By Zachary D. Olson, Jordan S. Rife and Olivia E. Cares
Under the CARES Act, borrowers with an HUD, Fannie Mae or Freddie Mac mortgage loan on a property with five or more residential units may be eligible for mortgage payment forbearance for a period of up to 90 days if they are experiencing financial hardship caused by the COVID-19 emergency.
Qualifications for Forbearance
A loan servicer must grant a 30-day forbearance if:
- the borrower has a “federally-backed multifamily mortgage loan.” A “federally-backed multifamily mortgage loan” includes any loan (except a temporary financing loan, such as a construction loan) made or supplemented by the federal government in connection with a program administered by the Secretary of Housing and Urban Development, or under a HUD-related program administered by another agency. The term also includes any loan purchased or securitized by Fannie Mae or Freddie Mac. A qualifying loan must be secured by a first or subordinate lien on a residential property designed to house five or more families;
- the borrower was current on its payments as of February 1, 2020; and
- the borrower is experiencing “financial hardship” caused directly or indirectly by the COVID-19 emergency. “Financial hardship” is not defined in the CARES Act and it is unclear how the agencies and/or the loan servicers will interpret the term.
Conditions to Forbearance Eligibility
A borrower granted forbearance under the CARES Act must comply with certain tenant protection provisions, including the following:
- The borrower may not initiate eviction against a tenant based solely on the nonpayment of rent or charges during the forbearance period;
- During the period of forbearance, the borrower may not charge late fees or charges to tenants for nonpayment of rent;
- The borrower may not issue a new notice to vacate the property for the term of the forbearance; and
- The borrower cannot require a tenant to vacate pursuant to a notice unless the notice was issued at least 30 days earlier (and prior to the forbearance period).
Separately, the CARES Act includes a 120-day moratorium from the date of enactment of the Cares Act (i.e., through July 25, 2020) on all tenant evictions from federally-backed multifamily properties, regardless of whether the borrower is in active forbearance under its federally-backed multifamily mortgage loan.
Unlike prior guidance issued by Fannie Mae and Freddie Mac, these tenant protection provisions, including the 120-day eviction moratorium, apply to all tenants and are not limited to those tenants affected by the COVID-19 emergency.
How to Request Forbearance
Qualifying borrowers may request forbearance either in writing or orally from their loan servicer. The loan servicer must document the financial hardship giving rise to the request.
A loan servicer is required to grant the initial forbearance and up to two additional 30-day forbearance extensions, provided the borrower requests such extension at least 15 days before the expiration of the current forbearance term. A borrower may voluntarily discontinue forbearance at any time.
The right to request or extend forbearance expires upon the earlier of December 31, 2020, and the end of the national emergency declared by the President on March 13. Forbearances in place at the end of the covered period, such as those underway when the national emergency declaration is lifted, will remain effective through the full forbearance term.
If you are a borrower under a federally-backed multifamily mortgage and are considering requesting a forbearance under the CARES Act, please contact Zach Olson, Jordan Rife or Olivia Cares at Fredrikson & Byron.