Multi-Family Property Owners and Rights Under Covid-19
Prepared by Jack Kubiszyn
April 5, 2020
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and President Trump signed it into law. The CARES Act was created in order to assist people and businesses during the pandemic caused by the Coronavirus (“COVID-19”). Part of the CARES Act protected residential tenants by placing a moratorium on certain evictions from properties subject to a federally back mortgage and also allowed homeowners to request forbearance against their loan payments secured by a federally backed mortgage.
But what about owners of multifamily properties? What can they do when their loan obligations remain in effect and their tenants are not paying rent as a result of COVID-19? The CARES Act provides multifamily property borrowers relief as well.
Federally Backed Multifamily Loan
Section 4023 under Title IV of the CARES Act provides multifamily borrowers with certain protections and rights for the forbearance of their loan payments provided their loan is secured by a federally backed multifamily loan (“FBML”). An FBML under Section 4023 is defined as a loan that:
- Is secured by a first or subordinate lien on residential multifamily real property designed principally for the occupancy of 5 or more families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and
- Is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by certain Federal Agencies, including those loans purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
So long as the loan to a multifamily property borrower is secured by an FBML, such borrower is current on its loan payments as of February 1, 2020, and such borrower affirms that COVID-19 is causing them a financial hardship, then they may submit an oral or written request for forbearance to their lender seeking a delay of their payment obligations under their loan.
So how long can the borrower delay Its loan payments?
Under the CARES Act, a borrower may delay such obligation for up to 90 days. Under the CARES Act, a lender, upon receipt of such a request for forbearance, is required to document the financial hardship and then grant the forbearance for 30 days. The CARES Act does not define “financial hardship” for the purposes of requesting this forbearance, nor does it set out specific documentation (such as income verification, rent roll on the property for a set time, etc.) that is required to be provided by the multifamily property borrower, so it is unclear whether the lender is able to exercise any real discretion on whether to grant the forbearance. The forbearance may be extended by the borrower for 2 additional 30 day periods upon the borrower requesting an extension during the covered period and, at least 15 days prior to the end of the forbearance period then in effect.
This right to a forbearance against a multifamily property borrower’s loan obligations does not come without some consideration and downside. If such borrower does elect to seek such forbearance, then the CARES Act provides that they shall be required to halt any existing, and not pursue any new, eviction proceedings against their tenants during the forbearance period. Specifically, such borrower may not:
- Evict or initiate the eviction of a tenant from a dwelling unit located in or on the applicable property solely for nonpayment of rent or other fees or charges;
- Charge any late fees, penalties, or other charges to a tenant for late payment of rent; or
- Issue a notice to vacate until after the expiration of the forbearance period and at such time, may not require a tenant to vacate a dwelling unit located in or on the applicable property before the date that is 30 days after the date on which the borrower provides the tenant with a notice to vacate.
Although evictions may NOT be initiated for nonpayment of rent under this section (and likewise under section 424 of the CARES ACT which places a moratorium on evictions for the nonpayment of rent), it does appear the CARES Act recognizes a multifamily property owner’s right to initiate evictions for other defaults under such lease, subject to the application of any state or local eviction moratoriums that may be in effect.
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