Relief for Multifamily Borrowers and Tenants in the CARES Act
The Situation: The COVID-19 outbreak has caused reverberating effects in multiple sectors of the economy, including multifamily real estate. With unemployment numbers rising, many multifamily tenants and building owners will soon be faced with missed rent payments as households find ways to address an unexpected loss of income. This cascade of rent payment defaults may adversely impact the ability of building owners to meet mortgage payment obligations. While various states have moved to enact overall court closures for civil proceedings, such closures would only serve to delay nonpayment evictions and any mortgage foreclosure proceedings. As a result, the federal government has taken measures to provide relief to multifamily tenants and landlords alike.
The Result: To address a potential destabilization in the multifamily rental market, the Federal Housing Finance Agency ("FHFA"), and subsequently Congress and the President through the enactment of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), have enacted protective orders and legislation that will benefit tenants and landlords of multifamily properties with federally backed mortgages. This approach is intended to avoid evictions and foreclosures that would likely ensue upon the reopening of state courts.
Looking Ahead: Owners of multifamily properties with federally backed multifamily mortgages now have an avenue of relief to apply for loan forbearance if their federally backed loans were in good standing prior to the COVID-19 outbreak and additional conditions are met. Additionally, such owners should be aware of the national 120-day eviction moratorium that went into effect upon the enactment of the CARES Act on March 27, 2020.
In response to the collateral economic impacts of the COVID-19 outbreak on the federally backed mortgage market, on March 23, 2020, the FHFA issued directive orders providing loan forbearance and eviction protections for properties with federally backed mortgages. Building on that momentum and initiative, on March 27, 2020, the CARES Act was enacted into law inclusive of provisions allowing for landlords with federally backed multifamily mortgage loans to apply for forbearance relief in exchange for an agreement not to evict tenants during any forbearance periods.
The CARES Act generally enacted a sweeping 120-day eviction moratorium protecting nonpaying tenants of properties financed with federally backed multifamily mortgage loans, regardless if the owners of such properties apply for loan forbearance. Owners of multifamily properties financed with federally backed multifamily mortgage loans who seek forbearance enacted in the CARE Act, or who seek to terminate the tenancy of a nonpaying tenant, should be mindful of the following:
Who may benefit from the multifamily mortgage forbearance program?
Any multifamily borrower with a federally backed multifamily mortgage loan that was current on its payments as of February 1, 2020, and is now experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency, may benefit. A federally backed multifamily mortgage loan includes any first or subordinate lien on residential multifamily property principally designed for occupancy of five or more families and is made, insured, guaranteed, supplemented, or assisted in any way by an officer or agency of the federal government or in connection with a housing or urban development program administered by the U.S. Department of Housing and Urban Development, or a housing or related program administered by any other such officer or agency, or that is purchased or secured by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
How is the forbearance process initiated?
The borrower may submit a request for forbearance to its servicer. The request must affirm that the borrower is experiencing financial hardship during the COVID-19 emergency.
How long does a borrower have to claim forbearance?
The borrower can request forbearance beginning from the enactment of the CARES Act through the earlier to occur of the declared termination of the COVID-19 national emergency and December 31, 2020.
How long does forbearance last once claimed?
Upon receiving the request for forbearance, the servicer is to provide forbearance for up to 30 days, with two additional 30-day extensions available upon request from the borrower. Any extension request must be made before the earlier of the declared termination of the COVID-19 national emergency and December 31, 2020, and not less than 15 days prior to the end of the borrower’s current forbearance period. The borrower can discontinue the forbearance at any time.
What restrictions are placed on those who claim forbearance?
For the duration of any forbearance, the borrower cannot (i) evict or initiate the eviction of a tenant at the property subject of the forbearance solely for nonpayment; (ii) charge the tenant any late fees or penalties on account of late payment; or (iii) give a notice to vacate to any tenant at the property. Following the forbearance period, the borrower cannot require the tenant to vacate the applicable property before a date that is 30 days after delivery of a notice to vacate.
Do any restrictions apply to those Federally backed multifamily borrowers who elect not to claim forbearance?
Yes, any dwelling that is located on property that is subject of a federally backed multifamily mortgage loan―including any loan that is purchased or secured by Fannie Mae or Freddie Mac, or any property that participates in the rural housing voucher program or the Violence Against Women Act of 1994 housing program―is subject to a 120-day moratorium on initiation of legal action to recover possession for nonpayment of rent and/or charges or penalties related to nonpayment of rent beginning upon the enactment of the CARES Act regardless of whether forbearance has been claimed for the property. Further, the landlord cannot give a notice to vacate during the 120-day period and may not require any tenant to vacate before the date that is 30 days after the date on which the landlord provides a notice to vacate.
Three Key Takeaways
1. Multifamily building owners who had federally backed mortgages in good standing prior to the COVID-19 outbreak must contact their servicers to seek loan forbearance. Loan forbearance is not automatically granted merely because loans are federally backed.
2. During any period that forbearance is in effect for a federally backed multifamily mortgage, such owners shall not be able to evict the tenants or initiate eviction actions, and no tenant may be evicted until 30 days after a notice to vacate is delivered.
3. The CARES Act eviction moratorium is in effect for a period of 120 days (commencing March 27, 2020) whether or not multifamily building owners avail themselves of loan forbearance for any federally backed mortgages.
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