CARES Act, foreclosures and evictions – what you need to know

Update, Aug. 17, 2020: The federal moratorium on foreclosures and evictions established under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) have ended. President Trump issued an Executive Order dealing with both issues on Aug. 8, 2020. However, the legal effect of the Order is uncertain and subject to bureaucratic interpretation and judicial challenge. At the time of this writing, it does not appear that the Order will reinstate either moratorium in whole or part. The right of eligible property owners to request payment forbearance remains in effect.

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In response to COVID-19, Congress passed and President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (commonly known as the CARES Act).  Among other measures, the CARES Act provides relief from foreclosure and eviction for eligible homeowners and renters.

Eligibility: who is covered?

Homeowners are eligible for a moratorium (i.e. a pause) on mortgage payments and protection from foreclosure if they have a federally backed mortgage loan. These include loans backed by Fannie Mae, Freddie Mac, the Federal Housing Administration, the Veterans’ Administration or the U.S. Department of Agriculture. Most, but not all, first mortgage loans since 2010 are federally backed mortgage loans. Check with your loan provider to see if you are eligible.

Renters are eligible for protection from eviction if their landlord is also eligible for foreclosure protection. Residential real estate investors, like landlords, are eligible if they have a federally backed mortgage loan and if their building has four or fewer apartments.

Pause on foreclosures

Until at least May 17, 2020, lenders and servicers of federally backed mortgage loans held by eligible property owners or tenants cannot start a foreclosure lawsuit. If they have already started a suit, they cannot get a foreclosure judgment or start a foreclosure sale (this is referred to as a “sheriff’s sale” in Ohio). However, this doesn’t stop all legal proceedings. Again, if they have already filed a lawsuit, a servicer’s attorney can still do things like serving parties with complaints and other legal documents.

Monthly payment forbearance

During the COVID-19 emergency declared by the CARES Act, which could last up to a year unless shortened by the President or Congress, eligible property owners may request forbearance – or a pause on payments – for monthly payments of principal and interest. This request can be for up to 180 days, with the possibility of an additional 180-day extension.

To qualify for this, an applicant for forbearance only needs to call their loan servicer and tell them that they are experiencing financial hardship caused directly or indirectly by the COVID-19 crisis. Once the application is approved, all mortgage payments are suspended for the period of forbearance. Interest continues to accrue on the loan, but the loan servicer cannot charge penalties, additional fees or additional interest.

It’s important to understand that forbearance is not the same as forgiveness. The loan must still be repaid in full when the forbearance period is over.

Pause on evictions

Landlords of a one- to four-unit residential building who have federally backed mortgage loans are prohibited from filing eviction lawsuits until July 15, 2020. These landlords are also prohibited from issuing notices to tenants who are behind on rental payments to vacate the premises, and are also prohibited from charging fees, penalties or other charges to a tenant related to nonpayment of rent.

How an attorney can help

The CARES Act is new. Certain rights and responsibilities of borrowers, lenders and servicers are not well-defined. Before considering requesting mortgage payment forbearance, borrowers should take into account the possibility that they may be required to pay all back payments to their lender upon demand following the period of forbearance. An attorney who is familiar with this area of law can help borrowers navigate this process.