CARES Act Offers Forbearance Options Including Residential Foreclosure and Eviction Moratoriums

Most of us are well aware of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the help it provides to small businesses, individuals, and the health care industry affected by the COVID-19 pandemic. But three changes in the CARES Act are of particular importance to residential property owners, lenders and loan servicers. These changes involve forbearance, foreclosure, and eviction from property financed with federally-insured residential loans.  (For questions regarding steps Missouri or Illinois have taken on this front or possible commercial loan implications, please see COVID-19-related Forbearance Options Including Foreclosure and Eviction Moratoriums)

1.  Single Family Federal Foreclosure Moratorium and Consumer Right to Request Forbearance

Covered Loans:

The federal foreclosure moratorium, created under Section 4022 of the CARES Act, includes a borrower’s right to request a forbearance. The CARES Act moratorium and forbearance provisions are only available for federally backed residential mortgage loans. Relevant loans are secured by a lien on residential real estate designed primarily for the occupancy of 1 – 4 families (including individual units in condominiums and cooperatives). For those unsure if their mortgage loan is federally backed, such loans are typically:

1. Insured by the FHA under Title II of the National Housing Act;
2. Insured under the National Housing Act, Section 25;
3. Guaranteed under the Housing and Community Development Act of 1992, Section 184 or 184A ;
4. Guaranteed or insured by the Department of Veterans Affairs;
5. Guaranteed or insured by the Department of Agriculture;
6. Made by the Department of Agriculture; or
7. Purchased or securitized by Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae).

Foreclosure and Eviction Moratorium Basics:

The moratorium prevents the loan servicer/lender from initiating any foreclosure proceedings for 60 days as of March 18, 2020, with the exception of vacant or abandoned property. The loan servicer/lender “may not move for a foreclosure judgment or order of sale or execute a foreclosure-related eviction or foreclosure sale.”

Forbearance Basics:

A borrower who is experiencing a financial hardship as a direct or indirect result of COVID-19 may request a forbearance on their federally-insured loan, regardless of delinquency status.

• To do so, a borrower simply submits a forbearance request with an acknowledgment regarding their COVID-19-related financial hardship to their loan servicer.
• Requests, or requests for an extension, must be made before the end of the declared national emergency or December 31, 2020, whichever comes first.
• The borrower will receive an initial forbearance will be for up to 180 days and can request an extension of an additional 180 days.
• A borrower no longer experiencing hardship may request to shorten the length of their initial or extended forbearance.
• Important:
  • During forbearance, payment of principal, interest, and fees due during the 180-day period are deferred.
  • Regular interest and fees will continue to accrue during the 180-day deferral period.
  • Lender and loan services may not charge penalties or fees on loans when borrowers elect to defer their mortgage payments.

2. Forbearance of Loan Payments for Multi-family Federally Backed Mortgages

Covered Loans:

Much like their single-family counterparts, federally backed multi-family mortgage loans are eligible for forbearance benefits under Section 4023 of the CARES Act. Notably, a moratorium was not enacted for these loans; however a moratorium of sorts was enacted regarding the landlord/borrower’s actions with tenants.

The relevant loans are secured by a lien on residential multi-family real estate property designed primarily for the occupancy of 5 or more families. However, temporary financing such as constructions loans are excluded.

Forbearance Basics:

A borrower experiencing financial hardship, directly or indirectly, due to COVID-19 may request a forbearance on their multi-family loan.

• To be considered, the borrower must be current on their payments as of February 1, 2020.
• Forbearance requests may be oral or written when submitted to the loan servicer or lender
• Requests must be made before the end of the declared national emergency or December 31, 2020, whichever comes first.
• The request must acknowledge that the borrower is experiencing a financial hardship during the declared COVID-19 emergency.
• Once a servicer/lender receives the request, they document the financial hardship and provide an initial forbearance for up to 30 days.
• The borrower has the option to request two 30-day extension periods. These extension requests must be made at least 15 days before the end of the borrower’s forbearance.
• The borrower may discontinue the forbearance at any time.

Eviction and Vacate Request Basics:

While multi-family loan borrowers may not benefit from a foreclosure moratorium, similar benefits are passed on to the borrower’s tenants. Under the CARES Act, borrowers who receive a forbearance are limited in their eviction and vacate request practices during the length of forbearance period.

A borrower who receives a forbearance may not:

1. Evict or initiate the eviction of a tenant from the property solely for nonpayment of rent or other fees or charges;
2. Charge any late fees, penalties, or other charges to a tenant for the late payment of rent; or
3. Require a tenant to vacate the property before a date that is 30 days after the day the borrower provides the tenant a notice to vacate. This notice may not be given until after the borrower’s forbearance expires.

3. Federal Temporary Moratorium on Eviction Filings

Covered Properties:

Properties protected under the eviction moratorium of Section 4024 of the CARES Act include dwellings “occupied by a tenant [under] a residential lease, or without a lease or with a lease terminable under State law” that is “on or in a covered property.” Simply put, this moratorium prevents landlords with federally backed mortgages from initiating eviction proceedings against tenants for failures to pay rent even if the landlord did not request a loan payment forbearance/moratorium as outlined above. This provision also applies to many different types of public housing complexes or homes.

Eviction Moratorium Details:

During the 120-day period beginning on March 27, 2020, a landlord may not:

1. Initiate a legal action for eviction of a tenant for nonpayment of rent, other fees, or charges; or
2. Charge fees, penalties, or other charges to the tenant related to the nonpayment of rent.

Additionally, a landlord may not require a tenant to vacate until 30 days after they provide a tenant with the appropriate notice to vacate. This notice to vacate cannot be issued until after the 120-day eviction moratorium ends.

If you have any questions about your options under the available relief and loan packages, please do not hesitate to contact our office and arrange a time to speak with one of our real estate or banking attorneys.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

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