COVID-19: Impact on Mortgage Servicing and Foreclosure Rights
4/20/2020 UPDATE: On April 17, 2020, Michigan Governor Gretchen Whitmer issued Executive Order 2020-54, which extended protections from evictions for residential tenants, vendees under forfeited executory contracts, and those individuals holding property through May 15, 2020, except where the occupant poses a substantial risk of harm to another person or an imminent and severe risk to property. The protections provided by Executive Order 2020-54 are substantially similar to those previously afforded under prior, but now repealed, Executive Order 2020-19. Although demands for payment of rent or contractual obligations otherwise due are not precluded by the executive order, such demands must not be made via personal contact and must not reference a demand for possession of the property.
4/2/2020 UPDATE: On April 1, 2020, Governor DeWine issued Executive Order 2020-08D requesting that (1) landlords of “small business commercial tenants” experiencing financial hardship from COVID-19 to suspend rent payments and provide at least a 90-day moratorium on evictions; and (2) lenders to “commercial real estate borrowers with commercial mortgage loans” for property located in Ohio experiencing COVID-19 financial hardship with the opportunity for a minimum 90-day forbearance period. Executive Order 2020-08D is not couched in mandatory terms nor does it purport to suspend any federal or state law or otherwise impair any landlord’s or lender’s rights under their existing contractual documents. Rather, Executive Order 2020-08D should be seen as a “nudge” to landlord and lenders in the hope of finding reasonable business compromises that balance landlord/tenant and lender/borrower counterparty rights during the COVID-19 emergency.
3/30/20 UPDATE: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law. During the federally declared COVID-19 national emergency, CARES Act section 4022 through section 4024 affects borrowers’ and lenders’ rights under “federally backed mortgage loans,” meaning any loan that is secured by first or subordinate liens on residential real property designed for occupancy by one to four families that is guaranteed or insured or, in some instances, made by the Federal Housing Administration, the Veterans Administration, the Department of Agriculture, or purchased or securitized by Fannie Mae or Freddie Mac. The CARES Act provisions supersede the earlier guidance issued on March 18, 2020, by Fannie Mae, Freddie Mac and HUD with respect to mortgage servicing of covered loans.
Pursuant to section 4022, borrowers experiencing COVID-19 related financial hardship may request forbearance under their loans, regardless of delinquency status, by contacting their servicer and affirming they are experiencing a COVID-19 related financial hardship. No documentation apart from the borrower’s attestation is required. A servicer must grant forbearance for a period of up 180 days upon receipt of a request and must extend the forbearance for up to an additional 180 days at borrower’s request. Importantly, no fees, penalties or interest may accrue on the borrower’s account apart from those that would have accrued had the borrower made all contractually required payments. Section 4022 also provides for a broad moratorium on all judicial and non-foreclosure related activity pertaining to federally backed mortgage loans for a period of not less than 60 days beginning on March 18, 2020, except with respect to those properties that are vacant or abandoned. The prohibition extends to evictions where a property already has been liquidated pursuant to an order of sale.
CARES Act section 4023 provides for modified forbearance rights with respect to borrowers under a federally backed multifamily mortgage loan and certain protections for tenants of multifamily borrowers. Multifamily borrowers experiencing a COVID-19 related financial hardship may request forbearance from their servicers if they were current as of February 1, 2020. Servicers must document the hardship and must provide forbearance for a period of up to 30 days and extend such forbearance for up to two additional periods of 30 days upon borrower’s request as long as such request is made at least 15 days before the expiration of the existing forbearance and during the “covered period,” meaning prior to the termination of the federally declared COVID-19 national emergency or December 31, 2020, whichever comes sooner. Multifamily borrowers receiving forbearance under the CARES Act may not evict their tenants solely for nonpayment for rent during the forbearance period, may not charge late fees or penalties for nonpayment of rent, and must give a tenant at least 30 days to vacate a premises when giving a notice to vacate is permissibly given.
Finally, and although not directly related to mortgage servicing, CARES Act section 4024 provides additional protections for tenants residing “covered dwellings” on “covered properties.” Covered dwellings are those dwellings occupied by a tenant pursuant to a residential lease, without a lease or under a lease terminable under state law. “Covered properties” are those properties that are financed through a “federally backed mortgage loan” as defined in CARES Act section 4022, or is a property participating in certain federal housing programs under the Violence Against Women’s Act or the rural housing voucher program. Section 4024 prohibits lessors from commencing eviction proceedings with respect to tenants in covered dwellings for non-payment of rent and from charging fees for a period of 120 days after the CARES Act is enacted.
3/26/2020 UPDATE: On March 25, 2020, S.B. 297 was introduced in the Ohio Senate. As to mortgage foreclosures, S.B. 297 is substantially similar to H.B. 562 introduced in the Ohio House of Representatives earlier this week. Unlike the House bill, the Senate bill contains some exceptions to prohibitions on evictions where the individual sought to be evicted is the subject of certain types of criminal or civil protection orders.
Original Article: The COVID-19 (a.k.a. coronavirus) pandemic, attendant stay-at-home/shelter-in-place orders and abrupt closure of vast swaths of the national economy suddenly have called into question borrowers’ ability to service home mortgage debt. Both the federal government and the Ohio legislature are moving quickly to respond.
On March 18, 2020, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2020-04. Pursuant to the terms of the letter, the foreclosure and eviction process for properties that are insured by the Federal Housing Administration (FHA), whether forward mortgage or reverse mortgage, are suspended for a period 60 days. To the extent that a property is in the pre-foreclosure process, any relevant dates for notice of default or acceleration are prolonged 60 days. Similarly, to the extent that the property is already in process of foreclosure, relevant litigation dates are automatically to be extended 60 days.
The same day, Fannie Mae in connection with the Federal Housing Finance Agency issued Lender Letter LL-2020-02 to all Fannie Mae servicers. Pursuant to the letter, Fannie Mae suspended “foreclosure sales” for a period of 60 days unless the property is determined to be vacant or abandoned. Unlike the HUD guidance for FHA insured mortgages, the letter says nothing about the status of properties in the pre-foreclosure process such as filing complaints or obtaining judgment. Fannie Mae has, however, expanded eligibility for forbearance and loan modifications under the Fannie Mae Servicing Guide. Also notable under the letter is the servicer is required to suspend the reporting of the status of a mortgage loan to credit bureaus if the borrower is in an active forbearance plan, a repayment plan or trial plan where the borrower is paying as agreed even if the payment is past due as long as the delinquency relates to a hardship caused by COVID-19.
Finally, on March 18, 2020, Freddie Mac issued Bulletin 2020-4. Pursuant to that bulletin, and like Fannie Mae, a 60-day suspension of foreclosure sales is required except as to properties deemed to be vacant or abandoned. Like Fannie Mae, it is unclear whether the moratorium extends to other activities such as filing complaints or obtaining judgments. Like Fannie Mae, the bulletin identifies new servicing guidelines for loan modifications, forbearances, trial plans and restrictions on reporting to credit bureaus of borrowers in such plans.
On March 23, 2020, House Bill 562 was introduced in the Ohio House of Representatives in response to Governor DeWine’s Executive Order 2020-01D declaring a state of emergency. If enacted in present form, H.B. 562 would significantly impair lenders’ ability to foreclose upon collateral during the state of emergency. Specifically, all Ohio courts would be directed to cease:
- all business pertaining to residential or commercial mortgage foreclosure activity including refusing to accept mortgage foreclosure filings;
- staying all pending foreclosure actions;
- refusing to accept all motions and writs pertaining to foreclosure matters;
- staying all judicial sales, including those by private selling officers; and
- deferring confirmation of sales that have already occurred.
Furthermore, if a borrower is in the period within which to exercise the equity of redemption, the time to exercise that right would be tolled for the duration of the state of emergency. H.B. 562 also would toll all applicable statutes of limitations pertinent to mortgage foreclosures during the state of emergency as well as those deadlines for conducting sales and seeking writs.
In addition to restrictions on mortgage foreclosure, H.B. 562 would prohibit landlords, both commercial and residential, from obtaining writs of restitution for eviction of tenants during the state of emergency. Landlords filing complaints for restitution prior to or during the state of emergency would not be entitled to recover unpaid rent that accrued during the state of emergency.
Finally, all eviction and foreclosure proceedings filed within the 60 days after the declared end to the state of emergency that are based upon a default that occurred during the state of emergency, would be stayed and subjected to mandatory mediation at the court’s cost with mediation concluding only at the discretion of the court.
Assuming it passes, H.B. 562’s restrictive provisions clearly incentivize lenders and landlords to reach out early to their borrowers in an effort to achieve consensual loss mitigation efforts.
To date, the Michigan Legislature has not responded with equivalent proposed foreclosure moratorium legislation. Michigan Governor Gretchen Whitmer has, however, issued Executive Order 2020-19 which restricts landlords from seeking to evict residential tenants, residential land contract vendees, and residential subtenants thereof except upon a showing of substantial risk to another person or an imminent and severe risk to property.
At the date of publication the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.
The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.