The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for mandatory mortgage payment deferrals for both federally-backed single family mortgages and federally-backed multifamily mortgages, as well as issue foreclosure and eviction moratoriums. These provisions are extremely important to both residential borrowers and lenders.
What does the CARES Act say about mortgage relief?
Generally, if a borrower qualifies and makes a timely request, the lender must grant a deferral of payments of principal, interest and fees. This is not a debt forgiveness, only a permissible payment delay. There are also foreclosure moratoriums. The provisions are found in Sections 4022-4024 of the CARES Act.
Single Family Federally-Backed Mortgages (Section 4022)
Borrowers under federally backed mortgages (FHA, VA, etc.) for 1-4 family residential properties can receive at least a 180-day deferral of principal, interest and fees otherwise payable during the 180-pay period. Regular interest and fees continue to accrue during the 180-day period, but need not be paid during the 180-day period. No penalties or fees may be charged by the lender because of the borrower’s deferral election. To receive the deferral, the borrower only needs to submit a request and "affirm" that the borrower is "experiencing a financial hardship during the COVID-19 emergency," even if the loan is already delinquent. The borrower’s financial hardship must be "directly or indirectly" related to the COVID-19 emergency. The borrower may also request an additional 180-day deferral period (a total of 360 days) provided that the request is made by the sooner of (i) the termination of the COVID-19 national emergency declared by the President on March 13, 2020 or (ii) December 31, 2020. Also, no foreclosure may be started or enforced for 60 days after March 18, 2020, except in the case of an abandoned or vacant property. The ability to obtain these benefits can be exercised by borrowers immediately but must be exercised before the President rescinds the National Emergency declared on March 13, 2020.
Multifamily Federally-Backed Mortgages (Section 4023)
There are similar but less favorable deferrals available for borrowers under a federally-backed multifamily (5+ families) mortgages. Section 4023 provides that multifamily borrowers under federally-back mortgages, who are experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency can request and mandatorily receive a payment forbearance. To receive the forbearance, the borrower must have been current in its payments at February 1, 2020 (unlike consumers who can ask for forbearance even if they are then delinquent). The borrower only needs to "submit a written or oral request for forbearance" to the borrower's mortgage servicer. If made, the servicer (not the borrower) must document the financial hardship and provide up to 30 days forbearance. The borrower can receive up to two additional 30-day forbearance periods, provided that it makes the request at least 15 days prior to the end of the forbearance period, and the President’s COVID-19 national emergency declaration has not be rescinded.
Moratorium on Evictions (Section 4023 and 4024)
However, there is a price to requesting forbearance: Section 4023 (d) provides that if the multifamily borrower asks for forbearance, the borrower may not while the forbearance is in place (i) evict tenants "solely" for non-payment of rent or other fees or charges, or (ii) charge late fees or other charges because of late rent by tenants. Also, a tenant cannot be required to vacate sooner than 30 days, once the borrower's forbearance period is over.
Finally, Section 4024 also imposes another temporary moratorium on landlords making any court filings to evict tenants for nonpayment of rent from property covered by a federally-backed mortgage, even if the landlord DID NOT request a loan payment moratorium. This moratorium is for 120 days after Friday, March 27, 2020, when President Trump signed the CARES Act.