4-8-20 COVID-19 Mortgage Servicing Update
Posted on April 08, 2020
Through a series of Executive Orders from the Governor and Administrative Orders of the Court, a number of sweeping changes have been enacted which impact financial institutions and how they service their loan portfolios during the COVID-19 crisis.
The Governor has ordered that through April 20, 2020, “it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank which is subject to the jurisdiction of the Department [of Financial Services] shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days.”
In addition, the Governor has directed the Superintendent of the Department of Financial Services to ensure that “under reasonable and prudent circumstances” any licensed or regulated entities shall provide an opportunity for a forbearance of mortgage payments, for any person or entity facing a financial hardship due to the COVID-19 pandemic. The Governor also ordered the Superintendent to promulgate emergency regulations requiring that forbearance applications be made widely available for consumers, and that they be granted in all reasonable and prudent circumstances solely for the period of such emergency.
At the present time, the Governor and the Chief Administrative Judge of New York have essentially ordered a halt on all foreclosure litigation. As of March 22, 2020, the courts of New York are no longer accepting any pleadings for filing (except in a narrow set of cases). Previously the courts had halted foreclosures, directing that all foreclosure proceedings, sales and evictions were stayed and that no default judgments would be granted. The court further ordered a reduction in its staff to essential personnel only and adjourned all non-essential Supreme Court matters to after April 30, 2020. As of April 13, 2020 the Chief Administrative Judge of New York has directed that the courts begin scheduling some (remote) conferences on cases at the request of the attorneys and deciding motions that were previously fully submitted for adjudication. However, all pending foreclosure cases and any new filings remain at a standstill during the COVID-19 crisis.
At the federal level, the CARES Act, which was signed into law on March 29, 2020, also contains a number of provisions relating to mortgage loans, foreclosures and evictions.
- The CARES Act provides for possible forbearance with respect to multi-family, federally backed, mortgage loans. Such loans are residential mortgage loans, secured by a mortgage on property with five or more units, and made, insured, guaranteed, supplemented or assisted in any way by any agency of the Federal Government, or purchased or securitized by FHLMC or FNMA. There are a number of conditions, but for qualified loans the law allows for an initial forbearance of 30 days and two thirty day extensions (if timely requested). The Act requires the landlord to submit an affirmation of hardship based on COVID-19 emergency, but does not define “financial hardship.”
- In exchange for the forbearance, the CARES Act imposes a moratorium of 120 days on eviction filings solely for non-payment of rent other fees or charges by landlords who are borrowers on multi-family, federally backed, mortgage loans, and prohibits charges for late fees or penalties. The Act requires a 30 day notice to vacate and prohibits the issuance of such a notice until after the expiration of the forbearance period.
- Finally, under the CARES Act homeowners with federally backed mortgage loans affected by COVID-19 can request and obtain forbearance from mortgage payments for up to 180 days, and then request and obtain additional forbearance for up to another 180 days.
As a consequence of the above and the economic impact of the stay at home orders, many of our clients are seeing a dramatic increase in requests for loan modifications from their customers. Financial institutions must be prepared to handle these requests in a manner consistent with the requirements of the Dodd-Frank Act, so as to avoid any unfair, deceptive, abusive, acts or practices (UDAAPs).
Woods Oviatt Gilman LLP is working closely with its clients to assist them in meeting the challenges of these new Executive Orders, including drafting forbearance agreements for mortgage loans and advising on other default servicing matters. Woods Oviatt Gilman LLP is also working with its clients on pending foreclosure cases, including drafting repayment stipulations, pursuing deeds in lieu of foreclosure and exploring cash for keys or other peaceful surrender options.
Please contact your Woods Oviatt attorney or the the attorneys listed below for assistance with the new forbearance requirements, to discuss the effect of the court ordered stay or adjournment on any pending litigation and any other questions you may have regarding the protection of your legal rights during the COVID-19 crisis.