On March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to address the COVID-19 emergency. Although the CARES Act is still subject to final approval by the House of Representatives and being signed by President Trump, it is expected that there will be little or no change to what has been approved by the Senate. The CARES Act includes three sections that will be of particular importance to real estate professionals, as follows.
Foreclosure Moratorium and Consumer Right to Request Forbearance
This section institutes a foreclosure moratorium on residential real property, and allows a borrower of a federally backed mortgage on such property to request forbearance on paying his or her mortgage for a period of 180 days. To qualify, the borrower must submit a request to the lender attesting to a financial hardship due to the COVID-19 emergency. The 180-day period may be extended for an additional 180 days at the request of the borrower. Either 180-day period can be shortened at the request of the borrower. Regularly scheduled interest will still accrue during the time of forbearance, but the lender may not apply any fees, penalties, or interest beyond what is scheduled to accrue if the borrower had made all payments on time. The lender may not require any additional evidence as to the financial hardship beyond the borrower’s attestation to that hardship. This section also prohibits the lender from initiating any foreclosures except on vacant or abandoned residential property. The lender also may not move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale until at least 60 days from March 28, 2020.
Forbearance of Residential Mortgage Loan Payments for Multifamily Properties With Federally Backed Loans
Under this section, a multifamily property borrower with a federally backed mortgage loan experiencing a financial hardship due to the COVID-19 emergency may request forbearance as long as the borrower was current on loan payments as of February 1, 2020. The borrower may submit an oral or written request affirming the hardship. Once that request is submitted, the lender will document the financial hardship, provide forbearance for up to 30 days, and then extend that forbearance for up to an additional 60 days upon the request of the borrower.
In exchange for that forbearance, Section 4023 includes renter protections during the forbearance period. During that period, the borrower may not evict or initiate the eviction of a tenant from a dwelling unit on the applicable property solely for nonpayment of rent or other fees or charges, and the borrower may not charge any late fees or penalties for that period. With respect to other evictions during the forbearance period, the borrow may not require a tenant to vacate a dwelling unit prior to 30 days after the date on which the borrower provides notice to vacate, and may not issue the notice to vacate until after expiration of the forbearance period.
Temporary Moratorium on Eviction Filings
This section institutes a 120-day period from the date of the Act during which renters in homes financed by a federally backed mortgage may not be evicted for the nonpayment of rent, and prohibits the landlord from applying any charges or penalties for the nonpayment of rent during that time. The landlord may also not require a tenant to vacate the dwelling unit prior to 30 days after the date of notice to vacate, and may not issue such notice until after the expiration of the forbearance period.
By some accounts, the CARES Act is just one of a series of planned relief bills to mitigate the effects of COVID-19 on individuals, businesses, and the larger economy. We will continue to provide updates as new information becomes available.