Residential Mortgage Loan Protections under the Coronavirus Economic Stabilization Act of 2020 (CESA)
In addition to the well-publicized portions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed March 25, 2020 pertaining to paycheck protection loans, business bailout programs, and stimulus packages, several sections provide assistance to those homeowners and multi-family property owners with federally backed mortgages.
The CESA portion of the CARES Act provides a right to forbearance on residential loans and restrictions on loan servicers and lessors. A forbearance is an allowed delay or suspense of payment on a loan, usually with interest continuing to accrue. The CESA provides as follows:
- It provides borrowers the right to a forbearance of 180 days on federally backed mortgage loans, with one 180-day extension period.
- In order to qualify for a forbearance, the borrower must submit a request to their loan servicer and affirm that they are experiencing a financial hardship due to COVID-19.
- If the borrower qualifies, their mortgage loan servicer must grant their request.
To qualify for forbearance under the Act, a loan must be secured by a first or second lien on residential real property designed principally for occupation by one to four families and must satisfy one of the following:
- Insured by the Federal Housing Administration;
- Insured under section 255 of the National Housing Act;
- Guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992;
- Guaranteed or insured by the Department of Veterans Affairs or the Department of Agriculture;
- Made by the Department of Agriculture; or
- Purchased or securitized by the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae).
The Act requires that mortgage loan servicers provide such forbearances without any additional payment, interest, penalty, or requirement of information beyond the borrower’s affirmation of financial hardship. The standard interest on the mortgage will continue to accrue.
In addition, under the CESA, a servicer may not start any judicial or non-judicial foreclosure process or execute a foreclosure-related eviction or foreclosure sale for at least the 60-day period beginning on March 18, 2020.
Right to a forbearance for multifamily borrower
The CESA provides multifamily borrowers with federally backed loans covering properties principally designed for occupation by five or more families that were current on their payments as of February 1, 2020 the right to a forbearance of 30 days, with up to two additional 30-day extensions.
- Such a borrower must affirm that they are experiencing a financial hardship due to COVID-19.
- The servicer must then document the affirmation and provide the forbearance as requested.
A multifamily borrower may not, for the duration of such a forbearance, evict or start eviction of any tenant in the applicable property for reason of nonpayment or charge any late fees or penalties for late payment of rent. They also may not require a tenant to vacate during the forbearance period or without 30 days’ notice.
The CESA provides for a 120-day moratorium on eviction filings from the date of the enactment of the CARES Act.
- This moratorium covers lessors of dwellings inhabited pursuant to a residential lease,
- Servicers of federally backed mortgage loans and
- Lessors of any dwellings covered by the Violence Against Women Act of 1994 or the rural housing voucher program of the Housing Act of 1949.
Such lessors are restricted from requiring tenants to vacate during the 120-day moratorium period and must provide 30 days’ notice to any tenant required to vacate after that period ends.
For further information regarding the programs described above, the Consumer Financial Protection Bureau has a thorough explanation and further assistance available on its website: https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options.
Please feel free to reach out to me or any of the attorneys at Boodell & Domanskis, LLC for more information or to discuss how you can approach your mortgage lender if you are having financial distress at this difficult time. We can assist with a form letter you can use to notify your lender of your financial distress and need for a forbearance and are here to help.