CARES Act Makes Available Mortgage Forbearance for Many Multifamily Properties
[Edited at 1:50 p.m. on April 2, 2020]
Affordable rental housing properties across the nation will soon face difficulties covering their expenses as tenants in many thousands of apartments stop paying rent. The historic levels of unemployment mean households have less or no income, and the new federal moratorium on evictions (or similar state/local limits) could result in paying rent being less of an immediate priority for residents than other needs.
In response to this reality, the CARES Act allows many owners of affordable housing properties to forbear the obligation to make monthly payments on existing mortgages. The new law raises questions: which properties are eligible and the effect of forbearance on those properties.
The forbearance provision applies to owners of properties with a federally backed multifamily mortgage loan (as defined below) meeting the following conditions:
- The mortgage is a permanent loan, not including construction or other temporary financing;
- The borrower was current on payments as of Feb. 1, 2020; and
- The borrower is experiencing a financial hardship due to the COVID-19 emergency.
Covered loans include those:
“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.” [emphasis added]
Owners also must comply with the limitations on evictions and late fees described below.
Borrowers meeting these criteria may submit an oral or written request for forbearance to the loan servicer. Upon doing so, the forbearance takes effect. There is no need for an approval.
Upon receiving a request, servicers will provide forbearance for 30 days. Borrowers may further extend up to two additional 30 day periods upon request, and has the option to discontinue the forbearance at any time. A crucial concept to understand is the payments are not forgiven, they remain due.
The vast majority of eligible borrowers are partnerships or limited liability companies. These entities should be aware of the possible need to secure prior approval from limited partners / investor members (respectively).
The ability to submit a request ends on the sooner of the national emergency formally ending or Dec. 31, 2020.
Limitation on Evictions and Late Fees
For the duration of the forbearance, the owner may not
(1) evict or initiate an eviction solely for nonpayment or
(2) charge any late fees or penalties for late payment.
Borrowers also may not require a tenant to vacate sooner than 30 days after providing notice or issue a notice to vacate until after the forbearance expires.
Note many of these properties are also covered by the generally applicable new moratorium on eviction filings, and late fees. Although the CARESAct uses slightly different text between the two provisions, a notable substantive difference is the length of time the limitations apply:
- the overall eviction moratorium affects all covered properties for 120 days from enactment (through July 24, 2020),
- whereas for those requesting loan forbearance, the eviction moratorium will be for the length of the forbearance plus 30 days.
In other words, after three months, the longer a borrower continues to request forbearance, the longer the tenant protections will be in effect.
While forbearance will alleviate the short-term financial strain on properties, it does not help with short-term needs for necessary operating expenses. The forbearance does not alleviate the longer term financial strain, as the payments subject to the forbearance will need to be repaid after the forbearance period ends. As with many new realities resulting from the CARES Act, legal advice from a knowledgeable attorney will be crucial.