Alston & Bird Consumer Finance Blog

Mortgage Servicing

Delaware Governor Issues Order Restricting Residential Foreclosures and Evictions

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A&B Abstract:

On March 24, 2020, Delaware Governor, John Carney, issued a Sixth Modification (the “Order”) to the Declaration of a State of Emergency (the “State of Emergency”) initially issued on March 12, 2020. The Order addresses a number of issues that impact residential mortgage loan servicers, including restrictions on residential foreclosures and evictions and certain fees or charges.

Restrictions on Late Fees and Excess Interest for Missed Payments

The Order provides that with respect to any missed payment on a residential mortgage occurring during the State of Emergency, no late fee or excess interest may be charged or accrue on the account for such residential mortgage during the State of Emergency.  One could interpret this language to mean that while no late fees or additional interest may be charged or accrued with respect to a missed payment, regularly scheduled interest due on the missed payment may be charged.  While not free from doubt, arguably this provision applies only to owner-occupied 1- to 4-family primary residential property, as this provision immediately follows the below restriction on the commencement of a foreclosure action, which is so limited.

 Foreclosure Restrictions

The Order imposes restrictions on a mortgage servicer’s ability to initiate or complete a foreclosure action or sale and to charge certain fees or interest.  Specifically, until the State of Emergency is terminated and the public health emergency is rescinded, the provisions of the Delaware Code relating to residential mortgage foreclosures, including Subchapter XI, Chapter 49 of Title 10, are modified in the following respects:

  • A servicer may not commence a residential mortgage foreclosure action with respect to any owner-occupied 1- to 4-family primary residential property that is subject to a mortgage; the Order excludes from this restriction any mortgage that is held by the seller of the subject property who does not hold more than five such mortgages;
  • For any residential mortgage foreclosure action initiated prior to the declaration of the State of Emergency, all deadlines in that action, including those related to the Automatic Residential Mortgage Foreclosure Mediation Program established pursuant to § 5062C of Title 10 of the Delaware Code, are extended until 31 days following the termination of the State of Emergency and the rescission of the public health emergency and no late fees or interest may be charged to or accrued on the balance due on the mortgage that is the subject of the residential mortgage foreclosure action during this time period;
  • No residential property that is the subject of a residential mortgage foreclosure action, for which a judgment of foreclosure was issued prior to the declaration of the State of Emergency, may proceed to sheriff’s sale until 31 days following the termination of the State of Emergency and the rescission of the public health emergency; and
  • No residential property that was the subject of a residential mortgage foreclosure action, and which was sold at sheriff’s sale, may be subject to action of ejectment or writ of possession until 31 days following the termination of the State of Emergency and the rescission of the public health emergency.

Except as otherwise provided above, nothing in the Order is intended to relieve any individual of the obligation to make mortgage payments or to comply with any other obligation that an individual may have under a residential mortgage.  Note that Delaware is a judicial foreclosure state requiring a notice of intent to foreclose be sent to the borrower 45 days prior to the commencing foreclosure.  One could read the Order as prohibiting a servicer from sending such notices during the State of Emergency.

Restrictions on Evictions

Similarly, with respect to evictions, the Order provides that, until the State of Emergency is terminated and the public health emergency is rescinded, the provisions of Chapter 57, Title 25 of the Delaware Code (governing summary possession of residential rental units) are modified in the following respects:

  • No action for summary possession may be brought with respect to any residential rental unit located within Delaware;
  • With respect to any past due balance for a residential rental unit, no late fee or interest may be charged or accrue on the account for the residential rental unit during the State of Emergency;
  • For any action for summary possession for a residential rental unit located within Delaware, commenced prior to the declaration of the State of Emergency, all deadlines in that action are extended until at least 31 days after the termination of the State of Emergency and the rescission of the public health emergency;
  • No late fee or interest may be charged or accrue on the balance due on the account for the residential rental unit that is the subject of the action for summary possession during this time period; and
  • For any residential rental unit that was the subject of an action for summary possession, for which a final judgment was issued prior to the declaration of the State of Emergency, no writ of possession may be executed until the seventh day following the termination of the State of Emergency and the rescission of the public health emergency.

The foregoing restrictions do not apply to actions for summary possession based upon a claim that continued tenancy will cause or is threatened to cause irreparable harm to person or property.  Moreover, except as modified above, all other provisions of the Landlord Tenant Code (Chapters 51-59 of Title 25 of the Delaware Code) remain in effect in accordance with their terms and nothing in the Order is to be construed as relieving any individual of the obligation to pay rent or to comply with any other obligation that an individual may have under their tenancy.

Takeaway

As discussed above, the Order imposes a number of restrictions that impact a residential mortgage loan servicer’s ability to initiate or complete foreclosure actions and eviction proceedings as well as limitation on certain fees and charges.  Accordingly, mortgage servicers should carefully review the Order to determine their obligations with respect to impacted borrowers.

FHFA Clarifies Repayment Requirements for GSE Forbearance Plans

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A&B ABstract:

On April 27, the FHFA provided clarification on the repayment of mortgage loan forbearance granted in response to the COVID-19 pandemic.

FHFA Announcement

On April 27, Federal Housing Finance Agency (“FHFA”) Director Mark Calabria clarified that borrowers who have a GSE-backed mortgage will not be required to make a lump sum repayment at the end of a forbearance plan granted in response to the COVID-19 pandemic.

CARES Act

The CARES Act grants forbearance rights to borrowers with a federally backed mortgage loan.  Specifically, during the covered period, a borrower with a federally backed mortgage loan who is experiencing a financial hardship that is due, directly or indirectly, to the COVID-19 emergency may request a forbearance for up to 180 days, with the possibility of up to an additional a 180-day extension.

The CARES Act is silent on when a borrower is required to repay the forborne payments.   Technically, at the point the borrower is delinquent and according to the terms of the security instrument, those payments can be called due. However, in light of the current crisis, lawmakers have expressed concern that borrowers who have lost or reduced income will be able to repay the forborne payments in a lump sum following the forbearance period.

FHFA Clarification

According to the FHFA, the mortgage servicer will contact each impacted borrower 30 days prior to the end of the forbearance plan period to discuss repayment options.  Potential repayment options include: (1) establishment of a repayment plan; (2) modification of the loan to add the payments to the end of the mortgage; or (3) modification of the loan to reduce the borrower’s monthly mortgage payment.  If a hardship persists as of that time, the servicer may extend the forbearance plan.

Takeaway

Last week, attorneys general in 33 states, the District of Columbia, and Puerto Rico urged Director Calabria “to revise the forbearance programs so that the obligation to repay forborne payments is automatically placed at the end of the loan.”  Today’s announcement may be in response to that request.

Massachusetts Enacts Emergency COVID-19 Measure Addressing Residential Mortgage Foreclosure Moratoria, Forbearance, Evictions, Reverse Mortgage Counseling

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A&B Abstract:

On April 20, 2020, Massachusetts Governor, Charlie Baker, signed into law HB 4647 (2020 Mass. Acts 65), an emergency measure, effective immediately, providing for mortgage forbearances and a moratorium on evictions and foreclosures during the COVID-19 emergency. This measure also waives the in-person counseling requirement for reverse mortgage loans.  This law follows guidance issued by the Division of Banks on March 25, 2020, setting forth the Division’s expectations of mortgage servicers to provide relief to borrowers adversely impacted by the COVID-19 pandemic.

Forbearance

The emergency measure requires a creditor or mortgagee to grant a forbearance on a mortgage loan for residential property if the borrower submits a request to the servicer affirming that the borrower has experienced a COVID-19 hardship, subject to the following terms:

  • the forbearance shall not be for more than 180 days;
  • no fees, penalties or interest beyond the amounts scheduled and calculated as if the borrower made all contractual payments on time and in full under the mortgage contract shall accrue during the forbearance;
  • a payment subject to the forbearance shall be added to the end of the term of the loan, unless otherwise agreed to by the borrower and mortgagee;
  • a borrower and mortgagee are not prohibited from entering into an alternative payment agreement for the mortgage payments subject to forbearance;
  • the mortgagee must not furnish negative mortgage payment information to a consumer reporting agency related to forborne mortgage payments; and
  • a creditor or mortgagee is not required to grant this forbearance if the borrower’s request is made after the expiration of this provision of the emergency measure (the sooner of 120 days from its effective date or 45 days the Governor’s COVID-19 emergency declaration has been lifted).

For purposes of this section, “residential property” includes real property located in the commonwealth, on which there is a dwelling house with accommodations for 4 or fewer separate households that is the borrower’s principal residence; excluding investment property, property taken, in whole or in part, as collateral for a commercial loan, and property subject to condemnation or receivership.

This forbearance provision is similar to a federal Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) forbearance, with some notably differences.  First, this provision is not limited to federally backed mortgage loans.  Second, the forborne payments are to be tacked on to the end of the mortgage term unless otherwise agreed to by the parties.  Last, the terms differ in two respects.  First, unlike the CARES Act, Massachusetts does not require an additional 180 extension of the forbearance.  Second, the requirement for a servicer to offer a forbearance will remain in effect until the Governor’s COVID-19 emergency declaration is lifted, which at this point is unknown.

Foreclosure

For purposes of foreclosure of “residential property,” as that term is defined above, the emergency measure  imposes a foreclosure moratorium, meaning a mortgagee (or a person acting in the name of a mortgagee) is prohibited from:

  • causing a notice of foreclosure sale to be published;
  • exercising a power of sale;
  • initiating a judicial or nonjudicial foreclosure process; or
  • filing a complaint to determine the military status of the borrower under the federal Servicemembers Civil Relief Act.

Vacant or abandoned properties are expressly excluded from this foreclosure moratorium.  The foreclosure moratorium became effective immediately and expires after the sooner of 120 days or 45 days after the COVID-19 emergency declaration has been lifted.  This moratorium appears broader than the moratorium imposed under the CARES Act in that it likely will extend beyond the CARES Act’s moratorium of May 18, 2020 and that it is not limited to “federally backed” loans. Note, most residential mortgage foreclosures are nonjudicial in Massachusetts and begin by sending a delinquent borrower a notice of default and right to cure as required by Mass. General Laws chapter 244, Section 35A.  It is likely that such notice could be viewed as initiating a foreclosure, and thus not allowed during this foreclosure moratorium.

Evictions

 With respect to evictions, the emergency measure provides as follows:

  • notwithstanding any law, rule, regulation or order to the contrary, a landlord or owner of a property shall not, for purposes of a “non-essential eviction” for a residential dwelling unit, terminate a tenancy or send any notice requesting or demanding that a tenant vacate the premises;
  • a landlord shall not impose a late fee for non-payment of rent for a residential dwelling unit;
  • a landlord shall not furnish rental payment data to a consumer reporting agency related to the non-payment of rent if, not later than 30 days after the missed rent payment, the tenant provides notice and documentation to the landlord that the non-payment of rent was due to a COVID-19 financial impact;
  • subject to certain conditions, a lessor who received rent in advance for the last month of tenancy pursuant to Mass. Gen. Law chapter 186, § 15B, may access and utilize the funds received in advance for certain enumerated uses; and
  • nothing in the emergency measure shall be construed to relieve a tenant from the obligation to pay rent or restrict a landlord’s ability to recover rent.

Related to residential dwelling units, a “non-essential eviction” is an eviction: (i) for non-payment of rent, (ii) resulting from a foreclosure, (iii) for no fault or cause, or (iv) for cause that does not involve allegations of: (a) criminal activity that may impact the health and safety of other residents, health care workers, emergency personnel, persons lawfully on the property or general public, or (b) lease violations that may impact the health and safety of other residents, health care workers, emergency personal, persons lawfully on the subject property or the general public. The Massachusetts executive office of housing and economic development has authority to issue emergency regulations to implement this section and develop forms for notice and documentation to a landlord that the non-payment of rent was due to COVID.  Also note that the measure contains similar restrictions for landlords of small business premises and limits the ability of a court, sheriff or others to process or enforce non-essential evictions.

Temporary waiver of In-Person Counseling for Reverse Mortgage

Massachusetts is temporarily waiving the in-person counseling requirement set forth in Mass. Gen. Law chapter 167E, § 7A and chapter 171, § 65C1/2 for reverse mortgage loans during the state-declared COVID-19 emergency and until such emergency has been lifted.  In lieu of in-person counseling, the requirement is satisfied by a written certification from a counselor with a third-party organization indicating that a borrower has received counseling via a synchronous, real-time videoconferencing or telephone counseling, provided that the counselor is approved by the executive office of elder affairs for purposes of such counseling.  The measure does not specifically address the reverse mortgage counseling regulation set forth in 209 CMR 55.04. However, given that the regulation is provided under the statutory authority cited above, there is reason to believe that it should also be covered by this temporary waiver.

Takeaway

In addition to ensuring compliance with the federal CARES Act, mortgage servicers need to monitor newly enacted state measures responding to the COVID-19 pandemic and develop policies and procedures to ensure compliance.

Regulatory Agencies Issue Mortgage Servicing Guidance and FAQs for the CARES Act

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Our Financial Services & Products Group answers some questions mortgage servicers might have about how federal and state agencies will be flexible with enforcement under the CARES Act.

  • What is the “covered period” for purposes of Section 4022?
  • Can a servicer require a borrower to provide a written attestation?
  • Should servicers report the status of loans on forbearance?
  • What is being done to address mortgage servicer liquidity concerns?

Alston & Bird has formed a multidisciplinary task force to advise clients on the business and legal implications of the coronavirus (COVID-19).

Key Provisions of the CARES Act Affecting Mortgage Servicers

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A&B ABstract:

In response to COVID-19, on Friday March 28, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”).  This is a monumental $2 trillion stimulus package intended to provide financial relief to businesses, individuals and public institutions affected by the coronavirus.  The CARES Act addresses sweeping economic stabilization, small business lending and other direct financial support, tax provisions, healthcare, or other provisions. Below, we summarize the key provisions of the CARES Act affecting residential mortgage servicers.

Section 4021: Credit Protection During COVID-19

Section 4021 of the CARES Act amends the Fair Credit Reporting Act (15 U.S.C. 1681s-2(a)(1)) by adding a new section providing special instruction for reporting consumer credit information to credit reporting agencies during the COVID-19 pandemic.

Specifically, this section provides that if a creditor or other furnisher offers an “accommodation” to a consumer affected by the COVID-19 pandemic in connection with a credit obligation or account, and the consumer satisfies the conditions of such accommodation, the furnisher must report the credit obligation or account as “current.” An “accommodation” as defined in this section includes relief granted to impacted consumers such as an agreement to defer a payment, make a partial payment, grant forbearance, or modify a loan or contract.

In the event that the credit obligation or account was delinquent before the accommodation, the furnisher is required to maintain the delinquent status during the effective period of the accommodation, or, if the consumer brings the account current during such period, then to report the account as current. The reporting requirements set forth in Section 4021 do not apply to charged-off accounts.

This section applies from January 31, 2020 through the later of 120 days after: (i) enactment of this section, or (ii) termination of the national emergency declaration.[1]

A&B Takeaway: It is important to recognize that this provision applies to borrower’s payment history starting on January 31, 2020.  It also is important to recognize that state laws may also address the furnishing of credit information.  To the extent the state law is inconsistent, it is generally preempted pursuant to section 1681t(b)(1)(C) of FCRA, with specific carve outs for California and Massachusetts law that may require specific attention.

Section 4022:  Foreclosure Moratorium and Consumer Right to Request Forbearance

Section 4022 of the CARES Act grants forbearance rights and protection against foreclosure[2] to borrowers with a “federally backed mortgage loan”[3] including certain first or subordinate lien loans designed principally for the occupancy of from 1- to 4- families.  Loans secured by greater than 4 families are addressed separately in Section 4023 of the CARES Act.

During the covered period, a borrower with a federally backed mortgage loan who is experiencing a financial hardship that is due, directly or indirectly, to the COVID-19 emergency, may request forbearance on their loan, regardless of delinquency status, by submitting a request to their servicer and affirming that they are experiencing a financial hardship during the COVID-19 emergency.

Upon receiving a request for forbearance, a servicer must provide forbearance for up to 180 days, with no additional documentation required, other than the borrower’s attestation to a financial hardship caused by the COVID-19 emergency, and with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract) charged to the borrower in connection therewith.  The forbearance period may be extended for up to an additional 180 days, at the request of the borrower, provided that the borrower’s request is made during the covered period.  The initial or extended period may also be shortened at the borrower’s request.

Additionally, except with respect to vacant or abandoned properties, a servicer of a federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days from March 18, 2020.

A&B Takeaway: While the law provides much needed relief for borrowers impacted by the COVID-19 pandemic, it leaves a number of questions unanswered.  First, the law does not appear to cover mortgage loans that are not federally insured or guaranteed or otherwise purchased or securitized by Fannie Mae or Freddie Mac.  Thus, it is unclear whether a servicer of a non-federally backed mortgage loan would need to comply.  Second, the law is silent as to whether borrower requests must be in writing, suggesting that oral requests for forbearance must be considered.[4] Third, while Section 4022 does not expressly define the “covered period,” Subsection (b)(1)(B) does provide that the borrower must attest to a financial hardship during the “COVID-19 emergency,” suggesting that borrower requests received outside of the “COVID-19 emergency” would not require the granting of forbearance.  Subsection (a)(1) defines “COVID-19 emergency” as the national emergency declared by President Trump on March 13, 2020 by Executive Order pursuant to the National Emergencies Act (“NEA”). Under the NEA, unless the President requests an extension, an emergency declaration terminates if: (1) the President issues a proclamation rescinding it, (2) Congress, having met no later than six months after date of issuance to consider a joint resolution of termination, passes such joint resolution, or (3) automatically one year following date of issuance.[5] Note that the national emergency declared by President Trump was made retroactive to March 1, 2020.  Accordingly, there appears to be an implied covered period associated with this section, namely, March 1, 2020 until the earlier of February 28, 2021 or action by either the President or Congress to terminate the emergency declaration, unless the President requests an extension in accordance with the NEA.  Fourth, while Section 4022 provides that a servicer must grant forbearance for “up to 180 days,” it does not specify how a servicer is to determine the length of the forbearance period.  Thus, it is unclear whether a servicer must simply rely on a borrower’s attestation to determine the length of the initial forbearance (and any extensions thereto) or whether the servicer has some discretion to provide an initial (or extended) forbearance period of less than 180 days.  Finally, we note that the FHA, VA, USDA, Fannie Mae and Freddie Mac (collectively, the “Federal Agencies/GSEs”) all issued earlier guidance imposing a 60-day foreclosure moratoria in addition to guidance encouraging mortgage servicers to consider forbearance and other relief for borrowers affected by COVID-19.  While the CARES Act appears to provide similar foreclosure protections to those mandated by the Federal Agencies/GSEs, mortgage servicers should carefully review and compare the existing guidance to the protections under the CARES Act to determine their obligations with respect to impacted borrowers.

Section 4024: Temporary Moratorium on Eviction Filings

Section 4024 provides for a temporary moratorium on eviction filings for tenants of certain single- and multi-family properties.  Specifically, during the 120-day period following the enactment of the CARES Act (the “Moratorium Period”), the lessor of a “covered dwelling”[6] may not: (1) make, or cause to be made, any filing with the court of jurisdiction to initiate a legal action to recover possession of the covered dwelling from the tenant for nonpayment of rent or other fees or charges; or (2) charge fees, penalties, or other charges to the tenant related to such nonpayment of rent.

The lessor of a covered dwelling unit (1) may not require the tenant to vacate the covered dwelling unit until 30 days have passed from the date on which the lessor provides the tenant with a notice to vacate; and (2) may not issue a notice to vacate until after the expiration of the Moratorium Period.

A&B Takeaway:

Numerous states and localities also have issued temporary moratoriums on eviction files that provide greater protections to tenants.

[1] We note that this raises some unique questions regarding preemption of certain state consumer laws regarding consumer credit reporting.

[2] Note that, while outside the scope of this summary, Section 4023 of the CARES Act addresses foreclosure moratoria for certain multifamily loans.

[3] “Federally backed mortgage loan” means any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1- to 4- families that is (A) insured by the Federal Housing Administration under title II of the National Housing Act (12 U.S.C. 1707 et seq.); (B) insured under section 255 of the National Housing Act (12 U.S.C. 1715z-20); (C) guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992 (12 U.S.C. 1715z-13, 1715z-13b); (D) guaranteed or insured by the Department of Veterans Affairs; (E) guaranteed or insured by the Department of Agriculture; (F) made by the Department of Agriculture; or (G) purchased or securitized by the Federal Home Loan Mortgage Corporation (i.e., Freddie Mac) or the Federal National Mortgage Association (i.e., Fannie Mae).

[4] Note that Section 4023 of the CARES Act provides that “a multifamily borrower…may submit an oral or written request for forbearance,” further suggesting that oral requests must be considered under Section 4022.

[5] See 50 U.S.C. §§ 1622(a)-(b), (d).

[6] The term “covered dwelling” means a dwelling that (A) is occupied by a tenant (i) pursuant to a residential lease; or (ii) without a lease or with a lease terminable under State law; and (B) is on or in a covered property.  The term “dwelling” (A) has the meaning given the term in 42 U.S.C. 3602; and (B) includes houses and dwellings described in 42 U.S.C. 3603(b).  The term “covered property” means any property that (A) participates in (i) a covered housing program (as defined in 34 U.S.C. 12491(a)); or (ii) the rural housing voucher program under 42 U.S.C. 1490r; or (B) has a (i) Federally backed mortgage loan; or (ii) Federally backed multifamily mortgage loan.