California Executive Orders Provide Consumer and Commercial Relief During COVID-19

Morgan Lewis
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Morgan Lewis

In response to the coronavirus (COVID-19) pandemic, California Governor Gavin Newsom has issued two executive orders that place temporary restraints on the ability of landlords to evict residential tenants, authorize local governments to halt residential and commercial evictions, and call on banks and other financial institutions to suspend residential and commercial foreclosures and related evictions.

Executive Order N-37-20

California Governor Gavin Newsom issued Executive Order N-37-20 on March 27, prohibiting the enforcement of eviction orders for renters affected by COVID-19 through May 31, 2020. This executive order prohibits landlords from evicting residential tenants for nonpayment of rent and prohibits enforcement of evictions by law enforcement or courts.

In particular, this executive order extends the deadline specified in California Code of Civil Procedure Section 1167 for a period of 60 days for any tenant who, while the order is in effect, is served with a complaint that seeks to evict the tenant from a residence or dwelling unit for nonpayment of rent and who satisfies certain requirements.

To satisfy these requirements, the tenant must have paid rent due to the landlord pursuant to an agreement prior to the date of this executive order. In addition, the tenant needs to notify the landlord in writing before the rent is due, or within a reasonable period of time thereafter—not to exceed seven days—that the tenant needs to delay all or some payment of rent because of an inability to pay the full amount due to reasons related to COVID-19.

The tenant also is required to retain verifiable documentation, such as termination notices, payroll checks, pay stubs, bank statements, medical bills, or signed letters or statements from an employer or supervisor explaining the tenant’s changed financial circumstances, to support the tenant’s assertion of an inability to pay. This documentation must be provided to the landlord no later than the time upon payment of back-due rent. The tenant would remain obligated to repay full rent in a timely manner and could still face eviction after the enforcement moratorium is lifted.

No writ may be enforced while this executive order is in effect to evict a tenant who satisfies the above requirements from a residence or dwelling unit for nonpayment of rent. The order took effect immediately, and provides immediate relief to tenants for whom rent is due on April 1, 2020.

Executive Order N-28-20

Executive Order N-37-20 builds on (and in some ways supersedes) Governor Newsom’s previous Executive Order N-28-20, which authorized local governments to halt residential and commercial evictions; requested banks and other financial institutions to provide an immediate moratorium on residential and commercial foreclosures and related evictions; extended deadlines for housing assistance or applicants to provide documentation related to their program eligibility; and protected against utility shutoffs for Californians affected by COVID-19. These protections also are in effect through May 31, 2020, unless extended.

Also pursuant to Executive Order N-28-20, on March 25, the California Department of Business Oversight (DBO) announced that it has secured support from some of the largest national banks and nearly 200 state-chartered banks, credit unions, and mortgage lenders and servicers for temporary delays in mortgage payments and foreclosure sales and evictions for homeowners who are experiencing economic effects from COVID-19, with the objective of maximizing consistency and minimizing hurdles potentially faced by borrowers.

Under Governor Newsom’s proposal, Californians who are struggling with the COVID-19 crisis may be eligible for certain forms of relief after contacting their mortgage servicers. For consumers affected by COVID-19, participating financial institutions will offer residential mortgage payment forbearances of up to 90 days. In addition, participating financial institutions will provide affected consumers with a streamlined process for requesting forbearance for COVID-19-related reasons, supported with available documentation; confirm approval of and terms of the forbearance program; and provide consumers with the opportunity to extend their forbearance agreements if they continue to experience hardship due to COVID-19.

For at least 90 days, participating financial institutions also will waive or refund mortgage-related late fees and other fees including early CD withdrawals. Participating financial institutions also will not start any foreclosure sales or evictions, and will not share late or missed payments with credit reporting agencies for consumers taking advantage of this COVID-19-related relief (with no impact on credit scores).

These measures went into effect on March 25, 2020, and the relief is currently only available for residential mortgages. The program is voluntary, but the state welcomes other financial institutions to participate.

Working with Consumers

Although the DBO program is voluntary, financial institutions that have not yet agreed to participate may feel pressured to join the initiative, given the number of financial institutions that have already agreed to participate (and the state’s public posting of a list of such participating institutions). In addition, the state positions the program as a further effort for financial institutions “to meet the moment and provide much-needed financial relief to Californians.”

Much of the DBO program’s structure also appears to be very flexible, making it the responsibility of financial institutions to work constructively with consumers. For example, the program allows for the terms of a forbearance to be agreed upon between the consumer and the mortgage servicer, with financial institutions confirming the approval and terms of the forbearance program. Since it remains unclear how severe or how long the effects of COVID-19 will be, participating financial institutions need to commit to both providing consumer relief and assessing the ongoing conditions and necessity of continuing relief.

Although the state recognizes that financial institutions and their servicers are experiencing high volumes of inquiries, the state also issues an implicit caution to mortgage servicers to be communicative and cooperative with consumers by directing consumers to file a complaint against uncooperative and incommunicative mortgage servicers with the DBO.

Takeaways

Taken together, these various orders and initiatives are somewhat complicated from a compliance perspective. Executive Order N-37-20 provides protections for renters; Executive Order N-28-20 authorizes local governments to halt residential and commercial evictions and requests banks and other financial institutions to suspend residential and commercial foreclosures; and the DBO program is limited to participating financial institutions providing relief for residential mortgages.

Financial institutions doing business in California should, therefore, exercise careful diligence in ensuring that they comply with the various tenets of these executive orders, and make sure that their business operations and compliance and servicing departments are closely monitoring any additional developments within California, particularly on the local level.

These recent actions suggest that, at least within California, there is an emerging number of new and iterative requirements that somewhat differ and are not uniform across residential and commercial platforms. The flexibility given to local governments to effectuate some of the most potentially burdensome provisions for commercial lenders and landlords requires special caution in following and evaluating local developments before taking action against commercial mortgagors or tenants.

Related Actions

The executive actions are consistent with a national trend, particularly with regard to consumer mortgages. Recently, the US Department of Housing and Urban Development suspended eviction in foreclosure proceedings on Federal Housing Administration–insured loans, and the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to suspend eviction and foreclosure proceedings for a period of 60 days. In response, Fannie Mae and Freddie Mac went even further, and have directed servicers to provide extensive forbearance relief for their borrowers adversely affected by COVID-19.

In addition, these actions are part of a growing trend of states providing mortgage relief to consumers. For example, New York Governor Andrew Cuomo recently issued two executive orders that place temporary restraints on the ability of banks, residential mortgage servicers, and landlords to exercise remedies under certain agreements, mortgages, and leases. Subsequent to the DBO announcement, New Jersey Governor Phil Murphy announced a parallel initiative in his state whereby participating financial institutions will provide mortgage forbearance and financial protections for New Jersey residents facing economic hardship as a result of COVID-19.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge, which includes a Financial Services COVID-19 Task Force to focus on the issues specifically impacting our financial services industry clients.

We also have launched a resource page to help keep you on top of developments as they unfold. 

 

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