By Scott Gosnell
Multifamily property owners with federally backed mortgages now have an avenue of relief under the recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The law provides up to 90 days of forbearance on mortgage payments for borrowers who meet certain conditions. Property owners availing themselves of this relief are subject to heightened restrictions on evictions and assessments of fees, penalties, and other charges on their tenants.
This relief is available to borrowers of federally backed multifamily mortgage loans, which is defined in the Act to be loans, other than construction loans and other temporary financing, that are (i) secured by properties designed for the occupancy of five or more families, and (ii) made or assisted in any way by an agency of the federal government (including Fannie Mae or Freddie Mac). In order to qualify, such borrowers must be current on their mortgage payments as of February 1, 2020, and be experiencing financial hardship on account of the COVID-19 emergency. The Act does not define “financial hardship.”
Qualifying borrowers may pursue this relief by requesting forbearance from their loan servicers which, per the Act, are required to document the financial hardship and grant forbearance for an initial period of up to 30 days, followed by up to two additional periods of 30 days each, provided the borrower timely requests such extensions. Borrowers must request such forbearance before the sooner of (i) termination of the presidential declaration of national emergency concerning COVID-19, or (ii) December 31, 2020. A borrower may elect to discontinue the forbearance at any time.
The Act places a broad 120-day moratorium on removing tenants. During this period, owners of multifamily properties subject to federally backed mortgages may not require tenants to vacate dwelling units on less than 30 days’ notice, and such notice may not be issued until the moratorium has expired. Similarly, during the moratorium period, owners of such multifamily properties may not initiate eviction actions against tenants for nonpayment of rent, nor may they charge fees related to a tenant’s nonpayment of rent.
Multifamily property owners receiving a forbearance on their federally backed loans are subject to further restrictions. During the period of forbearance, they may not (i) evict or initiate the eviction of tenants “solely for the nonpayment of rent or other fees or charges”, or (ii) charge a tenant late fees, penalties, or other charges in connection with the tenant’s late payment of rent. Furthermore, such owners may not require a tenant to vacate a dwelling unit on less than 30 days’ notice, and such notice may not be issued until after the expiration of the forbearance.
Scott H. Gosnell is an associate in the real estate section of the Houston office. Prior to law school, Scott was a speechwriter for U.S. Senator John Cornyn (Texas). While in law school, he worked as a judicial extern for Chief Justice Loretta Rush of the Indiana Supreme Court. Additionally, Scott worked as a summer law clerk on the Judiciary Committee of the United States Senate.