COVID-19: Mortgage Forbearance (Residential Property)
By Greenberg Bitton LLP
COVID-19: Mortgage Forbearance (Commercial Property)
The “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” was signed into law by President Trump on March 27, 2020. Among the various provisions that provide US individuals with financial relief, one of the most important provisions discusses mandatory forbearance options made available to borrowers of a "Federally backed mortgage loan" (which is described in §4023 of the Act). These provisions apply specifically to a mortgage securing a property of five (5) units or more. A separate Section of the Act applies to mortgages securing a property of four (4) units or less and is discussed in this blog post.
Federally Backed Mortgage Loan
For purposes of the Act, a "Federally backed mortgage loan" includes "any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1 to 4 [units] that is—
(A) is secured by a first or subordinate lien on residential multifamily real property designed principally for the occupancy of 5 or more [units], including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and
(B) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by any officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary of Housing and Urban Development or a housing or related program administered by any other such officer or agency, or is purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
Qualifying for the Forbearance
During the covered period, a borrower with a Federally backed mortgage loan experiencing a financial hardship (a term which has not been defined by this Section of the Act) due, directly or indirectly, to the COVID–19 emergency may request forbearance on the Federally backed mortgage loan by submitting an oral or written request for forbearance to the mortgage servicer. The servicer shall then:
(A) document the financial hardship;
(B) provide the forbearance for up to 30 days; and
(C) extend the forbearance for up to 2 additional 30 day periods upon the request of the borrower provided that, the borrower’s request for an extension is made during the covered period, and, at least 15 days prior to the end of the forbearance period described described in (B) above.
For purposes of this Section, the "covered period" means the period commencing with the enactment of the CARES Act (March 27, 2020) and the sooner of: (i) December 31, 2020 or (ii) the termination of the COVID-19 national emergency.
The information necessary to satisfy the financial hardship documentation requirement is not established under the Act and may vary from one mortgage servicer to the next. Borrowers should therefore contact their mortgage servicer in order to determine what documentation would be satisfactory for these purposes.
- The borrower needs to have been current on the mortgage as of February 1, 2020.
- During the period of forbearance, the borrower cannot evict, or initiate the eviction, of any tenants (due to nonpayment of rent, late fees or charges).
- During the period of forbearance, the borrower cannot charge any late fees, penalties, or other charges to a tenant for late payment of rent.
- During the period of forbearance, the borrower cannot issue a tenant a 30-day notice to vacate.
- The borrower cannot require a tenant to vacate until the passage of 30 days from the delivery of a notice to vacate to any tenant.
Borrowers of a "Federal backed mortgage loan" on a multi-family property that has five (5) or more units will be eligible to request a 30-day forbearance if they are experiencing a financial hardship as a result of COVID-19. The mortgage servicer will need to document the hardship as part of the request. Lastly, the borrower will likely be able to request up to two (2) additional 30-day forbearance periods, assuming the requests are made during the covered period and at least fifteen (15) days prior to the end of the existing 30-day forbearance period
Greenberg Bitton LLP: Committed to those affected by COVID-19
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- Apply for an SBA loan
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