By Attorney Tracy L. Updike
The Coronavirus Aid, Relief, and Economic Security Act (Pub.L. 116-136), also known as the CARES Act, was signed into law on March 27, 2020 to address the economic effects of the coronavirus pandemic. A chief concern of legislators was the preservation of housing during the time of this crisis. There are a number of different provisions of the Act that are meant to provide such protection.
The CARES Act at Section 4022 provides a foreclosure moratorium and a consumer right to request forbearance for “federally backed” residential mortgage loans during the covered period. It is estimated that approximately 70% of mortgage loans fall into this category. They include FHA loans, USDA loans, VA loans, and Fannie Mae and Freddie Mac loans. If your loan is federally backed, a servicer may not initiate the foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction for not less than 60 days beginning on March 18, 2020.
But an even more powerful tool for debtors is that the Act provides that a borrower “experiencing a financial hardship due, directly or indirectly, to the Covid-19 emergency” may request forbearance regardless of delinquency status by simply submitting a request to the servicer and affirming the financial hardship. Such forbearance “shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower…” (emphasis added). During this period of forbearance no fees, penalties or interest, beyond the regular amounts scheduled if payments were made timely, should accrue on the account. This request specifically requires no other documentation that the attestation – the lender cannot require you to fill out a complete loss mitigation application. This is limited to loans for residences with maximum occupancy of from 1 to 4 families, so not meant for large rental properties. There are options for such larger properties under the Act that are not discussed here.
What happens when the forbearance ends? The forbearance is only meant to give short term payment relief. It is anticipated that while the forbearance runs, it be used as a starting point for conversation with your lender regarding a longer term solution. Depending on the investor involved with your loan, there are different options available. The CARES Act does not legislate what the lender must do. They will be entitled to seek those missed payments upon the end of the forbearance. If you have not had a positive change in your situation such that it is possible to pay the arrears in a lump sum, you will need to work with the lender to determine other options. One probability is a loan modification where the principal will be reamortized and the loan recalculated. However, note that this may likely require a full loss mitigation application completed accurately, and supporting documentation provided to the lender. And, to the extent you are in a Chapter 13 bankruptcy, this will require Court approval of any final modification. Another option if you are in bankruptcy is amending your Chapter 13 plan to pay the arrears in the plan, or even to do that and take advantage of the extended timeframe allowed under the CARES Act (discussed in my previous article The CARES Act and Bankruptcy). If you are not in bankruptcy and the lender is not cooperative with a modification or repayment plan, Chapter 13 bankruptcy may then become your option.
What should you do? If you feel that you may have difficulty making payments on your mortgage due a hardship “directly or indirectly” related to Covid-19 you should (1) determine if you have a “federally backed” loan and (2) take action immediately. The “covered period” for these provisions runs only from the date of this Act and the sooner of (a) the termination of the national emergency concerning Covid-19 declared by the President on March 13, 2020 and (b) December 31, 2020.
How to determine if your mortgage is federally backed? Fannie Mae and Freddie Mac have easy loan look-up tools to determine if they own your mortgage: https://ww3.freddiemac.com/loanlookup and https://www.knowyouroptions.com/loanlookup#. An FHA-insured loan can be more difficult. The original mortgage document would likely have an FHA case number on it, but sometimes this status may change after the original recordation. You can call HUD’s National Servicing Center at 877-622-8525 for more information. VA loans will likely have specific notations in the mortgage identifying it as well, with fees paid to the VA at settlement. Or, if worse comes to worse, call your lender and ask directly.
It is important to note that in some jurisdictions a trustee may challenge a debtor’s discharge in Chapter 13 if they are not post-petition current on mortgage payments. For this reason, if you are in a Chapter 13 you should ensure you are proactive discussing options with the lender to become current after forbearance. Do not just hope they do not take action against you for collection of these amounts. You do not want to wait until it’s the end of your case and find out not only are you behind and eligible for foreclosure, but that you also will not be getting your discharge.
Lastly, what if you don’t have a “federally backed mortgage”? It does not mean that you do not have any options, it is just that Congress did not feel it had authority to order private lenders to comply. However, many private lenders may have their own programs, so you should contact them directly.
Again, Congress felt it had limited ability to direct private landlords, but did provide a 120 day moratorium on eviction filings against any tenant pursuant to a residential lease in a “covered property.” To become a covered property, it must participate in a covered housing program under the Violence Against Women Act of 1994 or the rural housing voucher program under the Housing Act of 1949, or have its own federally backed mortgage loan (meaning your landlord has a mortgage from FHA, VA, HUD, Fannie Mae or Freddie Mac). It may be harder for you to determine these facts on your own and you may need to question your landlord directly.
Overall, the CARES Act makes retention of housing a priority. If you have questions about any of these programs, contact your lender or attorney today before time runs out.