The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law by President Trump on March 27, 2020 contains provisions that have a direct impact on landlord-tenant and mortgagee-mortgagor relations, including a temporary forbearance of mortgage payments for multifamily property owners and a moratorium on eviction proceedings.
Forbearance of Payments for Multifamily Property Owners for Federally Backed Mortgages
Under the CARES Act, borrowers of a “federally backed multifamily mortgage loan” may be able to temporarily forbear their regular payments if they are “experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency.” Such borrowers may request an initial forbearance of 30 days and may be eligible to request up to two additional 30-day extensions, opening up the possibility of a 90-day total period of forbearance.
The CARES Act defines a “federally backed multifamily mortgage loan” as any loan other than temporary financing (such as a construction loan) that is secured by a first or subordinate lien on residential multifamily property designed principally for the occupancy of from 1- to 4-families, and which is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way under or in connection with HUD or is purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
To be eligible for the forbearance, the borrower must have been current on payments as of February 1, 2020. Additionally, during the forbearance period the borrower may not evict any tenant for the nonpayment of rent or charge late fees or penalties for any delinquent rent payment.
For at least a 60-day period commencing March 18, 2020, any servicer of a federally-backed mortgage loan may not initiate any foreclosure, foreclosure-related eviction, or foreclosure sale.
Right of Residential Borrowers to Request Forbearance
Residential borrowers with a federally-backed mortgage loan who are experiencing financial hardship due to the COVID–19 emergency may request forbearance on their federally-backed mortgage loans for up to 180 days and may be eligible for an additional 180-day extension, opening up the possibility of a 360-day period of forbearance. Unlike multifamily property borrowers, residential borrowers are eligible for this program regardless of their prior delinquency status.
Lastly, during the 120-day period commencing March 27, 2020, property owners cannot bring eviction actions against tenants for nonpayment of rent if the property owner’s mortgaged property is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.
While the CARES Act provides protections to tenants and mortgagors who have fallen on hard times as a result of the COVID-19 emergency, it is silent on whether a tenant and/or mortgagor may simply withhold payments. That possibility remains unlikely at least at the state level. Governor Cuomo, in response to calls from lawmakers and tenant advocates to cancel rent payments during the COVID-19 emergency, has simply referenced the moratorium on eviction filings and asserted that it sufficiently addresses the concerns.
Notwithstanding the Governor’s stance, Senator Michael Gianaris recently proposed a bill that, if passed, would suspend the payment of rent by residential and commercial tenants for 90 days. The bill is currently seeking approval by the Senate Judiciary Committee. In the meantime, notwithstanding that the traditional enforcement mechanisms of a landlord or mortgagee have been suspended by COVID-19, tenants and mortgagors are still responsible for meeting their monthly rent and mortgage obligations absent any of the circumstances set forth above.
As lenders and landlords attempt to navigate these issues during a time of extreme uncertainty, our real property attorneys stand ready to provide legal advice and guidance.