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: Continue reading »

COVID-19-related Forbearance Options Including Foreclosure and Eviction Moratoriums

As we each come to grips with the immediate changes to our daily lives brought on by COVID-19, the question of what happens if/when people can no longer pay their rent or mortgage is on the minds of tenants, landlords, lenders, and borrowers alike.

As unemployment numbers continue to spike across the country, many states (including Missouri and Illinois), individual lending companies, and banks have announced forbearance, foreclosure, and eviction changes in response to COVID-19. Banks and lenders are taking it upon themselves to aid customers struggling due to COVID-19 in addition to the assistance provided by local, state, and federal governments. If you, your business, or your property fall within this category you should contact your individual lender or bank to determine if such resources are available to you.

The federal government and some state and local authorities have put temporary emergency restrictions on foreclosures and evictions in place. Some directives do not make a distinction between commercial and residential foreclosure proceedings.

National Directives:

• HUD and FHA: The U.S. Department of Housing and Urban Development issued a foreclosure and eviction moratorium on FHA-insured single-family mortgages and home equity conversion (reverse) mortgages. The 60-day period runs from March 8 to mid-May 2020.
  • Foreclosures: All new foreclosures and the completion of any foreclosures already in process are halted.
  • Evictions: All evictions from FHA-insured single-family properties cease.
• FHFA (Fannie Mae and Freddie Mac):
  • The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac and backs the mortgages of 28 million homeowners, ordered a suspension of all foreclosures and foreclosure-related evictions for at least 60 days beginning on March 18, 2020.
  • The FHFA announced earlier in March that Fannie Mae and Freddie Mac would provide payment forbearance to borrowers for a mortgage payment to be suspended for up to 12 months due to hardship caused by COVID-19.Additionally, Freddie Mac has implemented a program offering relief to multi-family landlords with  Freddie Mac Multi-family Fully Performing Loans.
    • Landlords can defer loan payments for 90 days by showing hardship due to COVID-19.
    • Landlords are not allowed to evict any tenant based on nonpayment of rent during the forbearance period.
  • HUD and Public Housing: HUD may take steps soon to protect low income individuals in public housing.
  • Federal District Courts: Many federal district courts (and some state courts) have suspended nonessential hearings which would presumably bar foreclosure hearings. This decision has been made by each individual district.

Missouri Foreclosures and Evictions Directives:

Continue reading »

An Oral Agreement Is Not Worth the Paper It’s Printed On

On June 4, 2018, the U.S. Supreme Court held that an individual’s false oral statement about his assets would not support a finding of fraud under the relevant provision of the U.S. Bankruptcy Code. That provision required the false statement to be in writing if it were to serve as the basis of a fraud claim. (Lamar Archer & Cofrin LLP v. R. Scott Appling, Case Number 16-1215, 584 U.S. ___ (2018), issued on June 4, 2018.)

In this case, Mr. Appling hired a law firm to represent him in some litigation. When he had fallen behind on his legal bill to the extent of some $60,000, the firm threatened to withdraw from the case. He told the firm that he was expecting a tax refund of about $100,000 which would cover that bill and all future fees. Relying on Mr. Appling’s assertion, the law firm continued with the representation.

As you probably have concluded by now, there was no $100,000 refund. It was only $60,000, and Mr. Appling invested it in his business rather than paying his attorneys. Worse, when his attorneys subsequently asked about the refund, Mr. Appling lied and told him that he hadn’t received the refund yet. Continue reading »

Should I Employ an Attorney to Assist My Real Estate Business?

Part 12 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Honestly, it just depends.

For many business owners, employing an attorney may seem like a costly and unnecessary burden. After all, draft formation documents and leases, as well as real estate tips, are available on the internet. No statutory requirement exists in Missouri to employ an attorney to form and operate your business (though, as we discussed in Litigation Considerations, you will likely need to hire an attorney to represent your company in court).

For others, engaging counsel throughout the formation and operation of their company is a critical tool to ensuring the success of their business venture. No attorney can predict, prevent, and avoid all troubles which might affect your business. However, an attorney in the real estate industry (like other industry professionals) may be more likely to identify and help you avoid pitfalls that he or she has seen in past experiences, more knowledgeable as to what tax or management strategy may be best as your company grows, and more apprised of ever changing statutes, regulations and trends. For business owners who see value in those matters, it may make more sense to consult with counsel. Continue reading »

Litigation Considerations

Part 11 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Whether you encounter a tenant who breaches your lease, a contractor who improperly repairs your property, or an individual injured on your property, at some point your company may be faced with the need to pursue or defend against a lawsuit. It is important to understand what your company should consider when it comes to our court system.

What type of paperwork do you have?

The first item to consider when an issue arises is whether the issue is documented.

• If your contractor failed to properly repair the property, do you have a copy of your contract? What about pictures of the repairs?
• Regarding tenant disputes, were your discussions and agreements in writing or, if initially in person or over the phone, did you follow-up with a letter memorializing your discussion? Do you have a copy of any demands for unpaid rent or to do/cease doing some activity?
• Regarding an accident at the property, did you have warnings in place or written rules concerning the source of the accident?

What type of documentation was in place at the time the issue arose and what you have available will be crucial in evaluating whether and how to proceed with a lawsuit, what defenses are available, and whether settlement may be appropriate if your company is served with a court summons.

You will likely need to retain an attorney to represent the company in court. Continue reading »

Drafting the Right Lease Agreement

Part 10 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Congratulations, you have a space to lease and someone interested in leasing it. Now you need to define the rules and requirements which will control the relationship between you, as landlord, and the tenant – you need to draft a lease. (Of note, it is possible to have an unwritten or oral lease, but we strongly discourage that practice as it significantly increases the likelihood you’ll end up in court with a tenant arguing who is responsible for what and when). This could be the starting point for a one-year, 10-year, or longer relationship with your tenant, so it is important that everyone understand the parties’ respective rights and obligations from the outset.

The full scope of items you might or should consider incorporating into your lease will depend upon many factors, including the nature of your property and whether your tenancy is residential or commercial. Here are a few items to consider, regardless of your company’s particular circumstances.

1. Identify and Include the Appropriate Parties.

Landlords: The lease should identify your company as the landlord and the party to whom rent should be payable. If you operate several companies which each own a leased property and you set up another company to manage those companies (streamlining rent and other issues), please ensure you have a written property management agreement in place between your two companies and each tenant lease identifies and distinguishes each of your company’s roles.

Tenants: If your company is leasing residentially, ensure that everyone that is going to live at your property is made a party to the lease so they can be made jointly responsible for the lease’s requirements. Co-signers (often parents of the individual tenants) should also be properly identified and required to sign the lease. If your tenant happens to be another company, you may want to consider requiring the managers or members of that company to sign a personal guaranty – depending on how secure you feel that the company will fulfill the obligations of your lease. Continue reading »

Insurance Considerations

Part 9 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

As a caveat to this discussion on insurance, we recommend that you consult with an independent insurance agent/broker to ensure that you obtain the most appropriate type and extent of insurance coverage that your specific business will need.

Having said that, there are some general insurance issues every residential or commercial leasing business should consider.

First, foremost, and fundamentally – don’t skip over insurance and do not assume your personal policies will cover your company’s property or operations.  Most personal policies do not cover businesses. Continue reading »

Observing Corporate Formalities

Part 8 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

It is absolutely critical to keep in mind at all times that your limited liability company or corporation is not an alter ego or simply an extension of yourself. The entity’s bank account cannot be used as your personal bank account, you should not use the entity’s  money to cover personal debts, and, in general, your personal assets should not be relied on to continually cover your entity’s debts. This is true even if you are the sole member or shareholder. The entity is and must be treated as a separate “person” from yourself, with its own assets, activities, and representations.

Keeping that distance is often referred to as observing corporate formalities. Failing to do so can remove the very asset protections that your legal entity was designed to impart. Each business model is different and all necessary formalities cannot be listed for each company, but below are some general guidelines for observing the necessary formalities. Continue reading »

Recent Tax Sale Emphasizes Importance of Periodic Review of Your Entity’s Registered Agent and Contact Information

A recent turn of events in a San Francisco neighborhood should prompt you and your entity to confirm that your contact information is up-to-date. As reported by the San Francisco Chronicle, residents of a private street, lined with multi-million dollar homes, recently learned that their street had been purchased by real estate investors at a tax sale after the homeowner’s association failed to pay its annual $14 property tax bill for several decades. The association claimed it was unaware of its tax obligations because the county tax bills were apparently sent to the address of a former accountant who hadn’t worked for the homeowners since the 1980s. The residents have filed a lawsuit seeking to undo the tax sale and while their success in that endeavor is uncertain, two things are certainly true—this was a costly and completely avoidable mistake.

While it is prudent to review all of your entity’s contact information to make sure creditors, vendors, and others can easily and consistently communicate with your entity, there are two specific records that are critically important—the contact information of your registered agent and the mailing address for your local real estate taxes. Continue reading »

Operational Considerations – Purchasing Real Estate – Loan Documentation

Part 7 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be purchase the real estate you wish to lease (or invest in). The type of real estate which will be appropriate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this series of posts, we’re outlining several important issues when selecting a property to purchase: title insurance, indenture review, and ensuring appropriate loan documentation.

A Note on Loan Documentation

If you purchase your property with cash, you can skip over this section. However, if you are going to seek a loan from a traditional lender, you will want to make sure the loan is properly documented. This includes, to the extent possible, working with your lender to ensure the business entity (not the members/shareholders) is listed on the loan documents. Ideally, your entity will be listed as the borrower on the promissory note and the grantor of the deed of trust (mortgage) on the property to be acquired by your entity. This helps to distinguish the transaction as one of the business rather than that of the members and shareholders personally. Every lender is different and will have its own lending requirements.

As a side note, it is becoming increasingly common for real estate transactions to involve some form of tax credits as the credits can be critical in ensuring the economic success of a particular deal. The principles above concerning appropriate loan documentation are also applicable to seeking and securing tax credits.

Personal Guarantees and the Lender Exception to Asset Protection

When you seek a loan in the name of your company, the lender may still request the principals of the acquiring entity to personally guarantee the loan. This will be more likely the case with new entities, entities without other assets, and where the debt to equity ratio of the loan to property value is high. A personal guaranty of the principals helps assure the lender that if the company fails to pay the promissory note, the lender can still seek repayment from the individual(s) that caused the company to get the loan. Continue reading »