COVID-19: Impact on Mortgage Servicing and Foreclosure Rights
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.
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.