Category Archives: Real Estate

Borrowers Receiving Forbearance Will Not Have to Make Lump-Sum Payment When Forbearance Ends

Borrowers of federally backed loans owned by Fannie Mae and Freddie Mac will not have to repay missed payments in a lump sum once their forbearance periods end. Mark Calabria, Director of the Federal Housing Finance Agency (FHFA), made this clear in a statement aimed to correct consumer confusion after reports revealed loan servicers were telling borrowers they would have to repay missed payments in a lump sum. This misinformation was problematic for the tens of millions of unemployed Americans who feared they would continue to face financial hardship due to the COVID-19 emergency. Continue reading

IRS Issues Guidance on the Impact of Mortgage Loan Forbearances on REMICs and Investment Trusts

In response to requests to provide guidance on the impact of mortgage loan forbearance programs on the tax treatment of securitization vehicles, such as real estate mortgage investment conduits (“REMICs”) and investment trusts, the IRS issued Revenue Procedure 2020-26. The IRS establishes that forbearance programs offered as COVID-19 relief will not jeopardize the tax treatment and qualifications of REMICs and investment trusts.

The Rev. Proc. applies to forbearances granted under the CARES Act, and other forbearance programs offered by loan servicers and holders, either voluntarily or state mandated, for borrowers experiencing financial hardship due to the COVID-19 emergency. Continue reading

Mortgage Relief in the CARES Act

Title IV of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), provides mortgage relief to homeowners with federally backed mortgage loans. The CARES Act allows eligible borrowers to request forbearance on loan payments for six months, and then request an additional six month forbearance period. The Act also includes a moratorium on foreclosure actions. The applicable provisions are summarized below.

Loans Secured by Property Designed for 1-4 Families

Eligibility: Federally Backed Mortgage + Financial Hardship

Only borrowers holding a “federally backed mortgage loan” are eligible for forbearance.  “Federally backed mortgage loans” are loans secured by a lien on real property designed for 1-4 families and which are insured by the FHA, the Department of Veterans Affairs, or the USDA (or made directly by the USDA), and loans purchased or securitized by Fannie Mae and Freddie Mac. Therefore, not all mortgagors will be benefitted by these provisions.  Borrowers should note that forbearance is not forgiveness of the debt. Instead, forbearance provides additional time for repaying the debt.  During the forbearance period, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time, shall accrue.

According to the National Housing Law Project, approximately 70 percent of single-family mortgages are federally-backed. To determine whether your loan is purchased by Fannie Mae or Freddie Mac, you can search the databases available on their websites. For other information regarding whether your loan is federally backed, you can contact your loan servicer (if you do not know the identity of your loan servicer, you can check the Mortgage Electronic Registration Systems website). Even if your loan is not federally backed, some lenders are offering similar deferral programs for borrowers who are ineligible under the CARES Act.

Additionally, a borrower holding a federally backed mortgage must have experienced “financial hardship” due to COVID-19. To receive forbearance, the borrower must submit a request to the borrower’s servicer attesting financial hardship due to COVID-19. The term, “financial hardship” is not defined in the Act, and loan servicers may not require additional documentation evidencing financial hardship.

The Act does not limit the amount of debt that may be deferred.

Loan forbearance period

Borrowers may request an initial forbearance of up to 180 days and an extension for an additional period of up to 180 days during the “covered period.”  The covered period began with the adoption of the CARE Act and will end upon the sooner of: (i) termination of the national COVID-19 emergency, and (ii) December 31, 2020.

Moratorium on Foreclosures

Except with respect to a vacant or abandoned property, a servicer of a federally backed mortgage loan (as defined above) may not initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or sale before May 17, 2020. (See below for a discussion on the temporary freeze on writs of possession, which are required to remove a foreclosed borrower.)

Loans Secured by Multifamily Property (5+ Families)

Eligibility

Section 4023 of the Act provides for forbearance for borrowers holding “federally backed multifamily mortgage loans,” which include loans secured by real property designed for 5 or more families made or insured by the federal government. This specifically includes loans made in connection with HUD and loans purchased by Fannie Mae and Freddie Mac.

Temporary financing, such as construction loans, are not eligible for forbearance. As such, many developers may not be able to take full advantage of these provisions.

Multifamily borrowers may request forbearance by attesting financial hardship due to COVID-19. However, the borrower must have been current on its payments as of February 1, 2020.

Forbearance Period

The initial forbearance period is 30 days from the multifamily borrower’s request. The borrower may extend the forbearance for up to 2 additional 30-day periods, provided the request is submitted at least 15 days prior to the initial forbearance period.  (We interpret the 15-day deadline as referring to only the first request for an extension, but the statute is unclear.)  All initial and extension requests must be made before the sooner of: (i) termination of the national COVID-19 emergency, and (ii) December 31, 2020.

Renter Protections

During the period that the multifamily borrower receives forbearance, it may not evict a tenant from a unit in the applicable property solely for failure to pay rent, charge late fees or penalties for failure to pay rent, or require a tenant to vacate a unit. Even if a multifamily borrower does not receive forbearance or has stopped receiving forbearance, it may be prohibited from performing the above actions pursuant to the moratorium on evictions described below.

Moratorium on Evictions

Under Section 4024 of the Act, borrowers holding a federally-backed mortgage or multifamily mortgage, may not, before July 25, 2020, evict a tenant from the applicable property solely for failure to pay rent, charge late fees or penalties for failure to pay rent, and require a tenant to vacate a unit. This moratorium applies to all borrowers holding a federally-backed mortgage, regardless of whether they actually apply for or receive forbearance. Even if borrowers are able to bring an eviction action against a tenant, a recent order from the Supreme Court of Florida has potentially delayed their ability to obtain a writ of possession, the final order in an eviction lawsuit used to remove an evicted tenant.

Conclusion

Given the lack of guidance surrounding the definition “financial hardship” and loan servicers’ inability to refute a borrower’s claim of hardship, the number of borrowers eligible for forbearance under the Act is potentially immense.  A borrower who is unable to keep mortgage payments current is encouraged to contact the servicer to request forbearance.  A borrower should be prepared to describe the financial hardship to the servicer, and should follow up to obtain written documentation as to the forbearance.

Our team at Williams Parker is ready to assist individuals, developers, and owners of multifamily property who are considering taking advantage of the loan forbearance provision in the CARES Act. We are monitoring governmental publications and will share any further guidance that is provided as to the circumstances that constitute “financial hardship.”

Williams Parker’s COVID-19 response team is continuing to monitor these and other developments, and advise on issues arising from the Coronavirus. View the latest updates.

Partner Terri S. Costa contributed to this post. 

Kyle D. Elliott
kelliott@willimasparker.com
(941) 329-6618

Florida Governor Suspends Mortgage Foreclosures and Residential Evictions


In recognition of COVID-19’s impact on the ability of Floridians to make mortgage and rent payments, Florida Governor Ron DeSantis issued Executive Order #20-94 on April 2 suspending the ability of mortgage lenders and landlords to bring actions for foreclosure or eviction for a period of 45 days from the date of the order (including any subsequent extensions). The order does not relieve an individual from making mortgage or rent payments.

The suspension on foreclosure proceedings applies to both residential and commercial mortgages. The suspension on eviction proceedings, on the other hand, is limited to residential tenancies.

Businesses are still subject to eviction for failure to pay rent during the COVID-19 pandemic. Although a commercial landlord can commence eviction proceedings, the landlord may not, however, be able to finalize the eviction and remove the tenant. On March 24, the Florida Supreme Court issued an order suspending the Florida Rule of Civil Procedure requiring clerks to issue writs of possession. Writs of possession are the final court orders in an eviction proceeding necessary to remove an evicted tenant.  That order stays in effect until April 17, unless subsequently extended.

The suspension on eviction proceedings is also limited to evictions arising out of a residential tenant’s failure to pay rent due to the COVID-19 emergency. Residential landlords may still commence eviction proceedings for other defaults under a lease.

Williams Parker’s COVID-19 response team is continuing to monitor these and other developments, and advise on issues arising from the Coronavirus. View the latest updates.

Nicole F. Christie
nchristie@williamsparker.com
(941) 552-2564

Responding to a Tenant’s Request to Defer or Abate Rent Due to COVID-19

Given widespread financial hardship due to COVID-19, commercial landlords are receiving requests for relief from tenants unable to pay the next month’s rent. Legally, landlords are probably justified in refusing to abate or defer rent, though this issue is far from settled and ripe for future litigation.

A tenant in this situation has two likely arguments for seeking rent deferral:

  1. force majeure clause in the lease (one that provides both parties relief from obligations upon events such as natural disasters, war, and acts of God); and
  2. Frustration of Purpose (a legal doctrine excusing a party from performing its obligations under a contract if it is prevented from acting due to an unforeseen event).

As lease disputes arise, it is possible that these arguments convince courts—potentially sympathetic to tenants who have not been able to pay rent during the COVID-19 emergency—to grant an abatement or deferral of rent. To add more uncertainty for landlords, Sarasota County’s Clerk of Court, relying on an order last week from the Supreme Court of Florida, has temporarily stopped issuing writs of possession (the final orders in an eviction lawsuit[1] necessary for removing an evicted tenant).

As long as the Clerk of Court takes this position, landlords will be prevented from promptly evicting delinquent tenants.[2] Given these obstacles, and considering landlords have a vested interest in ensuring the long-term success of many of their tenants, landlords should consider creative solutions when responding to a tenant’s request for relief. Below are options a landlord can consider in this situation:

  1. Refuse any abatement or deferral. This approach may only be viable for financially strong tenants, or those with whom the landlord has little long-term incentive to cooperate (e.g., tenants with a poor payment history, or who will be moving locations soon, or permanently closing their business). Also, a landlord may have more leverage to take this position for leases that do not contain a force majeure.
  2. Require tenants apply for assistance under the CARES Act or other emergency assistance programs. The recently enacted CARES Act allows small businesses to apply for assistance from the Small Business Administration. Certain tenants may also be eligible for the Florida Small Business Emergency Bridge Loan Program. Landlords can request eligible tenants apply for this assistance, and pass it on to the landlord in the form of continued rent payments.  Alternatively, landlords might want to require this assistance as a condition to deferral of rent payments under Options #3 and #4, below, to ensure that the tenant will have sufficient cash to continue to pay rent once the COVID-19 emergency ceases. 
  3. Temporarily defer rent payments and make up missed payments over a period of time. The deferral could be for the entire amount of the rent, or just a portion, and can be allocated in whatever manner the parties may agree is workable (i.e., for a period of several months after the COVID-19 emergency ceases). However, landlords may wish to take a “wait and see” approach and only agree to the deferral on a month-to-month basis.
  4. Defer rent payments and agree to extend the lease for the duration of the deferral. Generally, this approach is less beneficial for landlords than Option #3, but tenants who might be slow to recover after the emergency, or who were barely able to pay rent before the emergency, might only agree to an extension of the lease, rather than making increased payments once normal business operations resume.

Each tenant’s ability to pay rent will vary, and landlords with multiple tenants face a myriad of challenges as they attempt to develop solutions that maintain continuity of their own cashflow without alienating their best and most reliable tenants. At Williams Parker, our team of experienced business and real estate attorneys are uniquely equipped to provide landlords with the depth of counsel they need to respond to these quickly evolving challenges.

[1]Writs of possession are also required to take possession of property after a foreclosure.

[2]The Clerk’s position applies to both residential and commercial evictions. For recent developments surrounding a federal moratorium on certain residential evictions, see our article Mortgage Relief in the CARES Act.

Kyle D. Elliott
kelliott@willimasparker.com
(941) 329-6618

Real estate attorneys Thomas B. Luzier and Patrick W. Ryskamp contributed to this post.