A&B ABstract: Maryland’s Governor has issued an Executive Order providing that until the COVID-19 state of emergency is terminated: (1) foreclosure sales will only be valid if the servicer had notified the borrower of their rights to request a forbearance, and (2) residential and commercial evictions are prohibited if the tenant can show they suffered a “Substantial Loss of Income.” Similar to Section 4022 of the CARES Act, this Executive Order grants borrowers a right to request a forbearance if they are experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency. Additionally, until January 4, 2021, the Maryland Commissioner of Financial Regulation must discontinue acceptance of Notices of Intent to Foreclose, which effectively prohibits new foreclosure initiations until that date. Moreover, effective January 4, 2021 and until the COVID-19 state of emergency is terminated, Notices of Foreclosure will only be accepted if the lender or servicer certifies that they notified the borrower of their right to request a forbearance.
On October 16, 2020, the Governor of Maryland issued an Executive Order (No. 20-10-16-01), which amends and restates a previous Executive Order providing certain relief to tenants and homeowners impacted by the COVID-19 pandemic. This Executive order imposes restrictions on servicers’ ability to conduct foreclosure proceedings, and prohibits evictions where the tenant can show a “substantial loss of income,” during the COVID-19 state of emergency.
Restrictions on Residential Foreclosures
The Executive Order provides that “until the state of emergency is terminated and the catastrophic health emergency is rescinded,” foreclosures sales of “Residential Property” (defined as “real property improved by four or fewer single family dwelling units that are designed principally and are intended for human habitation”) under Maryland’s Real Property law will not be considered a valid transfer of title in the property unless certain requirements are met, depending on the type of loan secured by the property:
- With respect to a property securing a Federal Mortgage Loan:
- at least 30 days prior to sending a notice of intent to foreclose to a borrower, the servicer must send a written notice to the borrower stating the borrower’s right to request a forbearance on the loan under Section 4022(b) of the CARES Act; and
- the servicer must comply with all of its obligations with respect to the loan owed to the borrower under the CARES Act or otherwise imposed by the federal government or a government sponsored enterprise.
- With respect to a property securing a Non-Federal Mortgage Loan:
- the servicer must have notified the borrower, in writing, that if the borrower is experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency, the borrower may request a forbearance on the loan, regardless of delinquency status, for a period up to 180 days, which may be extended for an additional period up to 180 days at the request of the borrower;
- if the borrower did request a forbearance on the loan, the servicer must have provided such forbearance without requiring the borrower to provide additional documentation other than the borrower’s attestation to a financial hardship caused by COVID-19, and without requiring any additional fees, penalties, or interest; and
- during the forbearance period, the servicer must not have accrued on the borrower’s account any 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 loan.
Notably, as discussed in the next section, these requirements appear applicable only to foreclosure proceedings already in progress prior to January 4, 2021 (because the Executive Order effectively prohibits the initiation of new foreclosure actions until that date), and to those initiated between January 4, 2021 and the termination of the COVID-19 state of emergency.
Directives to the Maryland Commissioner of Financial Regulation
The Executive Order also directs Maryland’s Commissioner of Financial Regulation to alter certain practices regarding its processing of residential foreclosures.
Specifically, as of the date of the Executive Order, and until January 4, 2021, the Commissioner is directed to suspend the operation of the Commissioner’s Notice of Intent to Foreclose Electronic System, and to discontinue acceptance of Notices of Intent to Foreclose. This effectively imposes a moratorium on the initiation of new foreclosure actions. Under Section 7-105.1(c) of the Real Property Article of the Maryland Code, as the first step in the foreclosure process, a Notice of Intent to Foreclose is required to be sent to the borrower at least 45 days before an action to foreclose a mortgage can be filed, and a copy of that notice must be submitted to the Commissioner within 5 business days thereafter via the Commissioner’s Notice of Intent to Foreclose Electronic System. (COMAR 09.03.12.02(E)). Citing the Executive Order, the Notice of Intent to Foreclose Electronic System website currently states that “no new [Notice of Intent] submissions will be accepted until January 4, 2021.” As such, this directive effectively prohibits the initiation of new foreclosure proceedings until December 28, 2020 (the earliest date a Notice of Intent can be mailed to the borrower and then submitted to the Commissioner within 5 business days).
Moreover, the Executive Order provides that effective January 4, 2021, and until the state of emergency is terminated and the catastrophic health emergency is rescinded, when a servicer submits to the Commissioner the Notice of Foreclosure required under Section 7-105.2(b) of the Real Property Article of the Maryland Code, the Commissioner must obtain a “certification” from the servicer or secured party that the servicer complied with the Executive Order’s requirement that the borrower be informed of their right to request a forbearance, as discussed above.
Prohibition on Residential and Commercial Evictions
The Executive Order provides that until the state of emergency is terminated and the catastrophic health emergency is rescinded, Maryland courts shall not effect any evictions by giving any judgment for possession or repossession on residential, commercial, or industrial real property, if the tenant can demonstrate to the court, through documentation or other objectively verifiable means, that the tenant suffered a “Substantial Loss of Income.”
The Executive Order defines “Substantial Loss of Income” as follows:
- with respect to an individual, a substantial loss of income resulting from COVID-19 or the related proclamation of a state of emergency and catastrophic health emergency, including, without limitation, due to job loss, reduction in compensated hours of work, closure of place of employment, or the need to miss work to care for a home-bound school-age child; and
- with respect to an entity, a substantial loss of income resulting from COVID-19 or the related proclamation of a state of emergency and catastrophic health emergency, including, without limitation, due to lost or reduced business, required closure, or temporary or permanent loss of employees.
This prohibition applies to evictions for failure to pay rent under Section 8-401 of the Real Property Article of the Maryland Code, as well as evictions based on a tenant’s breach of the lease under Section 8-402.1 of the Real Property Article of the Maryland Code.
Notably, the forbearances that servicers are required to offer with respect to non-federally backed loans under this Executive Order present forbearance terms and conditions that substantially parallel those offered for federally backed loans under the CARES Act. It is possible that other states will follow suit with Maryland and create similar state mandates effectively applying to non-federally backed mortgages the forbearance rights available for federally backed mortgages under the CARES Act, in addition to state-mandated foreclosure restrictions. We will continue to monitor for such state requirements.