a consumer affected by COVID-19 pandemic during the covered period. Specifically, a lender who furnishes such a deferral or forbearance shall report to the credit rating agencies the credit obligation or account as current. If the credit obligation or account (excluding “charged-off” accounts) was delinquent before the granting of a deferral or forbearance, the lender shall maintain the delinquent status during the period in which the deferral or forbearance is in effect. Should the consumer bring such credit obligation or account current during the period of forbearance, the lender shall report it as current. The reporting requirements are in effect from January 31, 2020 to the later of 120 days from enactment of the CARES Act or 120 days after the termination of the COVID-19 national emergency period declared on March 13, 2020. Careful attention should be paid to Section 4021 of the CARES Act containing these notice requirements, which have not been widely noted or discussed. This section amends the federal Fair Credit Reporting Act, which in other provisions contains a private right of action remedy, including possible class action claims for violations by lenders. The damage provisions, including the awarding of attorney’s fees for successful claims, have previously been widely used by plaintiffs’ lawyers to the great disadvantage of unwary lenders.

In Connecticut, all issued executions on evictions and ejectments have been stayed through May 1, 2020, and all foreclosure sales previously scheduled to have occurred in April or May have been rescheduled to Saturday, June 6, 2020, with all “law days” previously set to run in April or May now first running on June 2, 2020. No work may commence with respect to any such foreclosure by sale prior to May 1, 2020. All civil trials, J-ADR mediations, short calendar events, as well as trial management, pre-trial and status conferences have been cancelled for the period when all Judicial Branch operations are restricted to “Priority 1 Business Functions” a list of which may be found here, but which, importantly, do not include eviction related hearings or trials and the entry of judgments of possession or orders of executions.

In addition, Governor Lamont announced earlier this week that an agreement was reached with more than 62 banks and credit unions to extend mortgage relief to the state’s residents experiencing hardship due to the COVID-19 crisis. Under the agreement, the participating financial organizations will offer forbearances for up to 90 days allowing homeowners to reduce or delay making monthly mortgage payments, provide a streamlined process to request such forbearances supported with documentary evidence, confirm approval and terms of forbearance program, and allow extending forbearance agreements if COVID-19 related difficulty continues. Participating financial institutions also agreed to waive or refund mortgage-related late fees and other fees for 90 days, and not to start foreclosure sales or evictions for 60 days or share late or missed payments with credit reporting agencies for those taking advantage of the offered COVID-19 relief. While this agreement offers attractive opportunities to borrowers, it would be advisable for the participating financial institutions to ensure that their actions under this agreement comply with the CARES Act. For example, the Questions and Answers portion of the on the agreement suggests that while financial institutions will not report to credit reporting agencies derogatory information, such as late payments, they may report a forbearance. Meanwhile, the CARES Act requires that those granting forbearances report that an account is current. Thus, reporting a forbearance may violate the CARES Act and give rise to liability.

New York has similarly mandated by executive order a 90-day moratorium on evictions of residential and commercial tenants and on foreclosures of mortgages on any residential or commercial property. This was followed by another executive order temporarily changing New York banking law and directing that the Department of Financial Services promulgate regulations to ensure that banks and registered mortgage loan servicers provide a mortgage forbearance to any person or entity facing a financial hardship due to the COVID-19 crisis to last only for the period of the emergency. This executive order expressly modifies subdivision 2 of Section 39 of New York Banking Law to state that a failure to grant a forbearance for 90 days to any person or business experiencing a financial hardship caused by COVID-19 shall be deemed an unsafe and unsound business practice. Under Subdivision 2 of Section 39 of New York Banking law, the Superintendent of Financial Services has authority to order a regulated banking organization to stop conducting unauthorized or unsafe and unsound business practices and set a time and place where such banking organization may voluntarily appear and defend such practices.

Further, the New York Superintendent of Financial Services promulgated residential mortgage regulations applicable to banking organizations and mortgage servicers that provide an avenue for New York residents to obtain a forbearance of their residential mortgage for real property located in New York for 90 days so long as financial hardship from the COVID-19 can be proven, subject to further restrictions. These regulations encourage the banking organizations and mortgage servicers to offer other financial relief to residents who demonstrated financial hardship from the COVID-19 crisis, including the elimination of overdraft fees, credit card late payments and ATM fees. The regulations restate that failure to grant a forbearance shall be deemed an unsafe and unsound business practice and list the criteria to be used in assessing whether a regulated banking organization has engaged in unsafe and unsound business practices.

Other forms of relief in New York appear to be taking shape, such as a senate bill proposing, among other things, a 90-day suspension on the obligation to pay rental payments for those residential tenants and small business commercial tenants who have lost income or were forced to close business, as well as mortgage payments for the landlords of such tenants in proportion to the amount of rent suspended.

We are available to assist landlords and tenants navigate leases, including issues involving evictions, mortgage forbearances and foreclosures, with functional and pragmatic solutions during these uncertain times. We will endeavor to analyze and explain the relevant law in these areas and related considerations, and update our Coronavirus Resource Center (specifically, the Real Estate Leasing page) periodically to include relevant Connecticut, New York, federal and local laws, rules and regulations that are enacted during this crisis, as well as court filings and relevant precedent or other topical information, which are being circulated on these matters.

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